Catastrophe - Dick Morris [16]
—Kicking off an event on jobs, energy reform, and climate change, January 26, 2009
“We’ve inherited a terrible mess.”54
—Arguing for his stimulus plan, February 4, 2009
“We’ve inherited an economic crisis as deep and dire as any since the Great Depression.”55
—February 10, 2009
“By any measure, my administration has inherited a fiscal disaster.”56
—At an event calling for government contracting reform, March 4, 2009
“There are a lot of individual families who are experiencing incredible pain and hardship right now.”57
—March 13, 2009
* * *
This was good politics but rotten economics. The more Obama described the economic situation as the “worst financial crisis since the Great Depression,” the more he fanned the very flames his stimulus package was supposedly meant to extinguish. He was yelling “FIRE!” in a crowded theater, stampeding an already damaged economy into a panic-driven recession.
Didn’t he know what he was doing? Of course he did. It’s the fundamental mission of the president to keep Americans looking forward, energized, optimistic. But Obama needed to pass his radical big spending package. Curing the recession was not his end; it was his means to the end. The end was bigger government.
But Obama’s insistence on the negative, and the harm it has done to the economy, is really a classic case of shooting oneself in the foot. His every pessimistic comment delays the time when the economy will rebound—and makes his eventual political defeat more likely.
INFLATION: THE REAL COST OF OBAMA’S POLICIES
The Obama spending package (aka the stimulus plan) won’t just increase the national debt and burden every subsequent generation with massive interest payments. In the next few years it is also likely to cause runaway inflation.
Indeed, inflation, not the recession, may be the true economic catastrophe of our times.
Most economists agree that Obama’s spending programs will cause huge inflation—particularly because they are to be funded by borrowing (or printing) money.
The economist Barry Elias, for example, believes that inflation may come in the next two to three years. Here’s why.
According to the Federal Reserve Board, from October 2008 through February 2009 the supply of money in circulation (plus that held in reserve by financial institutions) grew by 271 percent.58 That’s right—it almost tripled. Yet car sales didn’t triple. Home sales didn’t triple. Consumer spending didn’t triple. In fact, mostly they dropped.
So what happened to all that extra money? Where is it?
It’s parked on the sidelines of the economy, in the equivalent of economic parking garages, waiting to come out. Right now, the economic weather is still too bad to go out driving. With layoffs on the rise and sales on the decline, no one dares to spend what money they have. People are paying down their debts or putting their money into Treasury bills.
But when the sun comes out, so will the money—and all at once.
Anthony Karydakis, a contributor to CNN, explains the danger in a graphic way:
The Fed prints, say, $7 trillion worth of $100 bills (representing roughly 50 percent of the size of the economy’s current GDP) and all of those bills are neatly stacked up in a large room, the windows and doors of which are all locked—no bills are taken out of the room. As a result, all of that enormous amount of newly printed money stays inactive, not generating any additional economic activity (although that would have presumably been the Fed’s original intent for doing so). No increase in spending and demand for goods and services are generated, hence no inflation. This is very close to the reality confronting the Fed today.59
Right now, an awful lot of Americans are following the Posturepedic Savings Plan (PSP)—that is, stuffing cash under their mattresses. But when the economy improves, all that money is going to come out at once, as consumers head out to buy new goods and services. All those purchases they’d deferred—a new car to replace