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Peter Robinson’s Corner post on the money supply sets the tone for the day.
Peter Schiff, the man who saw the crash coming, says we are asking foreign creditors to pay for our “trillion dollar deficits for years to come.”
Barack Obama has spoken often of sacrifice. And as recently as a week ago, he said that to stave off the deepening recession Americans should be prepared to face “trillion dollar deficits for years to come.”
But apart from a stirring call for volunteerism in his inaugural address, the only specific sacrifices the president has outlined thus far include lower taxes, millions of federally funded jobs, expanded corporate bailouts, and direct stimulus checks to consumers. Could this be described as sacrificial?
What he might have said was that the nations funding the majority of America’s public debt — most notably the Chinese, Japanese and the Saudis — need to be prepared to sacrifice. They have to fund America’s annual trillion-dollar deficits for the foreseeable future. These creditor nations, who already own trillions of dollars of U.S. government debt, are the only entities capable of underwriting the spending that Mr. Obama envisions and that U.S. citizens demand.
These nations, in other words, must never use the money to buy other assets or fund domestic spending initiatives for their own people. …
In order to provide some background for Schiff, we have an article he wrote for Forbes 22 months ago.
… In reality, the problem goes way beyond housing. Nearly every big-ticket item that Americans consume is paid for with borrowed money, with foreign lenders supplying the credit. Without access to low-cost credit, the spending stops. When the spending stops, the service sector jobs associated with robust spending will disappear as well. Without paychecks, even those with low fixed-rate mortgages and high credit scores will not make their payments.
Should this happen, there will be no shortage of pain to go around. Even companies that you don’t traditionally associate with the mortgage business–from General Motors to General Electric and tax-prep jockeys like H&R Block–will feel the blunt force of this blow.
The bursting of the technology stock bubble of the 1990s was simply the opening act. What we are about to experience with the real estate bubble is the main event. In that respect, though it may be March 2007,it sure feels a lot like March 2000. However, instead of a mild recession, this collapse will be followed by the most severe recession since the Great Depression.
The main risk is that Ben Bernanke and his buddies at the Fed panic, producing something far worse: a hyper-inflationary bust similar to the one experienced by the Weimar Republic in Germany. Let’s hope that cooler heads prevail–but get your wheelbarrow ready just in case.
And from a current issue of Forbes, Bruce Bartlett on whether the stimulus will stimulate.
… Thus the argument really boils down to a question of timing. In the short run, the case for stimulus is overwhelming. But in the longer run, we can’t enrich ourselves by borrowing and printing money. That just causes inflation.
The trick is to front-load the stimulus as much as possible while putting in place policies that will tighten both fiscal and monetary policy next year. As terrible as our economic crisis is right now, we don’t want to repeat the errors of the past and set off a new round of stagflation.
For this reason, I think there is a better case for stimulating the economy through tax policy than has been made. Congress can change incentives instantly by, for example, saying that new investments in machinery and equipment made after today would qualify for a 10% Investment Tax Credit, and this measure would be in effect only for investments largely completed this year. Businesses will start placing orders tomorrow. By contrast, it will take many months before spending on public works begins to flow through the economy, and it is very hard to stop it when the economy turns around.
Stimulus based on private investment also has the added virtue of establishing a foundation for future growth, whereas consumption spending does not. As economist Hal Varian of the University of California at Berkeley recently put it, “Private investment is what makes possible future increases in production and consumption. Investment tax credits or other subsidies for private sector investment are not as politically appealing as tax cuts for consumers or increases in government expenditure. But if private investment doesn’t increase, where will the extra consumption come from in the future?”
Jennifer Rubin has stimulus comments.
… And on a political level, the Democrats have given Republicans every reason to oppose the bill and no reason to support it. As a result the “bipartisan” stimulus will be the Democrats’ bill.
Could the bill be revised to cut out the junk and corral Republican votes? The longer this goes on and the more TV appearances Democrats make extolling the virtues of their spend-a-thon, the more difficult it becomes to reverse course. Perhaps this was what President Obama had in mind all along. Maybe all the talk about focused spending and bipartisanship was just fluffy rhetoric for the easily impressed media pundits. Or maybe this is a sign that President Obama lacks the tenacity and skill to go toe-to-toe with his own party.
The result is the same: a horrid bill and a failure to breach the partisan divide. A smartly designed bill which could garner bipartisan support seems increasingly out of reach. It would have been nice to suspend disbelief for at least a week, but either by intention or neglect we now see that Washington may in fact be the place where good ideas go to die.
Robert Samuelson says our economic crisis is actually three different problems.
WSJ Op-Ed on how the law is strangling our economy and culture.
… But there’s a threshold problem for our new president. Americans don’t feel free to reach inside themselves and make a difference. The growth of litigation and regulation has injected a paralyzing uncertainty into everyday choices. All around us are warnings and legal risks. The modern credo is not “Yes We Can” but “No You Can’t.” Our sense of powerlessness is pervasive. Those who deal with the public are the most discouraged. Most doctors say they wouldn’t advise their children to go into medicine. Government service is seen as a bureaucratic morass, not a noble calling. Make a difference? You can’t even show basic human kindness for fear of legal action. Teachers across America are instructed never to put an arm around a crying child.
The idea of freedom as personal power got pushed aside in recent decades by a new idea of freedom — where the focus is on the rights of whoever might disagree. Daily life in America has been transformed. Ordinary choices — by teachers, doctors, officials, managers, even volunteers — are paralyzed by legal self-consciousness. Did you check the rules? Who will be responsible if there’s an accident? A pediatrician in North Carolina noted that “I don’t deal with patients the same way any more. You wouldn’t want to say something off the cuff that might be used against you.” …
Proof God has a sense of humor, Drudge Report says Gore’s Capitol Hill globalony hearings may be cancelled due to a winter storm.