It’s said the mark of a great politician lies in ably playing both sides of the same argument. By this measure, President Obama is a great politician, as he’s proven himself adept at walking a tenuous tightrope when it comes to our nation’s economy.
The new President has been treading a very thin line as he speaks forcefully on the one hand about the need to curtail deficit spending while at the same time offering dizzying amounts of borrowed money to fund infrastructure and public works projects around the country.
Though he demonstrates great dexterity in this balancing act, executive decisions and solving real-world problems ultimately rest in taking a firm stand. Leaders have to make decisions and pick a side. Frustratingly, there is rarely the answer that satisfies “all of the above.”
But that isn’t stopping him from trying to find the “all of the above” solution.
This theme of very ably giving lip service to our federal government’s addiction to spending — while at the same time piling on more — was highlighted when he named Nancy Killefer for the new White House post of Chief Performance Officer. She’s charged with scouring the federal budget to eliminate programs that don’t work and improve those that do. Obama emphasized this work’s importance as he called her appointment “among the most important that I will make.”
The problem is, efficiency in an assortment of governmental programs won’t lead us out of the $1.2 trillion deficit our federal government faces this year — a number, mind you, that doesn’t even include any new “stimulus” spending. Obama’s list may include expanding unemployment benefits, hundreds of billions more to bail out states that have made poor spending choices, and many billions on top of that for infrastructure, some of which will only be able to be described as local pork.
Getting out of this mess will mean the new president taking a real stand for fiscal responsibility and making choices opposite of the ones he has made so far. Staying on our current path will lead toward a financial train wreck of epic proportions. Avoiding that disaster will require a very serious conversation among all Americans about our economy’s future, both for the short term and the long term.
In the short term, the new President and Congress need to recognize one simple truth: When you’re in the hole, quit digging.
Obama’s stimulus package approaches $1 trillion. That would be in addition to the $7 trillion already spent and committed in bailouts and various stimulus packages over the past year. Leaving aside for one second the absurdity of trying to fix a problem caused by debt by stacking still more debt on top of it, if $7 trillion in stimulus hasn’t moved us closer to a solution, how will spending even more help?
Democrat leaders want something done fast, with Obama wanting to “act swiftly and boldly” and Speaker Nancy Pelosi pushing for “all deliberate speed.” I’d remind both of economist Arthur Laffer’s warning that “whenever people make decisions when they are panicked, the consequences are rarely pretty.”
In downturns caused by excess production or inventory, current stimulus efforts could have worked because the goal is to spur consumer spending. By contrast, what we face today is a balance-sheet crisis, and in this situation, a stimulus like the ones passed and still contemplated just won’t work, because people logically choose to pay off debt rather than spend. In short, government policy can make this longer, but we are going to de-leverage.
Second, we need to have a longer-term conversation about the math trap we’re in with regard to debt.
Our nation is at a precipice. We’ve stacked up more than $56 trillion in government promises made but not paid for — meaning we as a nation owe more than American families’ total net worth for the first time in history.
It was reported recently that after gobbling up $1 trillion-plus in U.S. securities, China’s appetite is now waning. We now represent a risky investment to the Chinese.
No amount of cutting around the edges by Mrs. Killefer will begin to fix this problem.
Ongoing federal deficits, Treasury’s printing of money, and the Feds’ efforts to amp monetary supply threaten to decimate the value of the dollar. It could well lead to the largest confiscation of wealth the world has ever seen — a cost that would disproportionately be borne by working Americans who have saved and invested.
These reasons are why it’s so important you make your voice heard, and why it’s so important that President Obama stop walking the tightrope and instead add his eloquent voice to that chorus. What happens next will have implications for many generations to come.