Obama's economic agenda: a timely review


by Richard K. Moore
Global Research, February 24, 2009
cyberjournal.org



Obama has moved very quickly to get his programs off the ground.
With previous Presidents, we needed go give them the standard 100 days, or so, before they got their team organized and began submitting their bills to Congress. With Obama's intensive transition period, his dynamism, and his recruitment of seasoned veterans, he's been able to launch, or at least announce, his primary programs in a matter of only a few weeks.

Already he's gotten a very major bill through Congress, and he's dispatched envoys to foreign capitals, bringing messages of new beginnings, and expressing a desire for more cooperative relationships. He's also reorganized the White House, with a stronger National Security Council, an Internet outreach bureau, another bureau for religion, and several other innovations.

We can now see Obama's agenda rather clearly, and given the seriousness of our problems, the agenda deserves serious examination. If you've been thinking, "Let's wait and see", our waiting period has gone by in a flash, and now it's time to look at what we're facing. Our biggest immediate crisis is the collapse of the financial system, and so Obama's economic agenda is the best place to start our examination. The New York Times gave a reasonable overview of the agenda in this article of February 12th:

Deal Reached in Congress on $789 Billion Stimulus Plan
http://groups.yahoo.com/group/newslog/message/1594

http://www.nytimes.com/2009/02/12/us/po ... mulus.html

Fiscal considerations: austerity and the chains of debt


The stimulus package, as we read in the NY Times, allocates $789 billion for recovery, some for programs, and some in tax reductions. Meanwhile Geithner, the Treasury Secretary, announced that an additional $2.5 trillion would be allocated to the insolvent banks. That means we're taking on an additional national debt of $3.2 trillion, with over 75% of that going directly to the banks.


The decision to pursue the bailout scheme in this way cannot be called an inheritance from the Bush administration. The funds disbursed under Bush were on a more modest scale, and Obama actively supported that part of the bailout. Obama has dramatically increased the bailout amount, and the whole bailout scheme must be seen a primary part of the agenda of Obama's own administration. He inherited the collapse, but he wasn't obligated to pursue the solution he is pursuing.


What does it mean for the Treasury to go into debt for an additional $3.2 trillion? We need to take into account that the US already had a large national debt, the largest in the world, and that it was already running high budget deficits and high trade deficits, all of this before the collapse, the bailout, or the recession. One does not need to be an economist, or have a crystal ball, to see that America will be on its knees financially. With a global recession underway, and no hope of early recovery, this is the very worst time, from a fiscal point of view, to take on major additional debt.


With continuing foreign wars and the additional repayment burden, America will only be able to operate by running record budget deficits for the foreseeable future. And we need to understand that such borrowing can only happen if the credit is available. Obama blithely spends $3.2 trillion, and we might assume the government can do that any time it wants, but that's not true. Without the cooperation of the Federal Reserve and its international cohorts, neither the bailout nor the recovery plan could have been pursued.


There is one other way the US can fund its deficits, and that is by having the Federal Reserve simply print money, with no kind of backing. But again, this requires the agreement of the privately-owned Fed, and it results in Treasury debt, just as if the money had been borrowed legitimately. Such a policy would also be inflationary, perhaps leading to Weimar-style hyper-inflation. Nonetheless, Geithner is ready to print money if other funding can't be found, as we read in the NY Times on February 11:


Bailout Plan: $2.5 Trillion and a Strong U.S. Hand

http://groups.yahoo.com/group/newslog/message/1585
http://www.nytimes.com/2009/02/11/busin ... ilout.html

In Ireland, where similar bailout schemes have been implemented, the government has been quite candid about the implications of such a debt-burdened scenario. Brian Cowan tells us that the Irish treasury, in order to fund its future deficits, will need to be "attractive as an investment", that Ireland will need to have its "house in order". As his first step in "putting the house in order", Cowan cut 2 billion Euro from the public services budget, including a steep wage cut for public workers (disguised as a pension levy).



Whether your house is "in order" or not, is a decision made by the bankers. They look at your budget, and they decide if you're spending your money on the 'right things'. Debt repayments are of course always welcome, and infrastructure projects are OK too, if they are privatized, yielding profits for corporations and investors. But as the Irish government now knows, and as the third world has known for decades, public services and entitlements are "fiscally irresponsible", and grounds for denying credit. If you want more money, strict austerity must be enforced in your budget. It's the same everywhere:


Iceland: New government pledges continuation of IMF austerity programme

http://www.wsws.org/articles/2009/feb20 ... -f11.shtml
http://groups.yahoo.com/group/newslog/message/1586

In the days just prior to cutting 2 billion from the budget, the Irish government gave away 200 billion to a few of its banks, and in the days following the budget cut they gave other banks an additional 20 billion or so. But as regards the meagre 2 billion, Brian Cowan told us on TV, in his blustery way, "We have no choice, the money simply isn't there". An ordinary citizen is entitled to ask, "Where's the logic here? How can they find endless pounds for the banks, but no pence for the people?" This is no ordinary logic, and it isn't even the standard scratch-my-back logic of politicians. It's the cold logic of the banker, who traditionally and routinely puts families out on the street if they don't make their mortgage payments.


In America, Obama tells us a different-sounding story, a more promising one, than we hear from Brian Cowan. And instead of budget cuts in the headlines, we read about a multi-billion dollar stimulus program, and our leader is smiling, while Cowan scowls. In America there is hope, in Ireland gloom and anger. But is there really any difference between the financial circumstances in the USA and Ireland? And is there any reason to expect different logic to govern the budget?

If we look at the numbers, conditions are fiscally worse in America than in Ireland, as regards level of ongoing expenditures (eg, Iraq & Afghanistan), level of debt (now increased by $3.2 trillion), and level of ongoing deficits. And Obama has made it clear that this big stimulus program is a one-time thing; after that the fiscal house must be put back in order. On January 7, the NY Times expressed it this way (emphasis added): "Mr. Obama sought to distinguish between the need to run what is likely to be record-setting deficits for several years and the necessity to begin bringing them down markedly in subsequent years."

Obama Warns of Prospect for Trillion-Dollar Deficits

http://www.nytimes.com/2009/01/07/us/po ... obama.html


In case there is any doubt on this matter, we have this report, of February 9th:


"Obama’s chief economic adviser, Lawrence Summers, appearing on the Fox television network’s Sunday news program, assured moderator Chris Wallace that any remaining relief measures for the unemployed or other increases in social spending would not become permanent programs, but would be rescinded once the crisis had abated."

Obama’s economic “stimulusâ€