Barack Obama Could Bankrupt The World's Largest Economy
Tim Reid, in the Times of London, gets into some of the arrogance of it, in "Barack Obama bets the farm in $4 trillion poker game":
Only a man who frequently compares himself to America's greatest President, Abraham Lincoln, would declare that when he was elected, "the rise of the oceans will begin to slow". Only someone who believes that America is on the crest of a dangerous historic wave - and that he "can help guide it" - would have undertaken a glitzy world tour midway through the campaign....In his first month in office he has pushed through an unprecedented $787 billion economic stimulus package, announced plans to save the car industry, stabilise the stricken banking sector and stem the flood of home repossessions.
Then came his near-$4-trillion budget last week. It is a manifesto to usher in a new age of government activism that involves levels of borrowing and spending never before seen in the US and is a document of such staggering ambition and risk that even some of Mr Obama's Democratic supporters are suddenly beginning to feel a little queasy.
A keen poker player, Mr Obama is gambling not only his own presidency, but the future wellbeing of the country. If he pulls it off, they might find room for him on Mount Rushmore. If he fails, he could bankrupt the world's largest economy.
...What he unveiled last week was one of the most audacious agendas announced by a new president. He declared his intention not just to pump trillions of dollars into a short-term rescue for the economy, but also to press ahead with enormously costly plans to trigger a green industrial revolution, transform education and provide health coverage to all Americans. These are issues that have bedevilled Congress and other presidents for decades. Achieving just one would be an extraordinary achievement. Mr Obama wants all three - and fast.
What was most striking about the budget - including that it will explode the federal deficit to $1.75trillion this year, its highest since the Second World War - was that it was a ruthless declaration of how Mr Obama intends fundamentally to change the American social contract, from Right to Left.
Its goal is not just to rescue the economy. It is to crush conservatism, end the age of anti-tax, anti-regulation policies that have been the guiding philosophies of US governance for a generation, and usher in a fresh "epoch", as his aides call it, of New Deal-Great Society wealth redistribution and central intervention that were repudiated by Ronald Reagan 30 years ago. Much of his agenda will be paid for by a ten-year, $1 trillion tax increase on families earning more than $250,000 a year, beginning in 2011, a move that critics say risks stunting the economic recovery.
...The markets are so unnerved about Mr Obama's ability to rescue the financial sector, and by the numerous bailouts that have had little effect, that wealth is being destroyed on Wall Street at a rate not seen since the 1930s. The President said on Tuesday that he does not worry about "the day-to-day gyrations of the stock market", but investors have made it clear that his economic prescriptions have so far failed to reassure them.
There's a very real possibility that this situation has been deliberately engineered by the permanent government for the purpose of undoing civil democracy.
The level and application of spending is bizarre, if it is truly intended as stimulus or recovery financing - but it makes sense for the purpose of nationalizing the provision of health and education, and to establish permanent budgets for agencies that are beyond the discretion of elected representatives.
Obama's own team has acknowledged this - that they, haven't specific plans for these allocations, but simply hope to reset the minimum levels of financing.
This is effectively a coup. The actions of the administration and legislature break with a longstanding tradition in American politics that favors incremental changes and policies that retain mechanisms for reform in deference to self government.
Jack at March 7, 2009 10:02 AM
that wealth is being destroyed on Wall Street at a rate not seen since the 1930s.
Popping a balloon is not the destruction of wealth. When the tulips crashed, wealth was not destroyed, an illusion of wealth was destroyed. The banks *are* insolvent. They are bankrupt. Kaput. Void and null. Zombies.
They've been that way for quite a long time now, and the market has just realized that we are surrounded by the walking dead.
The budget is big, but so are the problems we face that this budget directly attacks.
* Health care expenses that strangles American Business wrt overseas competitors
* Energy dependence that strangles America herself with dependence of foreign oil, and foreign interests
Amy, if we had implemented Nixon's National Health Care proposal in 1974, and gotten off of foreign oil in 1979 as Carter proposed, how many of your columns about business funded health care and the dangers to the west of radical Islam would have never been written?
Regarding the size itself of this year's budget, some of it needs to be placed in context. It's certainly huge. But is it a temporary spike or a long term trend? The claims of the Administration is that it is a temporary spike.
Krugman's analysis
I also have no idea what was wrong with Obama's "ocean" statement. It may sound arrogant at first glance, but what did he say that was arrogant? That the *rise* would *begin* to slow? If you believe as he does that global warming has a large man-made component that has been overlooked until now, if you believe as he does that as President he can implement programs to slow the man-made contributions, then the statement that the rise will begin to slow is not an arrogant statement.
jerry at March 7, 2009 10:16 AM
>> There's a very real possibility that this situation has been deliberately engineered by the permanent government for the purpose of undoing civil democracy.
Huh? Care to elaborate?
Eric at March 7, 2009 10:38 AM
B.O. has spent my children's great grand children's money with his sweeping "stimulus". The very notion that while in the midst of a faltering economy and trillions of dollars in debt, that we can "spend" our way out of the mess, is ludicrous.
The concerns pre-election about Obamas lack of experience are proving to be well founded; he is a bull in a china shop and is doing irreparable harm to our nation.
Ari at March 7, 2009 10:53 AM
Eric- Jack's language is a little colorful –one should never ascribe to evil what can be credited to stupidity– but I think he's on the right track.
Crid [cridcridatgmail] at March 7, 2009 10:56 AM
> When the tulips crashed, wealth was
> not destroyed, an illusion of
> wealth was destroyed.
No. Value and prices are not so cleanly divisible. There is no God in Heaven who knows the real value of things.
The only, only, measure of what something is worth –how much wealth someone should trade for it– is the price they'll pay.
Crid [cridcridatgmail] at March 7, 2009 12:27 PM
Crid, I hope to be around here in five years to remind you of your silliness back in '09...
rojak at March 7, 2009 12:29 PM
Oh, don't be a coward. Be a grown guy and actually say what you disagree with.
Unless, goll darn it, you just can't find the words.....
Crid [cridcridatgmail] at March 7, 2009 12:35 PM
The only, only, measure of what something is worth –how much wealth someone should trade for it– is the price they'll pay.
I agree entirely regarding the measure of what something is worth is the price that it will bring. (In this specific context of shares of stock in a free market.) But the linkage from there to wealth is tenuous.
The banks are insolvent. They made crazy dumbass loans. And leveraged those to the hilt. AIG insured this mess but then AIG didn't obtain the proper counter-insurance, or make sure their assumptions were accurate.
Wealth is not being destroyed here. Investors are recognizing the proper price to pay in March is $0.
The proper price to pay in February was $0 and in Jan was $0 and in December was $0 and in November was $0.
Wealth isn't being destroyed, information is being recognized. The wealth was never there in the first place, except on paper.
jerry at March 7, 2009 12:45 PM
As I understand it, the President intends to reduce the deficit by 50% over the next few years by eliminating and or streamlining existing spending programs. At the same time, however, he seems intent on greatly enlarging the size and scope of the already-bloated federal bureaucracy, which will, of course, greatly enlarge the amount of direct federal bureaucratic involvement in our lives.
George Bush's use of 9/11 to become a permanent "war President" was a disaster for which we will all pay for a long time to come. If President Obama uses the existing financial crisis to become the "ever-bigger government to the never-ending rescue" President, we may pay just as dearly.
Jay R at March 7, 2009 12:56 PM
> But the linkage from there
> to wealth is tenuous.
What does that mean? These words are synonyms! Wealth - Value - Worth!... And in a free economy, Price!
> They made crazy dumbass
> loans.
Care to guess who compelled them to do that?
> Wealth is not being
> destroyed here.
You don't know the meanings of these words.
> Investors are recognizing the
> proper price to pay in
> March is $0.
Then why won't Obama let them pay that price? Why are Democrats compelling us to pretend these assets have value when you believe that they don't?
> The wealth was never there
> in the first place, except
> on paper.
"Except on paper." There's just no metaphor to convey the craziness of that "exception". It's like saying Scarlett Johanssen isn't pretty except for her electric smile, thundering figure, gorgeous hair, entrancing eyes....
"Paper" is how it's done. That's how we trade wealth, by swapping little strips of paper. Read some Hernando de Soto.
You apparently believe in God; you think there's some supernatural machine in the sky that knows the actual value of things (or what they're worth, or what their prices should be) independent of human judgment. (Chavez agrees with you, by the way. At least, he wants you to think he does, as he encouraged Obama to get with the socialist program earlier this week.)
Crid [cridcridatgmail] at March 7, 2009 1:51 PM
" ... one should never ascribe to evil what can be credited to stupidity."
Agreed. Obama's goal isn't the destruction of the U.S. economy. He's just a Keynes-infected Marxist who truly believes what he's doing is right. Even smart people can believe stupid things. The truth is so much worse than the simple-minded "evil conspiracy" idea.
--"Except on paper." There's just no metaphor to convey the craziness of that "exception".--
Agreed again. For many people, those numbers "on paper" mean they have to keep working for another twenty years. That's not paper, that's people's lives.
Pirate Jo at March 7, 2009 2:28 PM
PJ, you still married?
Crid [cridcridatgmail] at March 7, 2009 3:04 PM
Jerry and Jay, are you new around here? You sound a little scripted. What is your IP address?
Aba at March 7, 2009 4:08 PM
Many economists, who subscribe to a "firm foundation" approach consider securities to have an intrinsic value that is not necessarily reflected in their current prices. The approach to value Crid describes is called the "castles in the air" approach - price is only what someone will pay, so it doesn't matter what a company does or has as long as you can find a fool to pay more for it than you did. (Keynes favored it, actually). Warren Buffet, that crazy marxist, is a firm foundation investor, and you can see where that got him. See A Random Walk Down Wall Street for a concise explanation of the differences between these approaches, and how one can work to approximate the true value of securities.
Jerry is right. The banks are insolvent. They have already been nationalized. Some of the problem is terminology. Nationalization is a bad word. Everyone needs to stop using it, because it obscures the real issues. "Re-privatization" is better. We effectively nationalized these institutions when we started guaranteeing they wouldn't fail. But so far that's all that has been done - preventing outright failure. Not fixing them. The fix is to break them into public parts (the stuff that can't be marketed right now) and private parts (the rest of the functional parts of these institutions).
We need to create a government entity with the power to deal with things so that there is someone with legal authority deal with the problem (it's currently outside the scope of Treasury. FDIC, etc.). This entity would have all of the powers of a bankruptcy court. Then:
1. Financial institutions in the U.S. that are insolvent using current mark to market models for all of their assets are put into receivership (quasi bankruptcy).
2. Shareholder equity is wiped out because these institutions are insolvent and otherwise would go into bankruptcy. Credit default swaps on transactions that the institution was not a party to are nullified (i.e., when the transaction is a pure bet on somebody else's deal). Future transactions of that nature are prohibited by law. Corporate officers are fired and receive no payouts (i.e., no golden parachutes).
3. Government takes over bad assets.
5. Functional and profitable arms of the business are re-privatized.
6. Government holds bad assets. Eventually sells at market rates after waiting for the housing crisis to sort itself out and they can be valued better.
I realize that these institutions are multi-national, but since the U.S. is footing the bill, other countries can piss off. Or pony up.
A similar process should also be used with car manufacturers. Except that the unions should also get their contracts nullified, too.
P.S. Those who think that Obama is trying to undo democracy or turn the U.S. into Venezuela or Cuba are indulging in paranoid fantasies. Though passing some form of universal or near-universal healthcare would be good for the U.S. in the long run.
cheezburg at March 7, 2009 7:04 PM
> "castles in the air" approach -
> price is only what someone will
> pay, so it doesn't matter what a
> company does or has as long as
> you can find a fool to pay more
> for it than you did.
Infantilizing fear is a powerful tool in your (and Obama's) method of distraction here. It's essential to remind the guy on the street that dark and powerful forces are working to screw him over! He has to be ever-vigilant!
Because if you don't 'remind' him of that, he might catch his breath and realize that it's not true. Good economies are competitive, but they're tremendously cooperative as well.
Well, the distraction is concluded. So back to you now, Chezzy... If prices aren't set by the people who need to determine how important the goods are to their lives, exactly who does know what things are worth?
Answer directly. (And carefully....)
Crid [cridcridatgmail] at March 7, 2009 7:31 PM
There's no distraction or fear creation. Nice try on the red herring, though. Your approach is one of two competing approaches to valuation, one that argues there is no intrinsic value. It's known as "castles in the air" because it holds that doesn't rely on any firm foundation.
I and - a lot of people far brighter than I - would argue that price is not always the same as value. That's how smart, long-term investors such as the aforementioned Mr. Buffet get wealthy, by identifying things that are currently undervalued for whatever reason. For example, would small, well-managed bank stocks be undervalued right now because of Citigroup's expected demise? You'd say no, I guess, because things are worth what they're worth. I'd say yes. And my bet will probably pay pretty well if I'm willing to wait a few years.
cheezburg at March 7, 2009 7:47 PM
> argues there is no intrinsic
> value.
A grain of sand has "intrinsic value". A piece of dogshit on the curb has "intrinsic value".
But what am I bid? Not much, as it turns out.
> It's known as "castles in the air"
> because it holds that doesn't
> rely on any firm foundation.
Bad typo, but I'm pretty sure it wasn't going to make sense anyway.
Again, again, again: What is this source of "value" that you'll affix to things with consulting the people who'll be buying them from you?
Like the other fella (or was it you?), you presumably believe in God... A supernatural, all-knowing, all-seeing creature who has a perfect measure of human desire that require no consultation with mere mortals...
You'll just tell people what things are worth. And they'll fucking well pay that price , or else! That's the Chavez method.
> price is not always the
> same as value.
Exactly! Such instances are known either as a "bargains" or a "bad deals". I think you're getting the hang of this! Maybe you're a little frightened, but it looks like you've got the right tools, after all.
Good luck out there!
Crid [cridcridatgmail] at March 7, 2009 8:20 PM
Your response is so incoherent as to make it impossible to formulate a real response. Again with the frightened stuff. I'm not telling people anything, nor am I making them do anything. I'm not sure where this is coming from but perhaps you could dow with a Xanax and a drink.
In the case of securities, value is roughly the discounted worth of future expected earnings from the securities. The book I mentioned above is a good start if you need help understanding the concept.
cheezburg at March 7, 2009 8:31 PM
Cheezy:
Obama is an inexperienced fucking amateur who has no business being in the WhiteHouse. We may as well flush our money down the toilet because that is exactly what this asshole and congress is doing. Obama is fucking this country in the ass and telling us bend over here comes more!
And hell no, socialized medicine does not work. Are you prepared to pay 70-80% of your money in taxes to support this crap? I dont. Anything the government touches they screw it up...they will do the same to health care.
People need to pay for their own insurance, just like Amy does. She goes without..so should others
get off your ass get a job that actually has health insurance, go to school if you have to to obtain the necessary skills to get a job.
If people would take responsibility for themselves instead of running to the goverment tit they would have insurance. Buy health coverage instead of the huge house, the car, your cigarettes, booze, cable and other unecessary crap.
I understand that some do not fit this profile but many do... the 47 million who do not have insurance fit into many categories and there could be ways to fix that instead of making this country into some kind of communist Obama dreamland.
Mark at March 7, 2009 8:37 PM
Another comment...
I do believe that Obama is purposely fucking this country over to destroy this economy and institute a more socialist country and world government crap.... he even said "I am a citizen of the world" he's right, he isn't even a fucking U.S. citizen (not until he proves otherwise)
Obama and his left wing nutcases are doing their best to make sure that their reign of economic terror and oppression will last for the forseeable future by taking over the census to make sure more districts vote democrat, giving the illegals citizenship and shutting down conservative talk radio by reinstituting the fairness doctrine or some other form of it.
Mark at March 7, 2009 8:53 PM
> nor am I making them do anything.
Are you concerned about "intrinsic value", or will you let buyers and sellers select their prices?
Crid [cridcridatgmail] at March 7, 2009 9:01 PM
Crid: Buyers and sellers do what they will. The relationship between underlying estimates of value and prices provides a means of rational decision making.
Mark: lol. See about that Xanax and drink I suggested to Crid.
cheezburg at March 7, 2009 9:13 PM
> The relationship between
> underlying estimates of...
Tell ya what, schoolboy: You keep your hands to yourself, and everybody'll get along jus' fine.
Crid [cridcridatgmail] at March 7, 2009 9:16 PM
Sorry if I went above your head! I'm getting along jus' fine, thanks, though.
cheezburg at March 8, 2009 3:05 AM
Eric what I'm getting at is that the design and proposed implementation of the programs that are being forwarded - as evident in the stimulus bill, proposed budget, and outlines for legislation affecting labor, healthcare, energy, and education - severely erode two pillars of civil democracy. These being, subsidiarity and competing sovereignties.
When you look at how these programs are to be implemented, it's apparent that they would represent the establishment of a dirigism that has been foreign to the US outside of wartime and periods of the FDR administration. That is, they would centralize the planning and administration of social and commercial policies on a dramatic scale.
For instance, an aspect of the proposed Card Check legislation that hasn't received much attention is the requirement that arbitrators be centrally assigned by an office of the federal government. So labor unions would no longer have the ability to choose their own arbitrators. Labor rules resulting from arbitration would be centrally dictated by the state.
But there's no good reason to do this, if you are actually concerned w/ the welfare of workers, or of companies for that matter. It's simply a power grab.
Jack at March 8, 2009 9:14 AM
As I told an elderly friend from Chicago yesterday ... Canada tried a similar socialist experiment in the 1970's under Pierre Elliott Trudeau. It was an abysmal failure and we are still paying back all his borrowing.
Americans have failed to heed to wisdom that could be learned from every other country that has borrowed way more than it can afford. So now you all are embarking on your own socialist experiment. In the process, the Incentive of those who want to work hard, who need to work hard will be diminished, if not destroyed. You'll have fewer & fewer people working hard and more & more people looking for a hand out.
Historians with a sense of humor will provide a twist on JFK's famous line:
JFK: "And so, my fellow Americans: ask not what your country can do for you - ask what you can do for your country."
Obama: "And so, my American comrades: ask not what you can do for your country - demand what your country can do for you!"
Robert W. at March 8, 2009 11:16 AM
Being a young teenage boy at the time, in a nation that was having its own problems at the Chief Executive level (ahem), two things come to mind about Trudeau. First, his term seemed to go on forever (but that might just have been a reflection of grinding events in our own headlines). Secondly, his wife was interesting.
Say what you want about Pat Nixon, she didn't party with the Stones.
Crid [cridcridatgmail] at March 8, 2009 11:40 AM
> Jerry and Jay, are you new around here? You sound a little scripted. What is your IP address?
Posted by: Aba at March 7, 2009 4:08 PM
WTF?!
Who are you to ask me for anything, and who cares about your opinion of "scripted," whatever that means? Do you mean to imply that my comments appear to have been composed thoughtfully before being submitted? Guilty as charged! You can't say the same thing.
If you have something to add to the discussion, even a well-reasoned criticism of something I've said, then go right ahead. Otherwise, STFU, and let Amy be the "comment police."
Jay R at March 8, 2009 12:12 PM
(For the record, although you didn't mean it this way, Amy doesn't do much comment policing. You basically have to do bloody murder to get her to interfere; obstructionist tactics, abject dishonesty, identity games, etc. This is Los Angeles as it was meant to be: The Wild West.)
Crid [cridcridatgmail] at March 8, 2009 1:07 PM
Crid is right. You can say pretty much anything here, as long as you aren't doing it while passing yourself off as another real person, trying to shut down my comments section by sending a mob here to post inane comments or otherwise doing obstructionist stuff beyond simply stating your opinion.
The "policing" here is as it should be -- a bunch of other people rising up to tell you why you're an asshat. Works on me. If I get sloppy or stupid in what I post, I hear about it pronto. This is good. It makes me avoid being as sloppy or stupid in the future -- assuming the critic is right.
P.S. To give you an idea of the extent of what flies here, a guy who comments here often, Martin, once posted that I was a "clueless cunt." I think he might've been right about it (regarding whatever I'd posted about), but I can't quite recall. Anyway, I thought it was funny -- I didn't delete it.
One more thing -- it's people like me who are open to criticism (from minds I respect) and to new ideas who actually get more informed and advance their thinking. The woman who edits my stuff has a mandate to tell me where I suck and why, no holds barred. That's the only way I can unsuck whatever sucks before I send out my work.
Amy Alkon at March 8, 2009 1:44 PM
"no holds barred"
Mamacita, dat's goooood!
Keep up the good (non-policing) work. As you may have noted, I can take care of myself ... ;)
Jay R at March 8, 2009 2:34 PM
All I read was the title; i did not read the text or any of the comments.
to the title, i say, the United States cannot and will not go bankrupt.
Why?
because we simply will keep printing money.
farker at March 8, 2009 7:53 PM
Farker:
And we will definately be seeing $12.00 loaves of bread on the store shelves....
Mark at March 10, 2009 12:44 AM
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