Free Market Fundamentalist | Atlantic Sentinel

Obama Admits: Not Interested in Deficit Reduction

Nick Ottens | March 14, 2013

President Barack Obama reads a briefing at Camp David, Maryland, October 21, 2012 (White House/Pete Souza)

“We don’t have an immediate crisis in terms of debt,” President Barack Obama told ABC News in an interview that was broadcast on Wednesday. “In fact,” he said, “for the next ten years, it’s going to be in a sustainable place.”

Although the Congressional Budget Office expects the debt to grow $7 trillion during that time—which is an increase of more than a third.

“We’re not going to balance the budget in ten years,” the president explained because the only way to accomplish that is “on the backs of, you know, the poor, the elderly, students who need student loans, families who’ve got disabled kids.” In other words: the Republican plan which does achieve balance in ten years’ time.

The rhetoric is unfortunately familiar. According to the Democrat, the fiscal crisis simply isn’t and the only reason there isn’t more deficit reduction is Republican intransigence.

Throughout his first four years in office, the president said repeatedly that he was willing to make the “hard choices” necessary to reduce the deficit. Indeed, before he was even elected, Obama expressed alarm in his book The Audacity of Hope (2006) at the “mountain of debt” caused by $300 billion deficits and later described the spendthrift of his Republican predecessor as “unpatriotic.” He went on to preside over deficits in excess of $1 trillion.

Before assuming office, Obama told The Washington Post that the country wasn’t in a position “to kick it any further,” referring to the need for fiscal consolidation.

Yet as president, he spent nearly $800 billion in economic stimulus in his first year and enacted sweeping health insurance reform in the second which could add as much as $500 billion to federal spending this decade (although estimates vary). Read more

Central Bank “Doing Nothing” to Save Eurozone?

Nick Ottens | March 7, 2013

The skyline of Frankfurt, Germany at night, April 17, 2012 (Gabri Micha)

The European Central Bank has purchased more than €200 billion worth of Greek, Irish, Italian, Portuguese and Spanish government bonds but apparently it’s not enough. Quartz‘ Simone Foxman complains that the central bank is “still doing nothing” while Europe sinks into recession. Why? Because the bank kept its interest rate unchanged at .75 percent on Thursday, “continuing a policy that has done little to save the eurozone from a deepening recession.”

Foxman admits that the central bank’s decision is unsurprising. Unlike their American counterparts, the central bankers in Frankfurt conduct monetary policy, or are supposed to, with regard to price stability alone, not economic growth.

Except they haven’t, really. Throughout the European sovereign debt crisis, the central bank has stepped in repeatedly to save the day. Most recently, in September of last year, President Mario Draghi announced a potentially unlimited bond purchase program to quell what he described as “unfounded” fears about the single currency’s survival.

Germany’s central bank president Jens Weidmann was the only member of the governing council to dissent, warning earlier of the “danger that central bank financing can become addictive like a drug.” The thinking in Berlin being that if southern European states like Italy and Spain can reduce interest rates on their bonds by having the central bank buy billions worth of them, governments there will be under less pressure to reduce spending and reform. Read more

Central Planning Didn’t Work: How the “Experts” Got it Wrong

Nick Ottens | February 14, 2013

Economist Joseph Stiglitz at Columbia University in New York, September 23, 2009 (Abhisit Vejjajiva)

In early 2009, not long after Barack Obama was elected president of the United States, Newsweek published a special edition, “How to Fix the World.” It included commentary from an impressive group of analysts and politicians, all eager to advise the new president on economic and foreign policy.

Four years, Barack Obama is starting his second term. Let’s see how many of the global elite’s hopes turned out.

Fareed Zakaria, then editor of Newsweek‘s international edition, provided the introduction to the issue in which he wrote, “The world needs smart management” to crises that traverse national boundaries. Specifically, he praised the newly erected G20 as a forum that “could actually do some of the policy coordination needed to begin to solve the crisis.”

The G20 has since fallen into disuse with Europe trying to solve its own problems and large emerging markets like Brazil vehemently criticizing American monetary policy. China and the United States are similarly locked in disputes over currency manipulation and trade policy. There has hardly been a concentrated effort on the part of the Group of 20 to solve the ongoing economic turmoil.

Zakaria was optimistic about the United States’ economic prospects. “As bad as it looks,” he wrote, “the current financial crisis will end.”

I don’t know when or how but the combination of government interventions will eventually work. Why do I say this? Because governments are more powerful than markets. They can close markets down, nationalize firms and write new rules. And Washington has one other, unique power: it can print money.

Zakaria must have been delighted to see the new president and the Federal Reserve do just that: nationalize automakers, “write new rules” and flood the market with cheap money. Except it has done very little to boost the American recovery. The unemployment rate is exactly the same as when Barack Obama took office in January 2009. The United States even dipped into negative growth in the fourth and final quarter of last year.

It was also before markets brought European governments like Italy’s and Spain’s to their knees. It turned out, government fantasies of unlimited borrowing and spending aren’t more powerful than the cold realities of the market. Who would have guessed? Read more

Labour Complains About Borrowing, Suggests More

Nick Ottens | January 30, 2013

British Labour Party leader Ed Miliband speaks in Gateshead, England, February 8, 2011 (Flickr/Ed Miliband)

Britain’s Labour opposition leader Ed Miliband on Wednesday rightly complained that the government is on track to miss its fiscal targets and adding more to the national debt than it envisaged, yet his party would borrow even more in an attempt to stimulate growth.

Miliband, who was elected Labour leader after the 2010 general election, told Parliament that Prime Minister David Cameron’s administration is “borrowing £212 billion more than he promised.” The Conservative Party premier claims that is paying down Britain’s debt “but the debt is rising,” said Miliband.

Disappointing growth figures have forced the coalition government, which includes the third party Liberal Democrats, to extend its deadline for reducing the debt as a percentage of gross domestic product from the next election, scheduled for 2015, to the 2016-2017 financial year.

The government has reduced the deficit by a mere quarter while public sector spending in realm terms has continued to increase. It was almost 4 percent higher in 2011 than in 2009, Labour’s final full year in power. Borrowing last year was higher than in the year before. The Treasury expects to spend £756 billion by the time of the next election compared with £683 billion in 2012.

According to Labour, the mild contraction in the fourth and final quarter of last year, when the economy shrank .3 percent, showed that Cameron’s supposed austerity program isn’t working. Even if some one million private sector jobs have been added since the Conservative came to power, Britain’s economy is still 3.3 percent smaller than during the first quarter of 2008.

Which is why Labour advocates fiscal stimulus, including infrastructure investments, to encourage economic activity—that would raise the deficit even further. Cameron naturally wondered, “If the right honorable gentleman thinks there’s a problem with borrowing, why does he want to borrow more?” A question that Miliband couldn’t answer except to suggest that the government is “borrowing for failure”—whatever that means.

Obama Ignores Debt in Second Inaugural Address

Nick Ottens | January 22, 2013

President Barack Obama reviews the troops before an inaugural parade through Washington DC, January 21 (White House/Rick McKay)

President Barack Obama hardly mentioned the national debt in this second inaugural address on Monday which is nearly $16.5 trillion and rising. Rather he emphasized progressive social issues which he believes require collective action. “Now, more than ever, we must do these things together, as one nation and one people,” he said.

The Democrat, who was reelected in November with a 51 percent majority, talked about climate change, limiting gun ownership, improving minority rights, including gay marriage, income redistribution, “fair pay” and a foreign policy of engagement instead of warmongering. But arguably the greatest challenge facing the United States, its dire public finances, were virtually absent from the speech.

In terms of fiscal consolidation, the president did reiterate the need for the wealthy to pay more but taxes on the rich were raised earlier this month when the top income tax rate was increased from 35 to 39.6 percent and the capital gains tax from 15 to 20 percent. Obama campaigned aggressively on making the wealthy pay their “fair share” toward deficit reduction and accomplished it before he even began his second term. If he intends to raise taxes further, he will find a Republican majority in the House of Representatives almost unanimously opposed to it.

Republicans argue that now is the time for deeper spending cuts. The Federal Government borrows nearly one dollar of every three it spends and has run deficits in excess of $1 trillion throughout Obama’s first term in office. The nation’s debt has grown nearly $6 trillion since he assumed the presidency.

Entitlement programs, including food stamps, health care for the elderly and poor, public pensions, Supplemental Security Income and unemployment insurance, already account for more than two thirds of federal spending and are projected to increase further as the population ages. Yet the president paid only lip service to the need to rein in health care costs and chastised Republicans when he said, “We reject the belief that America must choose between caring for the generation that built this country and investing in the generation that will build its future,” even if no Republican argues for such a choice. Read more

Nationalization Works? For Whom?

Nick Ottens | January 4, 2013

The American International Building in Manhattan, New York, February 9, 2006 (Wikicommons)

The United States Treasury Department announced early last month that it had made a $7.6 billion profit for the taxpayer after selling its last shares in the insurance company AIG which was 80 percent nationalized during the financial crisis of 2008. So was the rescue a success?

Economist James Kwak thinks so. He writes at Baseline Scenario,

The point of nationalizing AIG wasn’t to make money; it was supposedly to save the global economy. In any case, things have worked out pretty well: the global economy is intact, though still not healthy, and AIG is a private company again.

Indeed, the global economy is still not healthy. Neither is the American financial industry and that’s entirely due to efforts that saved AIG. By propping up banks and insurance companies that should have gone bankrupt in 2008, the United States Government prevented a necessary correction in the market that would have allowed financially sound as well as new companies to take their place.

Kwak reveals his ignorance of the unseen costs of government intervention when he wonders, “isn’t AIG looking like a better company today” than ones that weren’t nationalized?

It is. But what of the companies that could have taken its place? Didn’t they deserve the chance to satisfy AIG’s consumers and contribute to a more stable and sane financial industry? Instead, the United States still have an unstable if not insane financial industry that holds the entire economy back.

Nationalization worked—for AIG. The economy at large isn’t better off because of it.