The Classic Liberal Blog

"The concern is that if we do not restart lending in this country, our recovery will be choked off before it even begins. You see, the flow of credit is the lifeblood of our economy."

President Barack Obama, 02/02/2009

 

According to the president (and the rest of Washington for that matter), people need more credit.  Now correct me if I'm wrong here ... but isn't that what got us into this mess in the first place?

At this point in the game, it's nearly impossible to calculate the amount of debt that will be loaded upon the shoulders of generation after generation of our ancestors. According to Bloomberg, the debt is around "$9.7 trillion, enough to pay off more than 90 percent of the nation's home mortgages."

Today's children, their children, and their children's children will be forced to pay substantially higher taxes on their labor than any other generation before them, in order to pay for the careless self-indulgences of the Baby Boomer generation, evil politicians, young ideological fools, and their government largesse.

These "bailout" and "stimulus" extravaganzas, amount to nothing short of vicious cruelty.  They are the enslavement of America's future generations. The sweet new-born baby in your arms, the little girl you dropped off at kindergarten, the energetic young boy you just watched play his first little league game ... it's their economic freedom that has been taken away.

You may have noticed the cute pictures included in this post. Well ... they're to comfort you, because I'm about to tell you why things are going to get much worse. Because the idea of pouring trillions of paper dollars into the economy, hoping to increase access to credit, that will spur consumption, which will then increase production ... is a policy designed to fail.

A $9.7 Trillion Recipe for Disaster:

In the real world, consumption is made possible by production, and credit is made possible by savings. In other words, you have to work (production) to earn a dollar, before you have a dollar you can spend or save. It doesn't take a degree in finance or economics to get it. This stuff is common sense!

Think of it this way ... do we work (produce) so we can buy stuff (consume), or do we buy stuff so we can work?

The Obama Administration, aided by useless politicians and political-hacks, er, I mean "experts," is betting yours, mine, and our children's future on the idea that wealth is created when people buy stuff (on credit) before earning even one dollar.  In other words ... you run-up your credit card at Costco buying stuff, then Costco will hire you because they're selling so much stuff!

Doesn't make sense, does it?  This is putting the cart before the horse.

Show Me the Money:

Not having money of its own, the government first takes money from you and me via taxation. It uses this money to pay its legitimate expenses, then shuffles it from the left pocket to the right pocket through corporate and social welfare, while hundreds of billions more fall through the whole in their pocket (known as foreign aid).

Since a government never has enough money, it then borrows from the public (including foreign governments) by issuing bonds. These bonds place us taxpayers on the hook to pay interest, essentially in perpetuity, with money that could have otherwise been spent or saved more productively. When these sources dry up (like now), the government then prints money. Yes, I said PRINT!

Now they don't just turn on the printing presses, because the public wouldn't fall for such shenanigans. Instead, the Federal Reserve takes the bonds from the government and credits the U.S. Treasury. This exchange is of one credit for another credit. No actual money has exchanged hands, nor has been transferred to the government from the taxpayer.  The Treasury becomes awash with cash, but the taxpayer is on the hook with even more more interest to pay (taxpayer wealth being transferred to the government).

But where does the Federal Reserve get the money?

Well ... to put it bluntly, they just say it is so, and like magic ... there's trillions in new money for the government to spend! Don't you wish it was that easy?

It should make you wonder who we're paying interest to as well ...

So you and I go out and work to earn dollars (produce), while the government simply adds numbers to their ledger. Now if you or I did this, it'd be labeled (correctly) as fraud and/or counterfeiting. The problem with counterfeiting of course, is that the fake dollar bills ultimately dilute the value of our earned (real) dollar bills ... just like a crappy, watered-down cocktail. This is the activity more well-known as inflation.

As economist Henry Hazlitt warned:

... when the supply of money is increased, people have more money to offer for goods. If the supply of goods does not increase - or does not increase as much as the supply of money - then the prices of goods will go up. Each individual dollar becomes less valuable because there are more dollars. Therefore more of them will be offered against, say, a pair of shoes or a hundred bushels of wheat than before.

Again, you don't have to have a degree in finance or economics to understand the reality we're facing today. The dollars we earn through our labor are being devalued (diluted) by the dollars the government prints. What this means is, even if the dollar amount of your paycheck remains the same, you'll be able to buy and save much less. Why? Because your dollar isn't as valuable as it used to be.

You can believe in the rhetoric of you favorite politician, or the babble of the pundits and talking-heads.  You can even bet your financial future on their sage advice! Just before you do, take a few minutes to look at the money supply chart below ... then do a "gut check" and ask yourself, "Looking at this chart, what direction would you bet on things going?"

 

Government Inflation is No Free Lunch:

The "easy money" policies of the Federal Reserve during the 1920's showed us that central bank credit creation ultimately ends in economic collapse. So if you think things are bad now ... hold on, 'cause you ain't seen nothing yet!

Government inflation created the "dot-com" bubble, the housing bubble, and coming soon to an economy near you ... a massive wave of inflation! Contrary to all the talk of deflation (if we could only be so lucky), there will be inflation, and possibly worse.

You see ... they (our political saviors and money wizards) hope to off-set the inevitable inflation by the issuance of more Treasuries, but the taxes will not be there to maintain the value of the debt, meaning there will be no buyers.  And when this happens, they'll attempt to monetize the whole thing resulting in hyper-inflation.

Obama's Rhetoric:

Now I want to address all this nonsense I keep hearing from Republicans about Obama "talking the economy down." It's foolish. There is no such thing as "talking the economy down."

Is this how ridiculous politics has become in America? Did I somehow miss a required Tony Robbins 30-day course on "thinking positive?" If any of you out there make personal/business decisions based on the rhetoric of a politician, well, sorry ... there's simply no hope for you.

But his words do have meaning ... and it isn't him "being straight" with the American people either.  President Barack Obama's doom and gloom rhetoric about the economy is about, as Pat Buchanan states in the Investors Business Daily:

For what is going down is a leftist power grab that is anathema to their principles and philosophy.Where the U.S. government usually consumes 21% of gross domestic product, this Obama budget spends 28% in 2009 and runs a deficit of $1.75 trillion, or 12.7% of GDP. That is four times the largest deficit of George W. Bush and twice as large a share of the economy as any deficit run since World War II.

Add that 28% of GDP spent by the U.S. government to the 12% spent by states, counties and cities, and government will consume 40% of the economy in 2009.

We are not "headed down the road to socialism." We are there.

Since the budget was released, word has come that the U.S. economy did not shrink by 3.8% in the fourth quarter, but 6.2%.

And a little background from FrontPage Magazine (link no longer valid thus removed):

If the purpose of radicalism is to bring about social transmutation, the radical must be prepared to make a persuasive case for why such change is urgently necessary. Alinsky's conviction that American society needed a dramatic overhaul was founded on his belief that the status quo was intolerably miserable for most people. For one thing, Alinsky saw the United States as a nation rife with economic injustice.

Having painted a verbal portrait of a thoroughly corrupt and melancholy American society, Alinsky was now prepared to argue that wholesale change of great magnitude was in order ...

President Obama's doom and gloom rhetoric is about the continuance of "painting a portrait" of "social injustice" in America, so he can continue to stir the masses into demanding "urgent change." And he's fully aware too, that his policies will create economic disaster ... so like Chavez, the "charismatic leader" will step in to "do more" again ... and America's liberty will forever be altered.