Tuesday, May 12, 2009

Obama's 2009 Budget

Yesterday the federal gov’t released their latest set of numbers on this year’s budget. The budget deficit for 2009 now approaches $1.85 Trillion dollars. That’s many billions more than previously predicted because the gov’t thought the economy would be improving more than it actually is. So they had to adjust their numbers.

The deficit is $1.85 trillion. Obama and Congress has officially quadrupled 2008’s budget deficit. QUADRUPLED! The very people – especially Obama – who criticized Bush for fiscal irresponsibility, who blamed him for “record deficits”, have just quadrupled the deficit that he accumulated. $1.85 trillion.

Now for some perspective. Bush’s deficit in 2008 was just under 3% of GDP. Yes, the actual dollar amount was big. Yes his deficit was the highest in history, but it was still just under 3% of GDP. Economists will tell you that some deficit spending is okay and can actually be helpful for the economy, as long as the deficit is kept relatively low compared to GDP. Many will say that 2-3% of GDP is acceptable. The logic behind it is that borrowing can be stimulative. We borrow money in order to spend, spending stimulates the economy, jobs are created, etc. The key here is keeping the deficit spending relatively low compared to GDP. A little is good, a lot can be very, very bad. Again, ask an economist and they will say 2-3% of GDP is an acceptable level.

Personally, I tend to be more of a budget hawk. I say deficit spending is wrong and should not be done. If Congress needs to spend more money then they should find it through budget cuts. Perhaps that would be imprudent. But Congress has not shown itself to be a responsible entity when it comes to money, so I feel they should be kept on a tighter leash. But that’s just me.

Now let’s look at the ’09 budget. Deficit spending at 2-3% of GDP is considered acceptable. Obama’s 2009 budget will eclipse 12%. TWELVE PERCENT!!!!

That means that he will spend ALL the money the federal government takes in PLUS an amount equivalent to 12% of our GDP. This is unprecedented. In fact, to many of us it is unfathomable. Many people – including myself – believe that TOTAL federal spending should not be more than 10-12% of GDP. Obama OVERSPENDS by that much. I simply can’t describe it. Irresponsible. Incomprehensible. Somehow these words just don’t do it justice.

So why do economists say that 2-3% is acceptable, and four times that would be dangerous? Well, because at 2-3% you will get some economic stimulus. At 2-3%, the borrowed money is spent, the jobs are created, and the resulting inflation is kept to a minimum with little negative impact on the overall economy. At 12% it is a much different scenario. Yes, money is spent. Yes, jobs are likely created, but the ensuing monstrous inflation that follows will quickly consume any stimulative effects of the spending. In short, the bad eventually outweighs the good and the economy eventually suffers terribly. Guess where we are headed, folks? It’s simple math. It’s basic economics. We are staring at very high inflation. The question is no longer if, but when. Will it hit while we are still in our current recession or will it hit as we are in the midst of recovering, thereby triggering ANOTHER major recession in order to recover?

In Jimmy Carter’s final year, inflation was at 14%. That number is a very real possibility in the next 2-3 years. History continues to teach us lessons, and we are determined not to listen.

Buckle your seatbelts, folks. This recession may be bad, but there are still some bumpy times ahead. And when inflation surpasses 10%, just keep that in mind the next time you’re in the voting booth.



Dr John, The spectacular 'tax and spend' epic will certainly crash & burn, hopefully before the 2010
elections; this nation must return to a balanced two-party government.

Absolute Power is always corrosive!


Foxwood said...

Obama's budget is failure by design. Why?

John Washburn said...


Because he feels the stimulative effects of such a large amount of money pumped into the economy will bring us out of the recession. And it will likely help, but the ensuing inflation/interest hikes will eventually overwhelm any stimulative effects that the spending had, leading to a second recession even deeper than the first.

In addition, he's counting on health care savings that his administration can't yet measure, and he's counting on increased gov't revenues that will come once the economy rebounds. Yet he does this without realizing that any economic bounce from his spending will quickly vanish once inflation hits.

There is NO CHANCE that this will work. It's simple math, just as 2+2=4. His best hope is that the bounce occurs just in time for the 2010 elections, and the ensuing inflation doesn't kick in until after those elections. Perhaps he's counting on those last two years to keep his Congressional majority and push through his really big ticket items like health care.

John Washburn said...

Perhaps it IS failure by design. Obama isn't stupid, he has to know that this won't work. A cornerstone of fascism depends on breeding crisis. More crisis equals more opportunity for power. I suppose this could be his motive, but I'm not yet ready to endorse a conspiracy theory.

Chances are in 2010 he will lose Congress and this nonsense can be brought to a hault. Re-election is out of the question. He has no chance.

Anonymous said...


If you are correct, which seems unlikely, these words will be prescient.

If you are wrong, they will just seem silly.

I thinbk the suggestion that President Obama is or will breed crises is perhaps the silliest thing that you have written that I have read.

This is not to say there will not be crises enough to go around, just that the President will neither breed them nor exacerbate them purposefully.


John Washburn said...

Loop, I also said that I am not yet endorsing the conspiracy theory that Obama is deliberately breeding crisis. Another reader asked why this could be considered failure by design and I answered. I am aware of what some conspiracy theorists are saying. At this time, I don't share those opinions.

As for my other words, I reiterate that I consider it a foregone conclusion. Again, it is simple math. Deficit spending at 12% of GDP will produce massive inflation, followed by massive interest rates. This will lead to yet another major recession. It's not if but when. I don't know why Obama is doing it. He's an intelligent guy surrounded by good economists. So he must know the process that he has started. I suppose that's what has driven the conspiracy theories.

I honestly don't have an explanation for it. It's hard for me to imagine a smart guy doing something like this that WILL ultimately fail. Yet it is also hard to accept a vast conspiracy where he is purposely driving the economy into the ground.

It truly is baffling. But the fact is that this recession will be followed by another that is driven by high inflation and high interest rates.


The Shadow Government manipulates mass-emotions by design;

This high-level 'behind the scenery' manipulation purposely Creates Financial Crisis...by design.

Ask yourself, "Who, time and again, makes another Billion when Crisis Expands to Chaos.

One shrewd old devil Wins, and 10,000 Lose!

Am I being "silly" or redundant, Loop Garoo? reb