Blaming It on Obama

Last week I wrote a post about “government debt hysteria” that has gotten a lot of attention because of a link from Paul Krugman. (As Felix Salmon, said, “blogging is a lottery on the individual-blog-entry level.”) The main point of last week’s post was not that it’s wrong to be concerned about the national debt (I think everyone is concerned about it — the question is what to do about it and when), but that it’s irresponsible to title a column “Could America Go Broke?” and talk about hyperinflation without providing some evidence, or at least a logical argument that goes beyond tautology, that hyperinflation is something we should be worrying about it.

Here’s something else that’s irresponsible. In that same column, Robert Samuelson says, “The Congressional Budget Office reckons the Obama administration’s planned budgets would increase the debt-to-GDP ratio from 41 percent in 2008 to 82 percent in 2019″ (emphasis added).

Let’s take a look at that claim. I’m going to work with two versions of the CBO’s Budget and Economic Outlook, published in January 2008 (before we knew we were in a recession) and August 2009, and I’m going to use their baseline numbers, which show debt-to-GDP growing from 40.8% to 67.0% in 2018 and 67.8% in 2019. (I’m guessing Samuelson is citing the CBO’s additional analysis that assumes certain tax cuts will be extended; I’m not using that one because I can’t find the tables in sufficient detail.) I’m not contesting that debt-to-GDP will go up by a lot; I want to see why it’s going up. I’m also only going out through 2018 because the 2008 CBO report only went that far.

According to the 2008 report (Table 1-3), the budget from 2009 through 2018 shows an aggregate surplus of $0.3 trillion. The 2009 report (Table 1-2, PDF page 20) shows an aggregate deficit of $8.0 trillion, for a difference of $8.3 trillion.*  Where does that come from?

In the 2008 report, discretionary outlays for 2009-18 are $12.4 trillion. In the 2009 report, that figure is now $13.7 trillion, for a difference of $1.3 trillion; that’s the most you can credibly blame on “the Obama administration’s planned budgets” — and even that includes the stimulus package from earlier this year, which was a response to a severe recession.

So where do the other $7.0 trillion come from? Increases in mandatory spending are $0.8 trillion. Increases in net interest payments are $1.5 trillion. But the big whopper is on the revenue side, where revenues are projected to be $4.6 trillion lower.** That is, you get a picture like this:

So far, of the $8.3 trillion change in our projected fiscal situation, 16.1% is due to discretionary spending. 56.0% is due to lower revenues caused by … the recession and the financial crisis.

But wait, that’s not all. The increase in the national debt would only be from 40.8% to 60.9% (not 67.0%) of GDP if 2018 GDP remained where it was projected in 2008. However, between the 2008 and 2009 CBO reports, projected 2018 GDP has fallen from $22.4 trillion to $20.3 trillion. That’s also due to the recession and the financial crisis. A smaller denominator means the same debt becomes a larger proportion of GDP.

In short, the problem is that the economy collapsed. Blaming our increasing debt problems on “the Obama administration’s planned budgets,” when they are responsible for one-sixth (or one-fifth, if you read footnotes) of part of the problem (the part not due to a shrinking denominator), is deeply misleading. It also leads to the wrong conclusion: cut spending.

What’s the right conclusion? Simon, my co-author, has been going around saying that the real cost of the financial crisis would be an increase in government debt of 40 percentage points of GDP. I’ve been telling him that I’m nervous about that number, because the long-term debt problem has always been with us, and it’s called Medicare. Well, it turns out Simon was right. The 2008 CBO report projected that by 2018, debt held by the public would be only 22.6% of GDP. The 2009 report projects 67.0%, for an increase of 44.4 percentage points. (I guess I should have trusted Simon; he is on the CBO’s advisory panel, after all.) What happened between those reports? The financial crisis and a severe recession. And if we want to prevent that from happening again, we need to reform our financial system.

* Baseline Scenario readers are likely to have noticed that $8.3 trillion is a lot more than 26% of GDP (even in 2018), yet the debt figure only goes up by 26 percentage points. The reason is that the CBO’s debt figure only counts debt held in public hands; the rest of the increase in the debt is absorbed by Social Security and other government accounts. My point here is only to show the proportional contributions to the increase in the debt.

** You could argue that the Obama budgets should be charged a portion of the change in net interest expense. Since discretionary spending is responsible for about 20% of the change other than net interest, it should be charged 3.6 percentage points of the change in net interest, bringing discretionary spending’s total contribution to 19.7% of the $8.3 trillion.

By James Kwak

57 thoughts on “Blaming It on Obama

  1. No worries. Obamacare will shave billions of dollars from the deficit, Dick Cheney said deficits don’t matter. When will we see a guest post from Cheney supporting Mr.Kwak’s position?

  2. >…Dick Cheney said deficits don’t matter. When will we >see a guest post from Cheney supporting Mr.Kwak’s >position?

    Try holding your breath. lol.

  3. LOL, deficits don’t matter to you can’t finance them anymore, then they do matter.

    Keep living your fantasy Mark, maybe your dreams will become reality lol.

  4. Comparing debt to GDP is of limited use here. I’m sure everyone would agree that our situation would look better if an artificially high level of economic activity could have been sustained. The question is what level of spending is fiscally sustainable going forward. This is not it.

  5. I should qualify that statement in light of our conversations on the previous thread. This will be true so long as we continue not to have an investment-oriented approach to spending.

  6. The real problem people don’t understand is, Obama is of the belief of devine business. They will lead to the country to the promiseland.

    They believe by giving the finance arm of the US economy a temporary reprieve, business will be allowed to “invest” in the US and investment will surge. Hence, deficits will come down, if not balanced. We are already seeing the beginning of entitlements cuts being planned, Bush’s anti-growth tax cuts will expire and the global war on terrorism, has reached its peak, meaning defense cuts are also in the works by mid-10’s. Budget projections are always conservative.

    It doesn’t matter if we let the financial Oligarch flush down the toilet, because they would just reorganize and retake their position as kings of Oligarchal reign after bking doing the same thing as before. That is what alot free market intellectuals don’t get. You can’t purge the rotteness out of the system when the system is run by them. They can go the easy way(bailout) or the hardway(no bailout). The buearies in Washington were scared sheetless of the economic damage the latter would have done.

    So we got bailouts and worthless debt that isn’t much spending in actual investment. Now we pray business comes through and pays us back years down the line with increased economic activity and increased tax revenue.

    FWIW, a friend of mine high up at Citi would LOVE to go bankrupt. They could just reorg and get back to doing the same thing. It is so much fun even if it requires more work. The only way this madness stops is the government changing the laws and enforcing the laws. Until that happens, wild west time will continue.

    Honest firms, hogwash.

  7. Wow. Even when confronted with hard numbers, many commenters can’t stop themselves from blaming it all on our president. I prefer to remain in the fact-based world, thank you very much.

  8. I think that Cheney’s claim was that deficits don’t matter “politically”; there is no political cost to running deficits (so one can cut taxes and boost war spending with no political cost).

    It never occurred to Mr Cheney that running large procyclical deficits might have a downside. Or maybe it did occur to him, but he didn’t care.

    We are well quit of those people.

  9. Well said. All that behind us, how does the above entry (showing the deficit growing mainly because of loss of revenue) get into the heads of our leaders (media and political) so the conversation will be more balanced, my last count, the opposite argument seems to be winning the day. I think this is the frustrating thing about following this blog. Thankfully, Simon and James being who they are get some face time, but really, depressing at times to see how little the national conversation is affected.

  10. Actually, what Mr. Cheney meant to say was that deficits don’t matter when ones wealthy friends are reaping the benefits of those deficits. By the time the country collapses from the weight of its debts, those that made huge fortunes from the country’s spending will be there to pick up the pieces.

  11. First of all, these projections are all nonsense. No one knows how big the interest bill will be, because no one knows how high rates will be. The rest of the projected numbers are just pie in the sky. I would love to see the 2009 projections made in 1999.

    The more intelligent criticism of Obama is addressed to the fact that he is an ignor amus and a charla tan. I have seen no evidence that this isn’t true.

    You should spend more time examining the facts confronting us and less time parsing figures which have no more basis in reality than the China growth number. By supporting any incumbent you are just selling the country down the river.

    The reason increasing gomint’s share of GDP will crush the country has less to do than how much will be spent and more to do with HOW IT WILL BE SPENT. Inevitably, those on the inside with their polyanna save the planet schemes will enrich theselves and the rest of us will get a big bill. It will be Carter and biofuels all over again, this time on steroids.

    Is there a solution? I don’t think so. Our country has abandoned any sense of moral accountability. Tomorrow and the next day will bring nothing more than a series of nitwit schemes and phony numbers. Blame anybody you want. All those in power should probably be hung, but we don’t seem to do this any more. Our leaders will continue robbing those who have remained prudent and keep making empty promises to those with no idea which end is up. It has continued thusly since 1945 and only the numbers are now bigger. The lies remain the same size.

  12. I know you qualified it but I still find this statement curious: ” our situation would look better if an artificially high level of economic activity could have been sustained”

    The reason I find it curious is simply that you hear references to “artificially high levels of activity” a lot and yet there really is no such thing.

    All those houses that were built are in fact real and although we in large part built the wrong stuff, in real terms there is no such thing as an artificially high level of activity.

  13. Bond Girl says “an artificially high level of economic activity” referring to the “W” Bush years. I wonder how low Bond Girl thinks the natural/substantive economic activity would have looked under “W” Bush??? Scary.

  14. Thanks for this great, simple use of important data to help us understand why we are where we are. We can only hope that the administration, as promised, (see today’s WSJournal, et al) will seriously tackle the future fiscal imbalances as they define next year’s budget (and beyond).

  15. Actually quite interesting. And, by the way, no matter how you cut it, the potential increase in debt cannot be pegged to spending, but rather to an inordinently low level of economic activity. What’s really disturbing is the assumption that the recession will still be with us eight years hence. I happen to agree, and, unfortunately, unless we can tame the financial sector (and other elements of our infectious plutocracy, such as energy and healthcare) we can look forward to a far bleaker future than the CBO predicts. That is because those sectors tend to suppress other economic activity (making government spending grow through unemployment and other necessary services) which causes a more and more substantial revenue shortfall — and this is worse — for every area of government, state, local and national.

    Unless our GDP can suddenly move toward the six to eight percent growth level, none of these problems will vanish quickly. On the other hand, I think that having CBO or literally any person or entity predict that far into the economic future is (a) an impossible dream, and (b) may lead to the creation of even greater economic distortions than we are presently experiencing.

  16. This is one of your all time best posts James, even better than the one that got the hat tip/wink from Professor Krugman.

    James, Robert Samuelson’s canard will be repeated over and over by those who cannot read a graph. They see the debt numbers go up and down as a percentage of GDP, but are either too intellectually lazy to see what was the REAL reason for the rise, or intentionally dishonest to their readers.

    James, we know you don’t like to play the role of “economic news policeman” James, but I am afraid Robert Samuelson’s falsehoods (lies?) will spawn many economic news versions of “copy cat killers”.

  17. Can someonw show me where Simon or James predicted this current “recession”?

    Unless that’s the case, their predictions have ZERO credibility.

  18. What IS Obama’s fault is pouring billions in the financial “phantom” crooked economy, rather than attempting to stop the hemmoraging via relief to Main St. If rather than dumping the billions into the financial black hole and lining the pockets of the banksters, Obama COULD HAVE refunded the last 3 years worth of Federal income tax, with a minimum of $50K per household, and a stipulation that half be used to pay down any existing debt. This idea was proposed by Robert McHugh many many moons ago. This would have softened the blow to both the mortgage market and the economy.

    Of course, many other things need to be done – including regulation, law enforcement, prosecutions, voting out Obama and anyone in Congress who supported the repeal of Glass-Stegall and/or the bailouts to the banksters, etc.

    I have low-to-no regard for Obama. I consider myself someone who embraces both fiscal and social responsibility. I voted for Obama (reluctantly), but it won’t happen again. I assure you.

  19. What if it’s fueled by unrealistic levels of debt, liar loans, and mandates to make loans to unqualified buyers which then push prices up artificially? That certainly makes it seem to me like it was artificially high. And now there’s a rush to preserve housing prices by trying to keep the credit markets rolling when the government and house buyers are tapped out.

    The whole thing was a farce driven by credit. At least that’s my take on what Bond Girl is driving at, which I would agree with.

  20. “It also leads to the wrong conclusion: cut spending.”

    Through what rabbit hole have we fallen that cutting spending is the only conclusion to an out-of-balance budget? There’s another conclusion: raise taxes. If there’s not enough income out there at the moment to raise taxes, then tax wealth.

    Higher taxes are not only important to lower the deficit; they need to be put in to renew the civic contract.

  21. You know, Jake, none of us who actually WORK for the federal government are getting rich, nor are we all polyanna’s. My mortagage is no safer then yours just because I draw a federal paycheck, and considering that I’m REQUIRED BY LAW to invest my “retirement” savings in the ever vascilating stock market I fully expect not to be able to retire. Period.

    We do jobs that YOU, the VOTER, have asked us to do on your behalf thorugh Congress. If what we’re doing is no longer important to you – YOU CAN CHANGE IT through those same elected officials.

    But stop bullying real people who come to real offices and do real work each and every day in YOUR NAME. It’s unseemly at best, intelelctually dishonest at middle, and downright descipable at worst.

  22. If anyone has read Section R of yesterday’s, Nov. 23, 2009, Wall Street Journal interview with Peter Orszag (p.R10) regarding the budget deficit, please describe for me his “plans” for deficit reduction. Orszag claims that the 2011 budget “is all about” reducing the deficit. In my opinion, Orszag’s responses to questions were unimpressive for a guy with his gold plated credentials. Nowhere in his CV does it say “political” economics, but he sounds just like a politician. Moreover, he weasled when asked about President Obama’s promise not to tax people earning less than $250,000 per year.

  23. New taxes are certainly going to have to be part of the solution to digging our country out of the abyss of debt, but I think we should be very careful about the type of taxes we create. I would prefer either some sort of a value added tax on consumption (especially energy consumption) or some sort of a transaction tax on capital flows (something akin to a Tobin tax). I know the value added tax is considered to be somewhat regressive, but I think there’s pretty good evidence that the U.S. system of taxation is already quite progressive (mostly because of how few people actually pay income taxes; see the two links below for more):

    One of President Obama’s biggest campaign mistakes was promising no new taxes on anyone making less that $250k. IMHO we rely far too much on the upper income brackets to fund government spending. The European progressive compromised with their conservative counterparts a long time ago. They got a generous social safety net in exchange for promising to fund it conservatively. I think it’s past time American progressive start to consider a similar compromise.

  24. Gee, and that $877 B stimulus plus a few hundred Billion in supplemental appropriations, which expanded long term many Welfare State programs, had nothing to do with raising the deficit I guess.

    All to get a lot of temporary make work jobs and more importantly, to pay off in billions ACORN, the unions and the Soros crowd for a job well done in getting the One elected. Now that’s real stimulus we can count on to put us on a positive productive long term growth path to prosperity!

  25. The alternative (McCain/Palin) would have done exactly the same as Obama has done. Face it, the bankers walked in to Washington and held us hostage, and our government caved.

    It doesn’t matter who sits in the big chair. They will be told what to do by financial interests.

  26. Frightening! and unsustainable unless you assume the public sector and massive gov’t support have a source of funds other than taxes, duties, and fees on the private sector, and, of course, the Treasury’s printing presses and loans.

  27. Agreed, and rank and file Democrats have always been willing to raise taxes to help pay for stuff. But look atthe blow back tha Obama got early this year when he suggested taking the top tier personal income tax rate BACK to 39% from 35%. You would have thought folks were fighting death panels or something (!).

    We Americans have become a nation of Something for Nothing. It shows in our economic policy, it shows in our envrionmental policy, and it shows in our social policy. And now, finally, we’r egoing to start paying a price.

  28. Thanks to James Kwak for this piece. The whole question of deficit and government debt seems to have so many confusing elements I wonder if any major elite group understands the factual bases of the problem apart from ideology.

    In many respects, a Treasury is just a modern form of Lincoln’s Greenback that carries an interest element. The Treasury is a store of value once out in circulation. It does circulate albeit generally not much different than bearer bonds of fifty years ago did. Certainly registration requires a different methodology to counter the velocity limiting effects on Treasuries. The national debt is a form of currency from a practical perspective. It cannot be paid off without crushing liquidty and destroying the supply of liquid intruments. Thus Cheney well understood the state finance system when he remarked ” Deficits do not matter”.

    Then what does matter? One thing that certainly matters is that that 56 % complement state revenues supply to cover expenditures. We live in an ultra complex system and what does matter is that the state compels revenue generation. Ultra high complexity requires the power of the state to maintain it’s revenues and a foreign policy that indeed directs funds to investment in the US state. High complexity has been chosen as a method of societal existence. This choice will require that present lax tax policies be enforced to maintain or slightly increase the revenue percentage of state expenditures. Complexity requires an increasing internal Dragoon state as we can observe happening at all levels of government. One area where the cudgels will eventually be applied is the rampant evasion of payroll taxes. Hundreds of billions here. Another area will be compelling taxes out of criminal activity if the state will be able to manage it. American’s hate these kinds of conclusions and want to avoid the loss of ” liberty” but will not choose to make the decisions that limit the hyper complex state. American society cannot pretend to a horse and buggy nation in it’s politics and derive the benefits of hyper complex living at the same time. Every choice we make has consequences. Consequences do not much care about beliefs or desires. They are a result.

    The other half of deficits do not matter being a fact of life observation is that deficit financing to create money/ funds requires a top dog coercive foreign policy just like the the foreign policy the US has pursued since the 19th century on an ever increasing basis to compel acceptance of ” Treasurybacks”. The backs of Treasury Notes were indeed once green and legal tender.

    State survival requires that Treasuries roll over for as long as the present state can maintain it’s existence. When Nippon oil uses dollar funds to pay Aramco and Aramco banks the funds in the US and Buys new issue Treasuries, the Treasury circulates thereafter by constant rollover. When Nippon Oil no longer uses dollar funds and Aramco no longer creates Treasuries other means will be required for the state to survive.

    Above all, I think Vice President Cheney unfortunately understands the real world. Consequences simply keep adding up as humans more and more simply cannot keep up with the complexity required to keep complex systems going. Complexity must be factored out of the systemic equation to maintain the present system. Political disintegration is one way complexity gets factored out.

  29. yes, I gathered that’s what she meant but really all that explains is why we built the wrong stuff. The price signals were all out of whack.

    Nonetheless we did manage to produce a lot of stuff and the labour and resources that went into producing all that stuff could have produced other stuff, stuff we’d still want. What was artificial?


  31. Well said “The Rage” I promise you things will change… as soon as O’Reilly’s fascist army kills all those damn liberals who are destroying America!

    (sing it with me):

    You say you want a revolution
    Well, you know
    We all want to change the world
    You tell me that it’s evolution
    Well, you know
    We all want to change the world
    But when you talk about destruction
    Don’t you know that you can count me out
    Don’t you know it’s gonna be all right
    all right, all right

    You say you got a real solution
    Well, you know
    We’d all love to see the plan
    You ask me for a contribution
    Well, you know
    We’re doing what we can
    But when you want money
    for people with minds that hate
    All I can tell is brother you have to wait
    Don’t you know it’s gonna be all right
    all right, all right

    ah, ah, ah, ah, ah…

    You say you’ll change the constitution
    Well, you know
    We all want to change your head
    You tell me it’s the institutions
    Well, you know
    You better free you mind instead
    But if you go carrying pictures of chairman Mao
    You ain’t going to make it with anyone anyhow
    Don’t you know it’s gonna be all right
    all right, all right
    all right, all right, all right
    all right, all right, all right

    See? Don’t worry… Be happy! It’ll all be all right… Unless, of course, you want to actually live in something other than your car, and eat something other than cat food.

  32. A solution will evolve, and I’m betting it will look like this: The multinationals get the G20 corporate elite to scrap the dollar as a reserve currency, the dollar inflates to levels that makes Germany post WWI look silly, America defaults on its debt and becomes a third world country, leading to the end of the minimum wage, whereupon the multinational capitalists will finally return and spend capital to re-industrialize the USA, because it will then be legal to hire 5 year-old children to work in textile mills making the equivalent of ten cents a day. Maybe we’ll attack a few more Iran’s and North Korea’s too, just to keep the 18 year-old kids employed. God Bless America!

  33. I agree with you that giving money to banksters was a sad sad mistake, and I agree that until Glass-Steagall is re-enacted, the financial sector is just one giant world-wide casino. But I didn’t vote for Obama, I voted for Kucinich. In California. And he wasn’t even on the ballot. McCain, Obama, they work for the same fascist institution. Government by of and for the Corporations. The only difference was skin color, and as we all know, that is really no difference at all.

  34. What’s even scarier is I teach teenagers how to write. What I meant to write is “write,” not “right.”

  35. Wrong blog, Sparky. Just embarrassing yourself and undermining your cause with that kind of blather.

  36. “The more intelligent criticism of Obama is addressed to the fact that he is an ignor amus and a charla tan.”

    Not really. Not intelligent in the least.

    “I have seen no evidence that this isn’t true.”

    I doubt you would recognize evidence if offered, but he *was* elected President of the United States in a fair election. I imagine that counts for something in most circles.

    The problems run deeper and wider than you appear ready to accept, and have been in the ramp-up for perhaps 30 years, or even longer. That you cannot see that is a personal limitation, but it is a common one.

    Complexity sucks. But get used to seeing it because you are surrounded by it. This because you are inside a machine you do not understand and it will grind us all into sausage if it doesn’t operate correctly.

    Which, at present, it is not. Not even close.


  37. The only viable and sensible 10 year projection is that we do not under any scenario have 10 years to get a handle on this.

    We have perhaps 10 months. And there are a lot of people in the crowd that would seriously peg it at less than that.

    It is worth mentioning that as a practical matter this is a self-limiting problem in that if we don’t get a handle on it, the system currently giving us nightmares will disintegrate and leave us with an opportunity not seen since the Middle Ages — to start over from scratch.

    You know what, that sounds just interesting enough that I’d be willing to let all this proceed as it seems destined and see what turns up in a year or so.


  38. Why is that true?

    Even a broken clock is correct twice a day. Someone makes a correct prediction and it means… what exactly? At any instant in the day a million people predict a million equally unlikely things, a few of which turn out to actually be correct. Big deal. Can they do it twice in a row? Can they explain their methods of choosing among all possible outcomes? Rarely.

    More important, who has the correct methodologies? Who has the correct initial parameters? I don’t have the answer by the way, I’m just saying that “but he predicted it!” is meaningless.

    Now, tell me who accurately *modeled* it! The answer will probably be — nobody did. That’s perhaps because economics is less science and more sooth-saying religion, and we need to realize that before we’ll be able to begin the heavy lifting required to get ourselves clear of this train wreck.


  39. “Complexity must be factored out of the systemic equation to maintain the present system. Political disintegration is one way complexity gets factored out.”

    I see that you understand.

    However I would rewrite your final sentence as “Political and cultural disintegration are the only way complexity gets factored out.”

    I know, it’s terrifying. But that would be the lesson of history. And you humans are — if nothing else — willing captives of your own history.


  40. Thank you cougar_w.

    I was thinking of the mathematical metaphor. Are not most of the important lessons of history learning from the failures? Another aspect is learning the ways that are not followed in a given society. But right now the big lesson from the past not learned is that facts precede belief. That facts cause changes based on different interpretations in any given situation. The kicker in the US though is facts now tend to be required to follow belief.

  41. NKlein1553..i read your correction “to right the real U.S economy ” to mean “to correct” as in “to set upright that which has been overturned.” Works! Relax!

  42. A lot of complexity exists outside of mathematics. I come from a background in Biology where complex systems study consumes a life’s work.

    To your point that “facts must follow belief” it is easy to interpret as “people are willfully blind to important realities”.

    As with animals living in complex ways in a single tide pool, I’m not convinced it is entirely willful. And as applied to human affairs this has me worried.

    One symptom of being trapped in a vast complex system is being blind to it. Do fish understand “aquatic ecology” or even “water”? It’s not obvious until they are pulled out of it. Likewise we are all trapped within a complex environment that few (any?) of us can even begin to fully understand. And, it’s badly broken. And one of the reasons we can even see it at all is because… it is badly broken.

    A system too complex to hold together on its own, too complex to understand, and too complex to touch safely least of all fix. This is a very dangerous situation, IMO.

    We are on the verge of becoming creatures stripped of our supporting systems. The collapse of our financial and governing institutions would have that effect. But what other way out is there? How shall we escape this machine except to step free of its wreckage?


  43. Thank you, James, for putting the lie to Republican claims concerning Obama’s deficit spending. Now that they no longer control the purse, deficits are to be avoided at all cost (and most of those costs will be borne by those with the least). We know that we got here, in large part, due to unstimulative tax cuts and unmanaged spending on a war of choice. The issue is, where do we go from here.

    I’m not ready to join those who see apocolypse as the only alternative, although they may be right. First, The finance industry must be brought under control by separating banking functions and imposing large taxes on large incomes. It won’t solve the problem but it will signal Main St. that the financial industry does not own Washington.

    Second, the country needs massive spending on infrastructure. Such spending will increase the nation’s capital assets while lowering unemployment for a time until the economy can pick up the slack. If unemployment does not fall substantially and quickly, the country will be run by Beck, Palin and Rupe’s other dupes. Where does the money come from? States don’t have it and the private sector won’t fund it so ultimately, it is down to the federal government. It can take the form of direct spending or government guaranteed revenue bonds to be repaid by user fees on the rebuilt infrastructure. It will raise the deficit one way or the other, at least on paper until the contingent liablity of the guarantees disappears. But this nation will not grow without consumer spending, which will not increase materially until folks have jobs doing something other than flipping burgers or changing bedpans. Better to put government funds to work to benefit all of us than to give it to bankers who use it to increse power and ever larger financial inequality.

    If government spending is going to bankrupt the nation at least give everyone a taste.

    If Obama doesn’t do something fast to address the issues of unemployment and growing financial inequality, he will be a one-termer. But Obama isn’t the issue. If we turn the government over to the current opposition, this country may lose its last best hope for returning to a more equitable distribution of wealth, power and freedom.

    We know who will be saddled with the debt if today’s Republicans are in charge. In that case, maybe the apocalypse is the better alternative.

  44. I think the trick for President Obama is making prudent choices which are aimed at long-term success and not losing his base (his Democrat voting base). Based on what he inherited, I’m even willing to put up with a higher than normal level of unemployment, because President Obama can’t correct the 8 years of “W” Bush’s mistakes so quickly.

    But where he will lose me is signing legislation such as the Homebuyers Tax Credit (which only benefits bankers and realtors) and signing legislation for bailouts of companies such as GMAC which do not carry systemic risk. President Obama needs to see to these type decisions more carefully.

  45. When you’re off by a factor of 1000x, you’ve lost all credibility and live in a fantasy land no more real than Where the Wild Things Are.

  46. There would be an even higher than normal level of unemployment if the government had not stepped in to restructure GM and Chrysler. It is hopeful that by this spring GM will no longer be “socialized” as the right would say, but be back in the private sector.

    The root of President Obama’s failure is the lack of will to treat the largest banks in the same manner as GM. No restructuring has been done to them and none of their executives have lost jobs due to their failures because of the government bail out of them. I would like to know of any FDIC restructuring of banks, like say Indy Mac, where the executives and shareholders were left whole.

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