On its own merits, all other considerations aside, with the economy slipping into a sinkhole, President-elect Barack Obama’s call for $800 billion in stimulus spending should be a slam dunk for Congress. The problem is, Congress already caved in a hurry and approved nearly that same amount--$700 billion—in a matter of days when Bush’s Treasury Secretary Hank Paulson and his Federal Reserve Board Chair Ben Bernanke said they needed the money to prevent a collapse of the financial industry, as the nation’s biggest banks, investment banks and insurance companies teetered on the brink of insolvency last fall.
In fact, there was no need for panic. Paulson reportedly warned assembled Congressional leaders in late September that a financial Armageddon loomed, which would lead to mass runs on the banks, rioting in the streets, and ultimately martial law. Although the number of Americans who have more than the insured amount of $100,000 in a bank is not enough to make for one small staged bank run, the Congress blinked, and gave him essenntially a blank check to spend $350 billion right away. Paulson and Bernanke took that authorization and ran with it, spending most of it to invest in those institutions, and adding even more money using all kinds of tricks that ultimately could put the taxpayer on the hook for as much as $8 trillion dollars. They cranked up the printing presses too, and, like a North Korean counterfeiting ring, ran off an extra $2 trillion in greenbacks, just for good measure.
No wonder that now that Obama comes in asking for another $800 billion over the next two years—just a tenth of the sum the Bush/Cheney regime has pissed away over a couple of months—Congress is balking.
In fact, Obama actually caved before he even began, making half his request for stimulus money actually a in the form of a proposed $500/per/taxpayer tax rebate. We already saw how successful that idea was when we got the Bush tax rebate last year. The money was used by most hard-strapped citizens to pay down debt. When they actually went out and bought stuff with their rebate—which was the intent of the program—since almost nothing is actually made in the US, the money ended up just being shipped abroad to Mexico, China, Sri Lanka and India. Some stimulus!
The same thing will happen to the Obama tax rebate. It will go to paying down debt, or it will be spent on imports. But unless he talks straight to the American people, politically, Obama has to include a rebate in any bailout, or he won’t get any Republican support in Congress for his stimulus package.
Meanwhile, the evidence is that the Bush/Cheney boondoggle, while it enriched the owners and investors in the big banks that got the investments (many used the federal largesse to pay executive bonuses, or to buy other banks at firesale prices), did nothing to loosen up credit. Banks that found themselves with more cash on hand, instead of lending it out to businesses or homeowners, reportedly simply deposited it at the Fed to collect the interest. Company financial executives and industry economists say nothing has really changed in credit markets in response to the blowing of hundreds of billions of dollars on the financial industry.
So what we have here is either a monumental and unprecedented rip-off of the taxpayer, which has now jeopardized the ability of the incoming administration and Congress to do what needs to be done: namely to relieve the financial distress of ordinary people and to try and kick-start the economy, or an example of true financial stupidity on the part of the current administration, compounded by the gutless acquiescence of a Congress that already showed, in the run-up to the Iraq War, that it is no longer up to the task of monitoring and challenging the executive.
Either way, we’re in a heap of trouble going forward. The Obama administration, even if it wants to, will not have the resources to finance a recovery. Take away the $400 billion that Obama wants to waste on tax rebates, and you have left a paltry $400 billion, to be spread over two years, which we’re expected to believe is going to revive a depressed US economy that last year was running at $15 trillion.
The other thing to consider is the impact of all this incredible borrowing on he soundness of the US dollar. We know that China is thinking more and more seriously about unloading its trillions of dollars of reserves. If it does, Japan and other major holders of US currency will likely do the same thing, as will the oil producing states in OPEC and outside of OPEC. (If you thought buying oil in dollars was painful last year, wait until you see how expensive it is when you are paying in Euros or Renminbi or Yen!). Some economists are warning that because of all the US borrowing of recent months, the dollar could take a 40-percent hit in value against other key currencies in the coming year or two. That would slam consumers hard, since so much of what we need for our daily lives—food, clothes, cars, furniture, etc.—is produced overseas and would become instantly 40 percent more expensive. It would also be a death blow to any economic recovery, because the Federal Reserve would be compelled to raise US interest rates in hopes of slowing down the decline of the dollar. Higher interest rates would cripple any Obama administration economic stimulus efforts.
What we need at this point is a new realism. The US economy is in a shambles because we Americans have been living in a fool’s paradise, with the government boosting domestic incomes and consumer spending by inflating housing prices to absurd levels, and pumping up the Wall Street casino with easy credit and a blind eye to scandal. Now that it has all come crashing down, there will not be the usual rebound. The housing market will not recover. Neither will the stock market. Americans will not, in a year or two or three, feel as wealthy as they did before it all fell apart. The wealth people thought they had last year was an illusion, and now it’s gone, like a morning mist.
The remaining unspent Treasury Assets Relief Program (TARP) money Congress authorized should be withdrawn and applied to a real stimulus program, and the tax rebate Obama is proposing should be dropped. If the new president wants to help lower income individuals, that’s one thing, but just giving everyone a tax credit is nonsense.
Economist James Galbraith, a professor of economics in Texas, has proposed some good uses for federal stimulus dollars—a Home Owners Loan Corp. that would refinance bad mortgages at the true value of the homes in question, and grants to struggling state and local governments that are otherwise going to be laying off workers and killing critical programs like health and education. He is also calling for a supplement to Social Security for people nearing retirement whose private 401(k) funds and IRAs have been killed.
These are all good ideas. A better one would be to slash military spending by 50 percent and to close the 800 or more US military bases that are scattered across the globe.
Do all this and the country has a shot at avoiding a new depression and a slow slide into third world status.
About the author: Philadelphia journalist Dave Lindorff is a 34-year veteran, an award-winning journalist, a former New York Times contributor, a graduate of the Columbia University Graduate School of Journalism, a two-time Journalism Fulbright Scholar, and the co-author, with Barbara Olshansky, of a well-regarded book on impeachment, The Case for Impeachment. His work is available at www.thiscantbehappening.net.
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