Monday, May 18, 2009

How Dangerous is Obama's Red Ink

Reading Robert J. Samuelson's Obama's Dangerous Debt and I have to wonder. I generally favor Samuelson but he does not offer any alternative. If we are to shore up our economy - which means the world's economy - what else can we do but what Obama proposes? Here is what Samuelson has to say:

"At worst, the burgeoning debt could trigger a future financial crisis. The danger is that 'we won't be able to sell [Treasury debt] at reasonable interest rates,' says economist Rudy Penner, head of the CBO from 1983 to 1987. In today's anxious climate, this hasn't happened. American and foreign investors have favored 'safe' U.S. Treasurys. But a glut of bonds, fears of inflation -- or something else -- might one day shatter confidence. Bond prices might fall sharply; interest rates would rise. The consequences could be worldwide because foreigners own half of U.S. Treasury debt.

The Obama budgets flirt with deferred distress, though we can't know what form it might take or when it might occur. Present gain comes with the risk of future pain. As the present economic crisis shows, imprudent policies ultimately backfire, even if the reversal's timing and nature are unpredictable.

The wonder is that these issues have been so ignored. Imagine hypothetically that a President McCain had submitted a budget plan identical to Obama's. There would almost certainly have been a loud outcry: 'McCain's Mortgaging Our Future.' Obama should be held to no less exacting a standard."

I have no idea what might have been said McCain. We - the whole country - have been lead down a garden path towards a service economy for most of my adult life. That leaves a lot to fix. We know now that we cannot base our entire national economy on financial services that amount to not much more than financial chicanery.

We now confront the effects of mollycoddling our remaining industrial companies from the brunt of complete international competition. We now know the true costs of not having a sane energy policy means that GM and Chrysler are heading towards bankruptcy and we have a quagmire called Iraq.

I am guessing that much of Obama's plans hinge on one idea - that we can increase our national incomes to match the costs of change. Think about his education plans.

All I can do is consider what Paul Krugman wrote yesterday in The Perfect, the Good, the Planet:
"Now, however, a somewhat uneasy coalition of progressives and centrists rules Washington, and staking out a position has become much trickier. Policy tends to move things in a desirable direction, yet to fall short of what you’d hoped to see. And the question becomes how many compromises, how much watering down, one is willing to accept."
I think Obama is making the necessary bet to fix our economic and financial problems. I onoly worry that it is too late.

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