Modern News

The White House announced today that it projects a deficit of $1.6 trillion for the new fiscal year, up from $1.4 trillion for the prior year. Despite an orgy of spending and stimulus, the economy is sluggish and tax revenues are depressed.

Barack Obama and the Congressional leadership justified last year’s spending as the means to jump start the economy, bringing down unemployment and reducing further deficits. The whole Obamenomics enterprise has been one colossal flop, mercifully uncompounded (to date) by the Administration’s failure to pass health care reform. And we hope they get the credit they deserve.

The deficits must be financed. And that, ladies and gentlemen, is the elephant in the room that is largely ignored by the mainstream media. The cumulative impact of successive deficit whoppers will transform the credit markets for a generation.

Who will get the credit as we proceed down this path? With the government gobbling up an increasing share of credit resources, what will be left over for the consumer, who after all has been the driving engine of our economy for most of the postwar era?

The Democratic medical team has committed fundamental malpractice in treating our economic malaise. They diagnosed the recession in the traditional Keynesian way, as something caused by falling demand, which could be fixed by massive doses of government spending. As the old saying goes, when all you have is a hammer, every problem looks like a nail.

But falling demand did not cause the recession. The massive dislocations in the credit system did. The government made those dislocations possible by failing to do its regulatory job properly. (But man were those sweetheart mortages GREAT!) As financial institutions deleveraged, they not only withdrew credit from unhealthy and frothy speculative activity. They have shrunk credit across the board, forcing consumers and small businesses, many of whom entered the recession in robust health, to drastcially retrench.

Bottom line, there is an ongoing redistribution of credit from private (and productive) uses to public (and deadwood) ones. And that is not a pretty picture.

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