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THE FAILURE OF OBAMANOMICS
By DICK MORRIS & EILEEN MCGANN
Published on DickMorris.com on June 3, 2009
The data is in for April. Here's what happened:
1. Household personal income (inflation adjusted) rose but every penny -
and then some - went into savings or paying down debts. Consumer spending,
on which Obama is betting to stimulate the economy, actually fell. None of the
stimulus money was sent. None.
2. Meanwhile, to pay for this stimulus spending that didn't stimulate,
Obama had to borrow so much money that long term interest rates have almost
doubled since he took office, forcing postponement of abandonment of business
expansion and hiring across the board.
What a record!
Here are the details. In April, personal household, inflation-adjusted
income rose by $122 billion. Of that increase, one-third or $44 billion
came from the government's stimulus program. But while personal income was
rising, household savings (which includes paying down credit card balances,
mortgages, student loans, car loans, etc) rose by $132 billion -- $10 billion
more than the rise in income. So personal consumption dropped 0.1%.
The stimulus package was a total and complete failure. As predicted, as
happened with Bush's 2008 tax cut, as happened with the Japanese stimulus
packages of the 90s, fearful consumers sat on their money and wouldn't spend it.
Keynesian economics didn't work. Again.
But the debt sure piled up. The deficit quadrupled and is sending interest
rates soaring as the government elbows aside businesses and consumers at the
loan window, all in a desperate effort to borrow enough money to spend enough
money to stimulate the economy which isn't happening.
As we describe in our new book (out June 23rd) Catastrophe, Keynesian economics
doesn't work. The theory for rational expectations has taken its place.
Consumers are not idiots. They know that when their paycheck is fatter -
either because of tax cuts or government spending - that it is not the beginning
of nirvana but just a short term, one shot respite from hard times. They
know the difference between standing in front on an electric fan and a windy
day.
Barack Obama has fatally undermined our currency, our solvency, our financial
stability, and - ultimately - our economy all to spend money that has had no
economic effect!
Is Obama a failure? Not by his lights. His goal was never to
stimulate the economy. His goal was to expand government spending and he
used the recession as an excuse to do so. And, by this standard, he is a
raging success. With the stimulus spending, the government proportion of
GDP will rise from about 35% to about 40% and with health care "reform" it will
go soaring into the mid-forties, bringing us to parity with Germany en route to
France!
But the results are in: None of Obama's spending is doing anything to help
the economy.
Of course, the process of household savings, designed to pay down debt, is very
healthy. Economists call it de-leveraging. By the start of the recession,
the debt American households owe had risen from 70% of their annual income in
1995 to 140% (excluding mortgages). Now it is on its way back down again.
And, eventually, that will lead to a real recovery -- If Obama doesn't wreck the
currency and bring on mega-inflation before then. (But he probably will).
Go to DickMorris.com to read all of Dick's columns!