Friday, April 3, 2009


Scanning the news from Europe, I ran across this "Fatal Overdose" piece from Germany's Der Speigel contributor, Gabon Stiengart. First, Steingart's comments on the Bush administration's reckless deficit spending ...

No other president has ever printed money and expanded the money supply with such abandon as Bush. This new money -- and therein lies its danger -- was not backed by real value in the form of goods or services. The measure may have had the desired effect -- the world economy revived, at least initially. And US consumption kept the global economy going for years. But the growth rates generated in the process were illusionary. The US had begun to hallucinate.
From there, Steingart offers a quick panorama of what this means for America and the American consumer/taxpayer ...

The addiction to new cash injections was chronic. The US had allowed itself to sink into an abject lifestyle. It sold more and more billions in new government bonds in order to preserve the appearance of a prosperous nation. To make matters worse, private households copied the example of the state. The average American now lives from hand to mouth and has 15 credit cards. The savings rate is almost zero. At the end of the Bush era, 75 percent of global savings were flowing into the US [my emphasis].
Whose to blame? Der Spiegel's Steingart starts with one of the stars of our spending and borrowing binge, Alan Greenspan ...

The president and the head of the Federal Reserve, Alan Greenspan, knew about the problem very well. Perhaps the Americans even knew just how irresponsible their actions were -- at any rate, they did everything they could to hide them from the world. Since 2006, figures for the money supply -- in other words, the total number of dollars in circulation -- have no longer been published in the US. As a result, a statistic which is regarded by the European Central Bank as a key indicator is now treated as a state secret in the US.
What Steingart is referring to here is the Bush administration's decision to discontinue publishing the figures for M-3 (total money supply, or demands on) back in 2006. Seriously, we're not sure how many dollars, or how the claim on dollars, stacks up (I discuss this in my book; Chps. 9 & 12).

Then the Der Spiegel's Steingart turns his review on President Obama ...

But the change of government in Washington has not brought a return to self-restraint and solidity. On the contrary, it has led to further abandon. Barack Obama has continued the course towards greater and greater state debt -- and increased the pace. One-third of his budget is no longer covered by revenues. The only things which are currently running at full production in the US are the printing presses at the Treasury.

At the summit in London, delegates talked about everything -- except this issue. As a result, no attention was given to the fact that the crisis is being fought with the same instrument that caused it in the first place. The acreage for cheap dollars will now be extended once again. Only this time, the state is also acting as the dealer, so that it can personally take care of how the trillions are distributed.
I can't say that I disagree. But it really doesn't matter for the Obama administration because we're pumping so much money into the economy that markets will most likely stabilize and President Obama will win a second term. Inflation will no doubt follow, but that means the burden of our debts will slowly diminish.

We don't have a program this Saturday, but I'll be sure to discuss the pros & cons of this on our next program (April 11).

- Mark

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