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Guest Post: Obama “Like A Doctor Caught Prescribing Performance-Enhancing Drugs”

Tyler Durden's picture




 

Submitted by Gary Evans of Global Macro Monitor

Spiegel: Obama “Like A Doctor Caught Prescribing Performance-Enhancing Drugs”

Go no further than the Der Spiegel piece, Why Europe Is Right and Obama Is Wrong, to understand the fundamental differences between American and German thinking on fiscal and monetary stimulus. Michael Sauga, the author, writes,

American economists, central bankers and fiscal policy makers have reinterpreted British economist John Maynard Keynes’s clever idea that government spending is the best way to counteract a serious economic downturn — and have turned it into a permanent prescription. In their version of the Keynesian theory, declining growth or tumbling stock prices should prompt central banks to lower interest rates and governments to come to the rescue with economic stimulus programs. US economists call this “kick-starting” the economy.

 

Laying the Groundwork for the Next Crash

The only problem is that this method of encouraging growth has not stimulated the US economy in recent years, but in fact has put it on a crash course. From the Asian economic crisis to the Internet and subprime mortgage bubbles, economic stimulus programs by monetary and fiscal policy makers have regularly laid the groundwork for the next crash instead of encouraging sustainable growth. In the last decade, the volume of lending in the United States grew five times as fast as the real economy.

It gets better,

Cheap money created the fertilizer for the excesses of the US financial industry. Low interest rates seduced mortgage providers into talking even the homeless into taking out mortgages. And the same low rates made it easier for investment banks and hedge funds, using increasingly risky loan structures, to transform the once-leisurely insurance and bond markets into casinos.

 

Now the bubble has burst. This has not, however, prompted the US government to conclude that its prescriptions could have been wrong. On the contrary, now it wants to increase the dose. Obama plans to follow the largely unsuccessful 2008 economic stimulus program with a new program this year. Meanwhile, Federal Reserve Chairman Ben Bernanke says that he intends to flood the economy with cheap liquidity — for years, if necessary.

The “prescriptions could have wrong…and now it wants to increase the dose.”   Sound familiar?  Here’s the upshot,

The real problem, though, is a different one. The US economy doesn’t lack money. Rather, it lacks products that can compete in the global marketplace. The country has a deep trade deficit, yet the Obama administration is borrowing money at the same rate as near-bankrupt Greece.

 

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Tue, 10/04/2011 - 06:27 | 1736313 Cassandra Syndrome
Cassandra Syndrome's picture

Pass this Jobs Bill Bitchez

Tue, 10/04/2011 - 07:17 | 1736333 dlmaniac
dlmaniac's picture

"But ... but ... but ... B-B-Bush ... you know ... ho-ho-ho ...  ('WTF is going on w/ this prompter??!!') ... w-w-won ... hi-hi-his 2nd term ... th-th-that way ... s-s-so why ... I mean ... c-c-can't I?"

Tue, 10/04/2011 - 06:30 | 1736314 GeneMarchbanks
GeneMarchbanks's picture

Too true. Is Krugman mentioned? 'Cause ... um... fuck that guy.

Tue, 10/04/2011 - 06:29 | 1736315 Fips_OnTheSpot
Fips_OnTheSpot's picture

Listen up!

Tue, 10/04/2011 - 07:05 | 1736357 Snidley Whipsnae
Snidley Whipsnae's picture

I'm making up a new sandwich board... "Obama! Bonuses The Bankers Can Believe In"

On the reverse ... "Will Work For Food, PMs, Or Anything Except Fiat"

 

Tue, 10/04/2011 - 06:31 | 1736317 swissaustrian
swissaustrian's picture

Wow, an austrian analysis from a left wing newspaper. Things are changing...

Tue, 10/04/2011 - 06:39 | 1736321 eigenvalue
eigenvalue's picture

Yup, soon you will read an Austrian analysis from the Playboy Magazine. :)

Tue, 10/04/2011 - 07:06 | 1736359 Cassandra Syndrome
Cassandra Syndrome's picture

That would be Utopia!

Tue, 10/04/2011 - 07:07 | 1736360 Snidley Whipsnae
Snidley Whipsnae's picture

Vanity Fair (of all mags) has had some decent economic analysis for years. Of course, they are ignored since they are not PHD Economic ignoramuses.

Tue, 10/04/2011 - 09:22 | 1736693 Bicycle Repairman
Bicycle Repairman's picture

"Yup, soon you will read an Austrian analysis from the Playboy Magazine. :)"

Just don't put Mises in the centerfold.

Tue, 10/04/2011 - 15:23 | 1738332 Tidewater
Tue, 10/04/2011 - 06:33 | 1736318 eigenvalue
eigenvalue's picture

There is nothing new here. Most of regular ZHers know that the stimulus package would do nothing good to the economy.

Tue, 10/04/2011 - 06:37 | 1736320 BandGap
BandGap's picture

This is a direct response to Dr. Tin giving the Euros advice recently.

The thing about this fix is that it is a slow train back to competing on a global scale. Just look at how 1/2 a billion dollars in a state of the art solar panel went. This administration doesn't want to succeed, they want to have fun blowing up the toys, never thinking about the mess or what they are going to play with later.

Tue, 10/04/2011 - 06:41 | 1736322 AUD
AUD's picture

Now the bubble has burst

No it hasn't, the credit of the US government is still bubbling

The country has a deep trade deficit, yet the Obama administration is borrowing money at the same rate as near-bankrupt Greece.

So what? With the Fed keen to give bond speculators, including other central banks, their profits & other central banks obliging, why wouldn't the US borrow? Its debt is 'money good', there is no limit to how much it can borrow.

Tue, 10/04/2011 - 06:49 | 1736327 MarketTruth
MarketTruth's picture

As long as you remember that the 'full faith and credit of the USA' is based on the government/Fed ability to tax the country's citizens. In other words, the 'credit' part is based on ever-increasing taxation, and thus stealing American citizen's earnings. Naturally this taxation (theft) will need to be increased on a continual basis, and thus take away more and more citizen's earnings to pay off past debt. It is akin to a PONZI scheme of course, yet such is the way of America and their government's policies.

Solution:
Reduce your tax exposure as much as possible
Barter every chance you get.
Find way to 'exchange' work for work
Etc.

 

Tue, 10/04/2011 - 07:01 | 1736350 AUD
AUD's picture

Yes but the reality is at present the debt of the US government is 'money good', it can borrow without limit.

One day the creditors will wise up, I suspect when there is no more profit in the bond market. At present the ponzi scheme continues, for every halving of yields, bond prices double, there are still massive profits at the long end of the yield curve.

Don't underestimate the power of profit or it's acolyte, the prophet of profit, the central bank.

Tue, 10/04/2011 - 07:38 | 1736415 Diogenes
Diogenes's picture

How 19th century. You should know that while the US has been increasing borrowing, they have been reducing taxes especially for the rich.

The poor pay less taxes because they have no money.

They are not paying back any of it, they are not even paying the interest, every month they borrow more.

None of it will ever be paid back. No taxpayer will ever pay his "fair share". The whole thing is a Ponzi scheme based on borrowing ever larger sums while paying the interest out of new borrowing.

It has now got to the point where there is not enough money in the world to satisfy the US demand. Now the Federal Reserve is the biggest "buyer" of US gov debt.

They "buy" the bonds then use them as backing for new money which they send to Washington to spend. In other words unbacked printing by proxy.

Tue, 10/04/2011 - 09:26 | 1736710 Bicycle Repairman
Bicycle Repairman's picture

"In other words, the 'credit' part is based on ever-increasing taxation, and thus stealing American citizen's earnings. Naturally this taxation (theft) will need to be increased on a continual basis"

This is the reason for the ramp up in "security", not the GWOT.  FedGov must demonstrate its control over the sheeple to their creditors.  And then shear the sheep when needed.

Tue, 10/04/2011 - 06:58 | 1736346 jmcadg
jmcadg's picture

I don't agree with Keynesian theory, but if the funds had actually gone to creating productive output and not bailout the banks, maybe it might have worked. Greed has screwed the idea and an epic fail is on the horizon.

Tue, 10/04/2011 - 07:06 | 1736358 Steve Evets
Steve Evets's picture

The funds came from thin air. The only thing they could have possibly done was bid up existing goods.

Tue, 10/04/2011 - 08:57 | 1736438 rwe2late
rwe2late's picture

 The "borrowed" money came from "thin air".  Proper targeted taxes, tariffs, and fines directed at such as certain financial transactions, harmful products, detrimental imports, and polluters could have been spent to redirect economic activity to more socially worthwhile and beneficial pursuits. Instead, the monies were spent on handouts to financial tycoons, health insurance racketeers, and the promotion of global militarism primarily in support of global oil and the petrodollar.

The American Society of Civil Engineers’ infrastructure report card:

2009 Grades
Aviation D
Bridges C
Dams D
Drinking Water D-
Energy D+
Hazardous Waste D
Inland Waterways D-
Levees D-
Public Parks and Recreation C-
Rail C-
Roads D-
Schools D
Solid Waste C+
Transit D
Wastewater D-

America’s Infrastructure GPA: D
 http://www.infrastructurereportcard.org/

 Additionally, money created directly by government out of "thin air" may also be OK so long as it is done proportionate to a reasonable monetary measure of GDP increase.

.

Tue, 10/04/2011 - 08:58 | 1736628 ElvisDog
ElvisDog's picture

Asking the Civil Engineers if we need to spend more money on bridges is like asking an orthodontist if your kid needs braces. The answer in both cases will be "of course you do".

Tue, 10/04/2011 - 09:36 | 1736757 Stuck on Zero
Stuck on Zero's picture

Kinda like asking politicians if they need to spend more.

Tue, 10/04/2011 - 09:28 | 1736724 Bicycle Repairman
Bicycle Repairman's picture

"The funds came from thin air. The only thing they could have possibly done was bid up existing goods."

The existing goods might have ended up as part of job-producing infrastructure instead of in GS' warehouse and tankers.

Tue, 10/04/2011 - 07:11 | 1736363 TwelfthVulture
TwelfthVulture's picture

One of the basic tenets of Kenesian theory is that it matters not whether the money government spends is used toward productive output or rather used to dig a hole here today fill it tomorrow and redig it Thursday, as long as the government spends the money.  Greed is not the problem, the idea itself is the epic fail.

Tue, 10/04/2011 - 07:18 | 1736378 Snidley Whipsnae
Snidley Whipsnae's picture

TV... Yeah, Keynes didn't buy into the 'broken window fallacy'... cause he said 'in the long run we are all dead'...

Governments chose Keynesian policy for one reason: It let them print money at will.

The Austrians, on the other hand, told govs they needed to show restraint. No government wants to hear that. How would they buy votes if they exhibited restraint?

All reasons that govs must be brought back to some form of gold standard to make them act responsibily... and, make bankers and citizens act responsibily as well.

Tue, 10/04/2011 - 07:03 | 1736353 billwilson
billwilson's picture

1/2 the trade deficit is oil, which Americans use like water. A simple rise in price to encourage conservation and smaller autos would have a huge impact (on oil imports and the budget deficit). It is the single thing that the government could do that would make the most difference in this economic mess.

Tue, 10/04/2011 - 09:02 | 1736634 ElvisDog
ElvisDog's picture

Your math is fuzzy. The oil trade deficit dollar amount is price per barrel times number of barrels. If the price goes up, the total dollar amount we spend on imported oil might very well remain constant. Now if your proposal is to raise the domestic taxes on oil you might have something, but good luck with that from a political point of view. Nothing pisses off the masses like rising gasoline prices.

Tue, 10/04/2011 - 09:56 | 1736860 Bicycle Repairman
Bicycle Repairman's picture

30 years ago the Honda Civic was a 50 mpg car with a traditional piston/gasoline engine.  Why hasn't this been improved upon? 

In the mid-90s the GM EPV was an all-electric car, where did it go?  (That's right, GM!). 

Many cars in Europe get over 50 mph with gasoline powered engines. 

The SmartCar gets 60 mpg in Europe, 36 mpg in the USA.

What' going on?

Tue, 10/04/2011 - 07:13 | 1736367 Snidley Whipsnae
Snidley Whipsnae's picture

The 'battle for economic supremacy' will come down to which country can deliver the most finished product, of highest quality, for the least amount of oil consumed.

how we doin so far? lol

Tue, 10/04/2011 - 09:58 | 1736865 Bicycle Repairman
Bicycle Repairman's picture

The 'battle for economic supremacy' will come down to which country can deliver the most shock and awe to oil-producing nations.

We're in the lead, I believe.

Tue, 10/04/2011 - 07:17 | 1736374 PulauHantu29
PulauHantu29's picture

But Chuk Schoomer said it was the China's fault?

Tue, 10/04/2011 - 07:17 | 1736375 El Gordo
El Gordo's picture

Don't evet think the Administration doesn't know what it is doing.  It's goal is to bring this country to its knees, and by that measure, is succeeding beyond its wildest dreams.

Tue, 10/04/2011 - 07:18 | 1736377 earnulf
earnulf's picture

The problem with the bailouts is that they ascribed to the political "trickle down" theory, in which one gives more and more money to people who are at the top of the pyramid (scheme) and the funds will cover the rest of the problem like an chocolate sundae.    Of course the "money" went into the mouth of the rich and the rest of us got fertilized by the "trickle down", thus our "green shoots".

Given the level of debt in this country, a fair and equitable solution to "jump start" the consumer economy would have been to distribute the funds to those SSI's that filed taxes, allowing them to consume at the local level, or pay off debt, resulting in lower consumer debt levels or increased consumer demand or both.    That would have been about a $3,000 per SSI filer "bonus" that could have seriously increased consumer demand (which is supposidly 70% of the economy)  <<500 Billion divided by 150 million taxpayers>>

Of course, fair and equitable need not apply when the voting rights of corporations are just a political donation away and we all know that money is votes.

Tue, 10/04/2011 - 07:21 | 1736382 Snidley Whipsnae
Snidley Whipsnae's picture

Studies conducted after the direct hand outs to taxpayers indicated that over 50% of the money was spent on online porn sites...

I suppose the rest was wasted?

Tue, 10/04/2011 - 07:44 | 1736427 Vincent Vega
Vincent Vega's picture

Good one, Snidley.   +1

Tue, 10/04/2011 - 07:24 | 1736385 nmewn
nmewn's picture

If debt is the problem more debt cannot be the solution.

Tue, 10/04/2011 - 07:25 | 1736387 lamont cranston
lamont cranston's picture

$16 trillion & counting...the old Sen. Everett Dirksen saying from ther late 50s of, "a biilion here, a billion there, and you're talking about real money" requires an update.  Until the USA goes Mugasbe and it has to be a "quadrillion, no, make that a quintillion..."

Tue, 10/04/2011 - 07:42 | 1736420 praps
praps's picture

It's different this time. A huge wave of baby boomers are stopping spending and are saving for their old age. They are paying down debt.

No amount of government printing or stimulus can counteract this.

There will be no recovery until this baby boomer wave has passed - another 10 years at least. Until then every asset class will be sold in an attempt to pay down debt.

Tue, 10/04/2011 - 08:05 | 1736472 Bartanist
Bartanist's picture

And yet, the Powers That Be in the US want to continue to strip the US's ability to manufacture and supply its own needs and instead want to increase the US's dependence on low labor countries.

I do not understand the government and banker's lunatic passion for throttling the US people through regulation and debt.

Tue, 10/04/2011 - 08:30 | 1736539 Bob
Bob's picture

Yes, let's do compare the US and Germany.  Germany has not paid its industrial sector to move to China on destructively self-serving terms.  Germany has decreased the length of labor's work week to support employment.  Germany has universal health care and gets far better health outcomes for far less money.

It's stupid to see the entire economy only in terms of monetary or even fiscal terms.  There are even more fundamental social differences that favor Germany. 

Tue, 10/04/2011 - 09:49 | 1736823 bhakta
bhakta's picture

I love this article. The Germans with their scientific language, have a way of seeing clearly at times.

Tue, 10/04/2011 - 10:01 | 1736875 bobbydelgreco
bobbydelgreco's picture

what i like about this article is how it protects keynes reputation; american economic policy is based on a peculiar misinterpretation of keynes by the likes of ben & krugman; no one was more dismissive of currency devaluation then keynes; you zhers should not ignore the real keynes; for his liquidty trap ideas means when things go bad & one day they will gold will tumble

Tue, 10/04/2011 - 10:10 | 1736916 Ellesmere
Ellesmere's picture

Ouch....

Ditto on Keynes....blaming him for this is stupid.

Neither his ideas nor Hayek/Friedman's are/have being applied properly.

Wed, 10/12/2011 - 14:18 | 1766564 karmete
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