Monday, November 10, 2008

Obama Planning "Big Bang" Economic Intervention

This is very scary. FT reports:

US President-elect Barack Obama intends to push a comprehensive programme of social and economic reform beyond an immediate emergency stimulus package, Rahm Emanuel, the next White House chief of staff, indicated on Sunday.

Mr Emanuel brushed aside concerns that an Obama administration would risk taking on too much when it takes office in January. He said Mr Obama saw the financial meltdown as an historic opportunity to deliver the large-scale investments that Democrats had promised for years.

Tackling the meltdown would not entail delays in plans for far-reaching energy, healthcare and education reforms when all three were also in crisis, he said. “These are crises you can no longer afford to postpone [addressing].”...

Sunday’s comments also reinforce the impression that Mr Obama’s transition economic advisory board – which includes leading lights of the Clinton era, such as Lawrence Summers and Robert Rubin – is tilting heavily towards a “big bang” approach that would combine a short-term stimulus with large public investments to raise the longer-term US growth rate..

In contrast to 1992, when Mr Clinton postponed longer-term investments in favour of urgent budget deficit reduction, advisers to Mr Obama, including Mr Summers, who is tipped by some as his first Treasury secretary, are tilting towards investments. They emphasise that Mr Obama will stick to a medium-term goal of restoring fiscal discipline.

Since basic economics teaches that none of Obama's healthcare, energy and energy interventions will work, Obama is about to further muck up three key areas of the economy.

As for the calling an expanded government bureaucracy "investment", and then calling for "large scale investments", I wonder just how much of a private economy will be left.

Nothing comes for free. Again there is little to no talk about how these "investments" will be paid for. If Obama thinks he his just going to borrow the money and expand the deficit, he is counting on the Asians to be saps and buy the paper. Note to Obama, Asia is trying to figure out how to offload US paper.

Thus, it appears that in the first 100 days, Obama plans to muck up as many sectors of the economy as he can. He will crowd out the private sector with new government borrowing. This will result in much higher interest rates, higher inflation and a resumption of the collapse of the dollar.

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