The Road to Stagflation

The Obama Administration is spending wildly beyond the imagination of any conservative analyst I know. Last month, the spending started (excluding TARP) with H.R. 1, more commonly known as the American Recovery and Reinvestment Act. This supposed stimulus bill committed the American people to a $780 billion debt with one signature. Then came the $900 million Obama pledged to rebuild the Gaza strip after terrorists attacked the sovereign nation, Israel. Congress then passed the omnibus spending bill, to keep the government running for the remainder of the year. (I wont discuss Obama's pledge to eradicate bills with earmarks but then signed this one that contained the most ever; over 9000).

As of today, we now have another government agency; the Public-Private Investment Program, which will not only add nearly another $1 trillion to our debt, but will increase the powers of the President as well. The article, "Treasury's toxic asset plan could cost $1 trillion", indicates that the Secretary of the Treasury, under this new agency, can seize any failing firm large enough to ripple the economy sufficiently with the only permission needed being from the President and the Federal Reserve. Is this not a state allowed private market?

So much for our free market economy!

Anyway, back to finances!

The first time Geithner disclosed information about this plan, the market plummeted. Part of the decline was his inability to confidently address the media, but the rest came from the overwhelming lack of support for the program. Today's market response, thus far, has been overwhelmingly positive. At the time of this article the Dow is up over 350 points. This is good news, in the short run. Now banks are happy that they wont have the bad assets to contend with. But what about the spending for future generations?

Remember Senator Judd Gregg, the New Hampshire Republican that withdrew from consideration for Secretary of Commerce over "irresolvable conflicts on issues such as the stimulus package and the census?" Sunday, on CNN's "State of the Union" Gregg once again made an honorable decision; he claimed that the implications of Obama's ambitious agenda was "bankruptcy for the United States!"

Statements such as these are certainly an eye opener. Senator Gregg, before becoming Senator was a member of the House as well as the Governor of New Hampshire. If being governor of a state didn't give him credibility, certainly his experience as the Chairman on the Senate Budget Committee would provide ample time analyzing cost-benefit data and advising on the findings.

Maybe the current administration ought to heed his words and use caution when spending. We currently are in the midst of a great decline in GDP. Despite what some Liberals may tell you, Bush was great for our economy. For seven years we had growth (save right after 9/11...see graph.)

As a President who campaigned on the bettering of all his constituents, albeit through redistribution and heavy taxes for the rich, Obama needs to be mindful of his spending habits.

There is currently no end in sight for the contraction in GDP. Nor is there an end in sight for Federal Spending. Consumer prices are also creeping higher. As the dollar declines in value, (the dollar is declining because the Treasury is pumping trillions of newly made dollars into the economy), prices well seem to rise more. This occurrence is a phenomenon known as stagflation and it occurs when consumer prices rise due to discretionary spending simultaneously during a period of contraction in real GDP.

Stagflation is a dangerous situation and this administration, buy hyper-spending, is edging us closer and closer to it. This is the last thing the poor Obama worked so hard to satisfy with his rhetoric during the campaign needs when money's tight, or ever, for that matter.

I urge President Obama to be mindful of our money. Unlike the U.S. Government we cannot print more. Not that that's what should be done, it just seems to be the answer Obama has chosen for the exit strategy of the current economic crisis. I also urge the administration to remove inflationary pressures. I urge Obama to truthfully open the way for negotiation with his ideological counterparts; some have great ideas for improving the economy, such as Senator DeMint's "The American Option: A Jobs Plan That Works."