DJH: We have been inundated with details about just how large Obama’s staggering 2010 budget is, and it is. But numbers are just numbers, and almost every number that comes out of Washington these days is beyond the grasp of the average human mind. What’s missing from virtually every analysis I’ve seen is an effort to “connect the dots,” between life today and what might (will) happen if this level of runaway spending is not stopped. And that is the purpose of my new Threat Analysis on Chronic Deficit Spending, which will be published as a four part series over the next week or so.
Summary
- Part #1: How Big is It? — Obama has embarked on the greatest deficit spending spree since World War II. However, unlike the WWII deficit that was temporary and clearly targeted for a specific one-time event, Obama’s recent budget indicates that he believes we can survive his massive deficit spending for ten years or more, with the only justification being to fund his far left social agenda.
- Part #2: Who Gets Hurt? – On the surface, the downside of “printing money like there’s no tomorrow” isn’t exactly obvious. In fact, there is no immediate problem, that is until the rest of the world decides that the US Dollar isn’t worth owning. When this happens, inflation takes off and everything suddenly go up in price. The last time the US flirted with serious inflation was during the far left regime of Jimmy Carter. The Main Stream Media, even FOX News, has yet to tell the story about who gets hurt and who actually benefits during this kind of runaway inflation. Guess what? Obama’s “people” stand to do well if inflation takes off again, and those of us in the private sector, particularly retiring Baby Boomers stand to get killed.
- Part #3: What is Hyperinflation and Can it Happen Here? – Most people don’t even know what Hyperinflation is and if they do, they think it’s a problem that only happens in third world countries like Zimbabwe, but that’s not true. In 1920’s, industrial Germany started printing money to fund a massive deficit and ended up suffering from the most extreme case of hyperinflation the world has ever seen. Can it happen here?
- Part #4: What Would Dave Do? – Although I generally limit my advice to career success, the events of the last year have really sharpened my focus on economics and politics. I will conclude this series with my own ideas on how to cut the deficit; for what they’re worth!
How Big is It?
Before I get into the exact details of what chronic deficit spending could mean to you, it is necessary to spell out just how big Obama’s spending plan is. Take a look at this diagram from The Heritage Foundation – it shows just the growing share of the Gross Domestic Product (GDP) that the deficit will consume under Obama’s plan:
Not only is the deficit projected to consume virtually all of our GDP by 2019, but it consumes three times the share consumed by George Bush’s bloated budget in the last decade.
50 Million Private Sector Jobs
Further, in a veiled effort to “pay as you go,” the Obama budget includes nearly $2 trillion in new taxes! Not only do these new taxes fail to close the deficit, but they completely fall on banks, businesses and the wealthy individuals who invest in creating new jobs (see chart on the right from the OMB). Oh yeah, these $2 trillion in new taxes also fall almost completely on the private sector and their workers.
We have gotten so numb to numbers like trillions that we’ve lost sight of just how much money $2 trillion dollars actually is. Here are two ways of thinking about it; one imaginary and one that’s very real.
Imagine putting a $20 bill into a safe box every second of every minute of every hour of every day of every year of your entire life. If you lived 75 years, do you think you’d have enough to pay these taxes? Think again. That would only add up to $47 billion. To put away enough to pay Obama’s new taxes, you would have to save $20/second for 3,150 years!
Okay, that’s an interesting little analogy, but somewhat hypothetical. Let me put Obama’s $2 trillion tax on the private sector into real economic terms, as in jobs it will kill.
In order for the private sector to pay these $2 trillion on new taxes over the coming year, they must cut cost elsewhere. Obama and his crew may say they should take the money out of profits, but that’s not going to happen.
First of all, there simply aren’t enough profits out there to pay these taxes. Second, that’s not how businesses work. They exist to create profits and that’s what they do. They will find adopt more efficient ways to get things done; either using technology or moving more jobs offshore – either way, the $2 trillion will come out of payrolls.
Okay, a little more math. The average private sector worker makes $40,000/year, how many $40,000/year jobs does the private sector need to lose to pay Obama’s $2 trillion in new taxes? The math will make your hair stand on end.
50 million American private sectors jobs will be lost in the next 10 years to fund Obama’s fiscal largess.
And while some government jobs will be created on the other side, the fact is the average government worker makes $75,000/year or 87% more than a private sector worker, so only 27 million government jobs might be created, if we assume the entire $2 trillion goes toward hiring more government workers. But, we know that’s not going to be the case. The government will use that money to fund pay raises, healthcare and retirement costs for current workers, global warming studies, weapon systems no one wants, along with things like Nancy Pelosi’s $1 million junket to Copenhagen.
How’s that for the end of life as we know it?
Coming Next — Chronic Deficit Spending: Who Gets Hurt?
There is a syndrome in psychiatry known as la belle indifference. It has been defined as: A naive, inappropriate lack of emotion or concern for the perceptions by others of one’s disability, usually seen in persons with conversion disorder.
It is clear to me that not only is Obama and his entire administration (and most of the congress) suffering from this malady, it has also trickled down to most of the people of this country who seem to have adopted the “what can I do about it anyway” attitude.
Put the frog in boiling water, he jumps out. Put the frog in cool water and turn the heat up gradually and you’ve got frog’s legs. I fear we are destined to be Cuisse de grenouilles rather quickly.
I will give Congress about 2 years to demonstrate that they are willing to rein in this spending, although I doubt they will be able to control themselves.
If they don’t demonstrate to the market that they are putting a cap on the dollars spent, then the MARKET will do it for them… this will occur as a flight from dollars, as the US currency will lose value and cease to be the key currency used by the world.
This will lead to, as you imply, an almost worthless dolllar, and no country willing to buy our debt any longer, meaning that more dollars will need to be printed to cover JUST the interest payment on our debt.
This will lead to hyper inflation, which is NOT a price of goods event, but rather a currency event. The normal methods of curbing normal inflation (ie. higher interest rates) will not work with a curency event.
These hyper inflationary events typically last about 2 years, until the currency is sufficiently devalued and a new currencty standard needs to be implemented.
So, for example, your current “dollars” under whatever new currency is implemented, might be worth a 10 to 1 ratio. If you have 100,000 in the bank in US dollars, you will now have 10,000 of the “new” dollar (let’s call it the “Amero”).
If your house is worth $500,000, it is now worth $50,000…
If you are making $100,000 per year, you are now making $10,000 per year…
and so on….
and you will have no control over how this occurs once we reach the tipping point… which may very likely be this Obama budget and the ones to come…
we have about 2 years to change course, then the house of cards collapses…
jmo, of course…
[...] Obama’s 2010 Federal Budget. In the first three posts, I answered the rhetorical questions: “How Big is It,” “Who Gets Hurt,” and “Hyperinflation; What is it and Could it Happen [...]