Posts Tagged ‘multiplier effect’

Lest We Forget: OBAMA Is America’s Sputnik Moment

January 26, 2011

Obama talked about America facing a “Sputnik moment” last night.  For the record, “Sputnik” was a Soviet successful satellite that stunned America out of its complacency.  America entered the space race with a vengeance, and won it by a knockout.  Obama exploited that moment,  pointed out that America is watching the world go past us, and says we need to be competitive by pursuing massive government spending oops I mean “investment.”

A write up from Slate:

But he did evoke a huge defense issue from a half-century ago—the signal wake-up security call that marked the years of transition from Dwight Eisenhower to John F. Kennedy, the single word that has symbolized ever since the fear of slipping behind in a dangerous world: Sputnik.

“This is our generation’s Sputnik moment,” Obama said. As a result, we need to fund “a level of research and development we haven’t seen since the height of the space race.”

Well, at the heart of Obama’s State of the Union speech were many contradictions.  And I’ll get to them.  But his “Sputnik moment” thing was the worst one of all.

Allow me to cite a couple of my own articles to document just how stunningly pathetic Obama’s analogy truly is:

Space Program: Obama’s Strategy To Turn America Into Banana Republic Moving Like Clockwork

When American Greatness Is Gone, And When NASA = ‘National Aeronautics and Sharia Administration’

The first article above documents how Obama has been GUTTING the space program, and in fact RETURNING AMERICA to the pre-Sputnik vulnerability.  To the disgust and open contempt of former NASA heroes.  And the second documents how Obama has turned the now disgraced NASA into yet another tool for political correctness.

And to make sure you realize how pathetically laughable Obama’s analogy is, let’s make sure we understand that Sputnik was a Russian threat, and then let’s make sure we understand how Obama has helped undermine American interests to advance the Russians with yet another title:

Obama’s Treasonous Lies Help Russia Punk America

That one documents how Obama has undermined America’s missile defense program.  And the actual Sputnik moment was all about dealing with Russian missiles.

This guy’s talking about our Sputnik moment?  Seriously?

Conservatives had already debunked many of Obama’s lies last night before he even told them.  I’ve debunked those lies right here.

This is why Senator Jim DeMint said after Obama’s latest speech, “It’s hard to take the president seriously.”

But sadly we must take Obama seriously.  Because Obama’s real political genius comes down to one simple thing: he realized that the people who support him are stupid and ignorant, don’t know a damn thing that the incredibly biased media machine doesn’t tell them, and that he can therefore spit out anything and not get caught by much of America in his deceit.

Obama is our Sputnik moment.  By which I mean, this turd-in-chief and his policies are the reason that we are failing and falling behind while other nations around us rise up and overtake us.

One of the other major contradictions of Obama’s speech are that he is essentially acting as if the previous two years didn’t happen.  “Nothing to see over there, folks, now if you don’t mind looking this way.” Obama is saying that we need a major new “investment” (which is a tidy euphemism for yet more government pork), when in fact he has already “invested” well over a trillion dollars with absolutely nothing to show for it but more debt and more deficits than this nation has ever seen before.

Which is why DeMint said:

When asked about President Obama’s statements about government investments, DeMint said, “Now the president is promising more spending, which he calls investments, when the time is to cut spending in Washington.. The president needs to tell the American people the truth.. That its time for the federal government to do less.”

Let’s look at Obama’s trillions in “investment” and see what effect it has had on our “competitiveness”:

Why Is American Unemployment Under Obama Rising Faster Than In Other Countries?

The Dirty Secret About Our Unemployment Rate

Obama Stimulus Is Reason Why Our Unemployment So Much Higher Than Others

In other words, there is an inversely proportional comparison to Obama’s stimulus and American “competitiveness.”

And US government spending has little or nothing to such competitiveness.  Take a look at our education spending:

U.S. tops the world in school spending but not test scores

WASHINGTON (AP) — The United States spends more public and private money on education than other major countries, but its performance doesn’t measure up in areas ranging from high-school graduation rates to test scores in math, reading and science, a new report shows.

That dates back to 2003.  Look before that, look after that, and the results are the same.  We spend and spend and spend while our kids get dumber and dumber and dumber.  To the extent that right now only a third of our kids are considered proficient in major subjects.

Here’s the problem: liberals call for more and more and more spending, but liberals make sure that all the largess goes to them, and goes to their politically connected interests.  Like the liberal teachers unions that are the REAL reason our country is falling behind in education.  And to the extent we spend more, we only feed the beast that is the REAL source of our dilemma and help build it into an even BIGGER problem as it uses its vast resources to protect the status quo.

Obama wants to spend billions on “green energy.”  What that means is that he wants to subsidize incredibly expensive and NON-Competitive energy sources while our rivals continue to run circles around us with cheap and efficient oil and coal.  And the more and the faster we spend, the more and the faster we fall behind.

The real sputnik moment, epitomized in the person of Obama himself, is this: America is spending itself into extinction.  It is not wise spending, because we are sucking money out of the efficient private sector, giving to an incredibly inefficient and wasteful federal government, and then doling it out on the basis of political patronage rather than common sense.

I’ll end with this: Obama is using a “mangled multiplier” as his basis for the need for more government spending.  On Obama’s and the Democrat Party’s distorted view, for every dollar the federal government spends, we get a $1.55 “bang for our buck.”  But it isn’t true.  Unless you really think building tunnels for turtles, bridges to nowhere and studying cow flatulence is going to make America great.  On the International Monetary Fund model, which just makes more sense in addition to being less ideologically biased, we only get back 70 cents for every dollar spent.  See this article for the documentation on that, and check out this graph:

In his SOTU speech, Obama provided an airplane metaphor that went:

“Cutting the deficit by gutting our investments in innovation and education is like lightening an overloaded airplane by removing its engine. It may feel like you’re flying high at first, but it won’t take long before you’ll feel the impact.”

On Obama’s metaphor, government is the engine that flies our economy.  And if you reduce government spending, you eliminate the engine and the plane crashes.  But that simply isn’t true; it is PRIVATE spending that flies our economy.  And sucking money out of the private sector to create more government bureaucracy and more pork-barrel spending is foolhardy.  It is actually OBAMA who is actually removing the engine from our economy.

If we really want to experience a “Sputnik moment” and surge back to greatness, what we need to do is wake up and vote out Obama and the Democrat Party.

Says Nancy Pelosi: ‘The More Americans On Unemployment And Food Stamps, The Better For The Economy.’

October 8, 2010

On the unemployment situation and food stamps, Nancy Pelosi said this:

“It is the biggest bang for the buck when you do food stamps and unemployment insurance. The biggest bang for the buck,” she said

Pelosi said that for every dollar a person receives in food stamps, $1.79 is put back into the economy.

Apparently, according to the leading Democrat in Congress, if every single American lost their job, and went on unemployment and food stamps, our economy would nearly double overnight, obviously resulting in an immediate recovery.

Which is to say, Obama, Pelosi and Reid should destroy even MORE jobs so that even MORE Americans are on unemployment and food stamps.  The more Americans getting food stamps, the bigger the bang.  And if Democrats get the chance to destroy a few more million jobs, all those millions of people receiving unemployment and food stamps will have our economy raring back in no time due to that zany multiplier effect.

But the problem is, Nancy Pelosi, the Obama administration and the entire Democrat Party are abject fools.  That big bang Nancy thinks she hears is our economy IMPLODING.   As an IBD article points out, even EUROPE now realizes this sort of government spending is counter-productive:

This is the big reason why they’ve made such a mess of the economy. They actually believe the more the government spends, the better off we all are — contrary to all evidence that suggests, in fact, cutting spending would push up economic growth.

The mistakes began as soon as the new administration entered office. Then, two of its main economic advisers, Christina Romer and Jared Bernstein, estimated a multiplier effect from government spending of up to 1.55. That is, for every $1 the government spent, the economy would grow by as much as $1.55.

But a study by the International Monetary Fund debunks the idea. As noted by Stanford University economist John Taylor, the IMF study shows a multiplier of just 0.70 — that is, for every $1 the government spends, the economy sees just 70 cents in activity.

This means that government spending crowds out other components of GDP (investment, consumption, net exports) immediately and by a large amount,” wrote Taylor (see chart).

In short, two years of massive government bailouts and the projected surge in spending-driven deficits of as much as $12 trillion over the next decade have done nothing to make our economy healthier.

Instead, we are 3.8 million jobs in the red since President Obama took over. Unemployment remains stubbornly close to 10%, even as the White House touts its “Recovery Summer.”

The International Monetary Fund – which has been a great friend of liberals – utterly contradicts the ridiculous multiplier effect cited by the White House and now by Nancy Pelosi.  A picture is worth a thousand words, in this case:

Democrats are mocking Christine O’Donnell as a witch; but Nancy Pelosi is the real witch, in that she believes she can magically transform a dollar into a dollar seventy-nine – just by blessing it with bureaucratic magic.

And note: “Democrats,” as in Demonic Bureaucrats.

Newt Gingrich rightly wants to contrast Democrats and Republicans as the difference between “the Democratic party of food stamps and the Republican party of paychecks.”  And, as incredible as it might seem, Nancy Pelosi basically agreed with Newt Gingrich.

Greek Crisis Coming To Your Neighborhood Soon

February 21, 2010

Let me summarize what is going on: the Western world (and most definitely the United States) is playing the subprime loan game.  We’re not talking about a few schmucks; we’re talking about the whole country.

We’re borrowing huge sums of money at a current rate of about 3% interest.  But as the lenders start getting nervous, they’re going to want to increase that interest.  We are in plenty of trouble paying these trillions of dollars back at 3% – but what happens if the interest increases to 5% or 7% as it could very quickly do?  The costs of paying these loans would rise to catastrophic levels, and we could find ourselves literally bankrupt overnight.

That’s what happened to Greece.  And it’s what’s ultimately going to happen to the USA.

A Greek crisis is coming to America
By Niall Ferguson
Published: February 10 2010 20:15

It began in Athens. It is spreading to Lisbon and Madrid. But it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. For this is more than just a Mediterranean problem with a farmyard acronym. It is a fiscal crisis of the western world. Its ramifications are far more profound than most investors currently appreciate.

There is of course a distinctive feature to the eurozone crisis.  Because of the way the European Monetary Union was designed, there is in fact no mechanism for a bail-out of the Greek government by the European Union, other member states or the European Central Bank (articles 123 and 125 of the Lisbon treaty). True, Article 122 may be invoked by the European Council to assist a member state that is “seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control”, but at this point nobody wants to pretend that Greece’s yawning deficit was an act of God. Nor is there a way for Greece to devalue its currency, as it would have done in the pre-EMU days of the drachma. There is not even a mechanism for Greece to leave the eurozone.

That leaves just three possibilities: one of the most excruciating fiscal squeezes in modern European history – reducing the deficit from 13 per cent to 3 per cent of gross domestic product within just three years; outright default on all or part of the Greek government’s debt; or (most likely, as signalled by German officials on Wednesday) some kind of bail-out led by Berlin. Because none of these options is very appealing, and because any decision about Greece will have implications for Portugal, Spain and possibly others, it may take much horse-trading before one can be reached.

Yet the idiosyncrasies of the eurozone should not distract us from the general nature of the fiscal crisis that is now afflicting most western economies. Call it the fractal geometry of debt: the problem is essentially the same from Iceland to Ireland to Britain to the US. It just comes in widely differing sizes.

What we in the western world are about to learn is that there is no such thing as a Keynesian free lunch. Deficits did not “save” us half so much as monetary policy – zero interest rates plus quantitative easing – did. First, the impact of government spending (the hallowed “multiplier”) has been much less than the proponents of stimulus hoped. Second, there is a good deal of “leakage” from open economies in a globalised world. Last, crucially, explosions of public debt incur bills that fall due much sooner than we expect.

For the world’s biggest economy, the US, the day of reckoning still seems reassuringly remote. The worse things get in the eurozone, the more the US dollar rallies as nervous investors park their cash in the “safe haven” of American government debt. This effect may persist for some months, just as the dollar and Treasuries rallied in the depths of the banking panic in late 2008.

Yet even a casual look at the fiscal position of the federal government (not to mention the states) makes a nonsense of the phrase “safe haven”. US government debt is a safe haven the way Pearl Harbor was a safe haven in 1941.

Even according to the White House’s new budget projections, the gross federal debt in public hands will exceed 100 per cent of GDP in just two years’ time. This year, like last year, the federal deficit will be around 10 per cent of GDP. The long-run projections of the Congressional Budget Office suggest that the US will never again run a balanced budget. That’s right, never.

The International Monetary Fund recently published estimates of the fiscal adjustments developed economies would need to make to restore fiscal stability over the decade ahead. Worst were Japan and the UK (a fiscal tightening of 13 per cent of GDP). Then came Ireland, Spain and Greece (9 per cent). And in sixth place? Step forward America, which would need to tighten fiscal policy by 8.8 per cent of GDP to satisfy the IMF.

Explosions of public debt hurt economies in the following way, as numerous empirical studies have shown. By raising fears of default and/or currency depreciation ahead of actual inflation, they push up real interest rates. Higher real rates, in turn, act as drag on growth, especially when the private sector is also heavily indebted – as is the case in most western economies, not least the US.

Although the US household savings rate has risen since the Great Recession began, it has not risen enough to absorb a trillion dollars of net Treasury issuance a year. Only two things have thus far stood between the US and higher bond yields: purchases of Treasuries (and mortgage-backed securities, which many sellers essentially swapped for Treasuries) by the Federal Reserve and reserve accumulation by the Chinese monetary authorities.

But now the Fed is phasing out such purchases and is expected to wind up quantitative easing. Meanwhile, the Chinese have sharply reduced their purchases of Treasuries from around 47 per cent of new issuance in 2006 to 20 per cent in 2008 to an estimated 5 per cent last year. Small wonder Morgan Stanley assumes that 10-year yields will rise from around 3.5 per cent to 5.5 per cent this year. On a gross federal debt fast approaching $1,500bn, that implies up to $300bn of extra interest payments – and you get up there pretty quickly with the average maturity of the debt now below 50 months.

The Obama administration’s new budget blithely assumes real GDP growth of 3.6 per cent over the next five years, with inflation averaging 1.4 per cent. But with rising real rates, growth might well be lower. Under those circumstances, interest payments could soar as a share of federal revenue – from a tenth to a fifth to a quarter.

Last week Moody’s Investors Service warned that the triple A credit rating of the US should not be taken for granted. That warning recalls Larry Summers’ killer question (posed before he returned to government): “How long can the world’s biggest borrower remain the world’s biggest power?”

On reflection, it is appropriate that the fiscal crisis of the west has begun in Greece, the birthplace of western civilization. Soon it will cross the channel to Britain. But the key question is when that crisis will reach the last bastion of western power, on the other side of the Atlantic.

The writer is a contributing editor of the FT and author of ‘The Ascent of Money: A Financial History of the World‘

The United States is on life support, and it won’t be long before the doctor turns off the machine and calls the time of death:

It is now mathematically impossible for the United States to repay its debts, even if every single penny was seized from every single man, woman, and child, from every single bank, and from every single business.

This is our future, assuming we can stave ff the fate of Greece:

“Within 12 years…the largest item in the federal budget will be interest payments on the national debt,” said former U.S. Comptroller General David Walker. “[They are] payments for which we get nothing.”

Economic forecasters say future generations of Americans could have a substantially lower standard of living than their predecessors’ for the first time in the country’s history if the debt is not brought under control.

Greece’s budget deficit-to-GDP is an astonishing 12.7%.  And that massive unsustainable spending is the thing that is killing them.  But we shouldn’t laugh: ours is at 11.2%, according to Goldman Sachs:

We now expect the US budget deficit to rise to $1.64 trillion (11.2% of GDP) in fiscal year (FY) 2010 and to total $10.8 trillion (trn) over the next ten years. This profile is modestly above our early October forecast and well above the administration’s figures.

Even so, near-term risks lie to the side of a bigger deficit. Tax receipts have started the year in a deep hole and could continue to fall short. And if the economy struggles as the current dose of fiscal stimulus wears off, as we expect, then policymakers are apt to adopt more stimulus than we have assumed.

The United States is sixth on the list of countries with the highest ratios of budget deficit to GDP.  And the other countries are PIIGS (Portugal, Ireland, Italy, Greece, and Spain).

About the only thing separating us from the fate of Greece right now is the fact that we can keep printing our own currency until we plunge right off the economic cliff.

One morning we’re going to wake up and learn that our currency isn’t worth the paper it’s printed on.


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