Pretty sad when you have the Secretary of State soliciting funds for debt instruments:
US Secretary of State Hillary Clinton has urged China to keep buying US debt as she wrapped up her first overseas trip, during which she agreed to work closely with Beijing on the financial crisis.
Ms Clinton made the plea shortly before leaving China, the final stop on a four-nation Asian tour that also took her to Japan, Indonesia and South Korea, where she worked the crowds to try to restore America’s standing abroad.
In Beijing, she called on authorities in Beijing to continue buying US Treasury bonds, saying it would help jumpstart the flagging US economy and stimulate imports of Chinese goods.
“By continuing to support American Treasury instruments the Chinese are recognising our interconnection. We are truly going to rise or fall together,” Ms Clinton said at the US embassy here.
Of course, its absolutely necessary that China (and the rest of the world) continue to buy these bonds and fund this spending debacle or taxes will have to be raised dramatically (and not just on the ‘rich’) and/or more money will have to be printed. That’s not to say that both of those won’t be done anyway whether China continues to buy or not. My guess is it’s only a matter of time. Don’t forget, health care reform legislation and environmental legislation are yet to come. Both may end up taking even more out of the private side of the economy than the so-called “stimulus” did.
President Barack Obama made a trip to Canada this week to settle fears over the “Buy American” provision in the so-called “stimulus” package:
President Barack Obama on Thursday moved to reassure business and trade partners that the “buy American” provision of the economic stimulus package will not further harm the economy.
Critics of the measure, including foreign trade partners, business groups and even some U.S. industries that use steel and other products, have called “buy American” protectionist and complained it will drive up the cost of business.
Obama, who met with Canadian Prime Minister Stephen Harper for several hours in Ottawa, said he told his counterpart the United States would abide by existing trade pacts.
“I want to grow trade and not contract it,” Obama said. “And I don’t think that there was anything in the recovery package that is adverse to that goal.”
The provision mandates that any construction or infrastructure project in the “stimulus” bill would be required to use American metals, like iron and steel, unless costs were to exceed 25%. This misguided provision has sparked fears of a trade war.
In 1845, Frédéric Bastiat wrote the Petition of the Candlemakers, satire that pointed out the follies of protectionism to French lawmakers:
You are on the right track. You reject abstract theories and little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry.
We come to offer you a wonderful opportunity for your — what shall we call it? Your theory? No, nothing is more deceptive than theory. Your doctrine? Your system? Your principle? But you dislike doctrines, you have a horror of systems, as for principles, you deny that there are any in political economy; therefore we shall call it your practice — your practice without theory and without principle.
We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us.
We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.
Competition spurs improvements and lower prices. Protectionism is what brought us the Smoot-Hawley tariff in 1930, an interventionist economic policy that exacerbated economic problems which eventually led to the Great Depression.
Policies like “Buy American” will only cause retaliation in other parts of the world. We cannot afford that in the middle of a recession.
With Wall Street already showing absolutely no confidence in Barack Obama and Tim Geithner, the president is announcing tax increases in an attempt to cut the budget deficit by half in four years:
A summary of Obama’s budget request for the fiscal year that begins in October will be delivered to Congress on Thursday, with the complete, multi-hundred-page document to follow in April. But Obama plans to unveil his goals for scaling back record deficits and rebuilding the nation’s costly and inefficient health care system tomorrow, when he addresses lawmakers and budget experts at a White House summit on restoring “fiscal responsibility” to Washington.
Yesterday in his weekly radio and Internet address, Obama said he is determined to “get exploding deficits under control” and said his budget request is “sober in its assessments, honest in its accounting, and lays out in detail my strategy for investing in what we need, cutting what we don’t, and restoring fiscal discipline.”
Reducing the deficit, he said, is critical: “We can’t generate sustained growth without getting our deficits under control.”
To get there, Obama proposes to cut spending and raise taxes. The savings would come primarily from “winding down the war” in Iraq, a senior administration official said. The budget assumes continued spending on “overseas military contingency operations” throughout Obama’s presidency, the official said, but that number is lower than the nearly $190 billion budgeted for Iraq and Afghanistan last year.
Obama also seeks to increase tax collections, mainly by making good on his promise to eliminate some of the temporary tax cuts enacted in 2001 and 2003. While the budget would keep the breaks that benefit middle-income families, it would eliminate them for wealthy taxpayers, defined as families earning more than $250,000 a year. Those tax breaks would be permitted to expire on schedule in 2011. That means the top tax rate would rise from 35 percent to 39.6 percent, the tax on capital gains would jump to 20 percent from 15 percent for wealthy filers and the tax on estates worth more than $3.5 million would be maintained at the current rate of 45 percent.
Obama also proposes “a fairly aggressive effort on tax enforcement” that would target corporate loopholes, the official said. And Obama’s budget seeks to tax the earnings of hedge fund managers as normal income rather than at the lower 15 percent capital gains rate.
Overall, tax collections under the plan would rise from about 16 percent of the economy this year to 19 percent in 2013, while federal spending would drop from about 26 percent of the economy, another post-World War II high, to 22 percent.
Add this to the list of “Things Not To Do During A Recession.” Soak the achievers and give absolutely meaningless tax cuts, $13 dollars a week, to the rest of us while the government continues to plunge us further into debt.
Enough with wealth envy and populism. Let’s cut taxes for everyone, cut spending and kill the corporate income tax.
Gotta love this chutzpah:
Invoking his own name-and-shame policy, President Barack Obama warned the nation’s mayors on Friday that he will “call them out” if they waste the money from his massive economic stimulus plan.
“The American people are watching,” Obama told a gathering of mayors at the White House. “They need this plan to work. They expect to see the money that they’ve earned — they’ve worked so hard to earn — spent in its intended purposes without waste, without inefficiency, without fraud.”
This from a guy who just signed into law the biggest waste, fraud and abuse bill ever concocted by our so-called representatives in Washington DC.
I’d like to take a moment to welcome Pennsylvania Gov. Ed Rendell to the Keynesian Skeptics Society:
Pennsylvania Gov. Ed Rendell (D) backed the $787 billion stimulus but said Saturday that he isn’t sure whether it will actually fix the economy.
Rendell, at the National Governors Association meeting in Washington, said Saturday that all governors are committed to making sure that the stimulus is used for measures that can boost their states out of the recession. But he said that most governors will be watching to see what kind of effect it has on the economy.
Rendell said he’s optimistic but that “80 percent are waiting to see if this works.”
“It’s a good first step, but the challenges in infrastructure are enormous and we hope that the administration and the Congress will work with us to meet those challenges,” he said. “We’ve just scratched the surface of the infrastructure needs in this economy in the stimulus bill.”
Asked whether another stimulus will be needed, Rendell said, “I think we should see how this works first.”
It’s not a good first step, it’s really a step back. Keynesianism has been tried and failed.
The federal government has already committed $9.7 trillion to solving this crisis and more money spending is on the table. Where does it the end?
“The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.” – Thomas Jefferson
Here is a look at the Dow Jones since January 20th, when Barack Obama assumed the presidency. I’m not saying this is all his fault, but it’s clear that his mortgage bailout plan and the “stimulus” package have been met with skepticism on Wall Street.
In fact, this is the worst January on record for a president in a century:
[F]rom Nov. 4, 2008 through Feb. 12, 2009, the DJI overall fell 18% — a larger drop than during the Sept-Oct plunge. In January, when the Obama plan, promising far greater deficits than the two much smaller “emergency stimulus” plans signed by Pres. George W. Bush in 2008, was unveiled, the market tanked – the worst January performance in 113 years.
More pointedly, key political victories for the Team Obama spending plan have not been viewed as buying opportunities on Wall Street. A string of negative market reactions began with the December 18 announcement of a stimulus bill of $700 billion (Dow down 2.5%), continued with the January 7 announcement that the actual plan would be “on the high side” (-2.7%) and continued with last week’s 61-36 Senate vote supporting the Administration’s fiscal plan. The White House victory and the new bank bail-out plan announced the following day by Treasury Secretary Geithner were met with a 5% wipe-out in the DJI, and a decline in Treasury bond yields, indicating a “flight to quality.”
Markets don’t react well to a president saying things like, “Potentially we’ve got trillion-dollar deficits for years to come.” Investors realize that deficits matter:
If historic U.S. budget deficits are any indication, the economy is already “stimulated.” The predicted 2009 federal deficit stood at 8.3% of GDP before Obama’s package sent it to about 12%. This is a stunning level of debt, double the previous post WWII high when Reagan’s 1983 budget deficit amounted to 6% of GDP.
We do, however, know the accounting trends: our government faces massive new spending increases as Baby Boomers retire and their Social Security and Medicare bills come due. Market investors are wary of new spending, guaranteeing either future tax increases or inflation, as a run-up to the demographically guaranteed spending spiral. The quest for “shovel-ready” projects makes one think, Where’s Senator Ted Stevens when we need him? In any event, this fiscal bridge to nowhere is not spurring markets.
Government deficits are nonetheless being sold as doctor’s orders, an elixir that – while it looks ugly and tastes bitter – will propel us back to economic health. Yet the best forecast currently on the table is the one made by investors risking their own money. They are shorting the “stimulus.”
As the CBO has already predicted and common sense would indicate, whenever you take a dollar out of the economy through spending or borrowing, it is one less dollar that can be invested. Economists call it “crowding out” because it lessen the money available to the private sector for investing and borrowing, which can result in higher interest rates if the deficit is large enough or inflation if the Federal Reserve is printing money to offset economic problems, which they are today, as Steven Entin noted in a presentation on Keynesian economics at the Cato Institute.
Sounds like the 70’s all over again.
I’ve been reading QandO for years and let me tell you, this is a privilege for me. As McQ has already mentioned, I’ve worked with the Libertarian Party of Georgia and Bob Barr‘s presidential campaign in addition to contributing to a couple other blogs and maintaining my own blog.
I look forward to contributing here and advancing the cause of liberty.
I‘m going to let him do his own intro (kind of me, eh Jason?) but we’re pleased to have Jason Pye joining QandO as one of our bloggers. Jason comes from great libertarian stock, was the former chair of the Georgia LP and was the New Media guy for the Barr campaign.
He’s a freedom and liberty guy who has much in common with the rest of us.
Welcome aboard Jason.
Yup, nothing like the best qualified for the job:
Energy Secretary Steven Chu may be a Nobel laureate Ph.D. in physics, but his first forays into energy policy suggest he’s a neophyte when it comes to the ways of Washington.
At a forum with reporters on Thursday, the head of the department that has traditionally taken the lead on global oil-market policy, was asked what message the Obama administration had for the Organization of Petroleum Exporting Countries at its meeting next month.
“I’m not the administration,” the Cabinet secretary replied. “I will be speaking and learning more about this in order to figure out what the U.S. position should be and what the president’s position is.”
Chu, who is still without a deputy, said he feels “like I’ve been dumped into the deep end of the pool” on oil policy.
He may be a Nobel laureate, but it is obvious that he isn’t at all prepared for the job of Energy Secretary. How, given his obvious lack of knowledge about oil, can he put a comprehensive energy plan together for the US? Well, he wasn’t brought in to consider oil – he’s going to be the “green guy”. Oil, coal and other Neanderthal energy sources aren’t really something he’s concerned himself with. But now, he is the man.
Makes you feel all warm and fuzzy, huh? Knowing all of that certainly reassures you that his priorities are going to be what is best for the US and not best for the agenda, doesn’t it?
Detainees being held at Bagram Air Base in Afghanistan cannot use US courts to challenge their detention, the US says.
The Justice Department ruled that some 600 so-called enemy combatants at Bagram have no constitutional rights.
Most have been arrested in Afghanistan on suspicion of waging a terrorist war against the US.
The move has disappointed human rights lawyers who had hoped the Obama administration would take a different line to that of George W Bush.
Prof Barbara Olshansky, the lead counsel in a legal challenge on behalf of four Bagram detainees, told the BBC the justice department’s decision not to reform the rules was both surprising and “enormously disappointing”.
Uh, just for clarification, that’s Eric Holder’s Justice Department making the ruling. The Eric Holder who works for Barack Obama.
So the big one-two this week is the declared Obama human rights policy (the US won’t let human rights get in the way of economics, the enviroment or security concerns) and detainees held by the US in Bagram (but not Gitmo).
Heh … old boss/new boss. At least Glenn Greenwald will have something to write about for a while, won’t he?
Wow, this governing is much harder than just flapping your gums about stuff, isn’t it?
“Just words …”