Road to Ruin
Not the Ramones, Kevin Hasssett on January 12:
We are in the midst of a crisis caused by so many financial institutions borrowing too much money. Somehow, a critical mass of policy makers now believes that the correct response is for the U.S. government to borrow too much money.
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This year may establish a government-spending black hole with gravity strong enough to suck the U.S. economy over the event horizon. Such a spending path has two possible endgames. Neither is pretty.
Print or Tax
The Federal Reserve could print enough money to accommodate all of that debt, in which case the dollar will collapse and the U.S. will be looking at a South-America-style run on its debt.
Or the U.S. government could get its fiscal act in order with higher taxes. For that to happen, income taxes would approximately have to double.
While advocates of Keynesian-style stimulus are correct that this economy is terrible enough to warrant dramatic action, it is hard to understand how such a fiscal path might help. So what if second-quarter gross domestic product blips up a little bit? What business is going to expand its operations with the mother of all tax hikes peeking over the horizon? If government spending provided such a wonderful boost to the economy, we would be in Nirvana already.
I think Obama and the Democrats are about to ruin the economic life of everyone who isn’t on the receiving end of government spending.
