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Tuesday, September 30, 2008

The Coming Economic Crisis Under Barack Obama

Introduction: I have already said that if John McCain is to win this election he needs to make the connection between the bailout, inflation, the weak Dollar, and spending. Whoever is the President will have to deal with executing the bailout. Furthermore, his entire economic policy will be predicated based on this bailout. As such, Barack Obama's many promises must be looked at again in the new context of this bailout. Thus, Barack Obama's many economic promises must be re examined. Either, he will lie his way into office and not do any of the things he has promised to do, or he will cause an economic meltdown the likes of which we have never seen. Finally, to all my liberal readers please spare me with the standard rhetoric like things can't get any worse than under Bush/Republicans. Rhetoric won't save us when real economic doom hits, and it won't save you when you realize that nothing he said during the campaign will come true.

Now, then, let's examine what the bailout will do. The first thing it will do is expand our debt. Expansion of our debt will weaken our Dollar and it will put upward pressure on inflation and with it interest rates. Furthermore, bailout or not, we are likely headed into at least a recession.

Here is what Obama has proposed in new spending ideas. (as well as what he believes each plan will cost)

A $65 billion-a-year health plan
$15 billion in green energy spending
$85 billion in tax cuts and credits
A $25 billion-a-year increase in foreign aid
$18 billion a year in education spending
$3.5 billion for a national service plan

Beyond this spending, his so called tax cuts are actually filled with hidden spending that he claims are tax cuts. Obama claims that 95% of the people will get a tax cuts, except that 40% of people don't pay any taxes. As such, 40% of the people will get a government welfare check that he will claim are a tax cut. That is an extra roughly $300 billion in new spending according to his own estimates. Of course, there is no way to know how much universal health care will cost. Furthermore, he wants to spend money on "infrastructure", and of course, with a Democratic majority in both Houses, there is no telling how much in goodies and giveaways there will be. That's why Dick Morris estimates that his spending proposals will likely have a real price tag of a trillion dollars yearly.Here is what Obama has proposed in new spending ideas.

Now, Obama claims that he will pay for these spending cuts by among other things ending the war in Iraq. Of course, even his own conservative estimates have a "responsible withdrawal" taking at least a year and a half. Furthermore, he wants double down on our efforts in Afghanistan. As such, it is unclear just how much that will save and when. Furthermore, our weakening economy will cause government tax receipts to drop in general.

What we have is a massive new debt load. A massive new debt load will weaken an already weak Dollar. The weak Dollar will contribute to exploding gas prices and food prices. Furthermore, the increased borrowing right after we borrowed about $700 billion for this bailout, will put enormous pressure on inflation. Remember, this is the candidate that couldn't name one program he would cut, and even highlighted after school education as a program he would like to increase funding for. If he increases funding for after school education, do you really think he will cut any of his other programs. This perfect storm will likely cause not merely inflation but hyperinflation in our economy.

Now then, let's examine what his tax policy will do to the economy. Barack Obama believes that he can build the economy from the "bottom up". This is of course code for income redistribution. He plans on giving the middle class a tax cut, but it is the middle class that will be most hurt by increased inflation. Hyper inflation will kill the middle class, and the increase in everyday bills will dwarf whatever tax cuts Obama gives them. An extra thousand dollars in reduced taxes is peanuts, when your gas and grocery bill doubles. The downward pressure on the Dollar Obama's spending plans will create will have that sort of dramatic effect on gas and food prices. (both of which are priced in Dollars)

Of course, beyond his middle class tax cuts, he will also create a series of tax increases. He will raise taxes on those making $250,000 and more. Many of these are small business owners that also file individual taxes. Millions of small businesses will have less money for capital, equipment, and new hires at exactly the time when those businesses need to expand.

Of course, Obama's most dangerous tax increase is the Capital Gains Tax. This is the tax on all sorts of investments: real estate, equity, and all sorts of other investments. Now more than ever, we will need capital investment. Yet, Barack Obama will punish exactly that sort of behavior. Capital investment is one of the best ways to get an economy out of a time of weakness. There will be less real estate investment just as the real estate market is going to face its worst time.
There will be less stock investment at exactly the time that stocks would face their biggest weakness. Furthermore, between November and January, many investors will begin to sell off whatever investments they have that are making money so that they can avoid paying the higher capital gains tax.

What this will cause is a shrinking business and personal capital investment at exactly the time when it is needed. That will lead to lesser jobs, and that will eventually lead a depression. In other words, we are likely to face, if Senator Obama follows through on his promises, to not only face stagflation but depression and inflation at the same time. In other words, we are about to face an economic apocalypse if he is elected and follows through on his promises. Either that, or he is simply lying about everything he will do for everyone and we are electing an untested first term Senator and none of us know what he will do.

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