Democrats Need an Election-Bailout
By Chriss Street
With Congressional budget talks heating up, the left wing of the Democrat Party is already bellowing for more government economic stimulus. .
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This demand comes despite last year’s $970 billion of deficit spending and a 27% increase in Fed money-printing producing virtually no job growth above the 1.7% rate of population growth. But with Obamacare cost over-runs, taxes, rapidly escalating premiums and employment conversions to part-time becoming a major drag on the economy, the Democrats fear a potential rout in next year’s elections. The Democrats are getting desperate for another $100 billion in “targeted” spending or more monetary stimulus to produce election year jobs
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For the first time is history, Democrats did not advocate
for higher taxes during the recent budget and debt ceiling battles, because the
Republican were the first to define the issues of the debate as Obamacare and
the deficit. General voter polling indicates that support for Obamacare
is somewhat negative and raising the deficit is negative at 72%+. But
“Big Data” predictive analysis is flashing that Obamacare support is in free
fall and public opposition to raising the deficit is hardening.
Until recently, Secretary of Health and Human Services
Kathleen Sebelius had claimed that the $100 billion initial cost of Obamacare
would act as a stimulus to the American economy by claiming: “Health Care Innovation Challenge,
a competitive program that will award up to $1 billion in taxpayer-funded
grants to applicants who will implement the most compelling new ideas to
deliver better health, improved care, and lower costs to people enrolled in
Medicare, Medicaid and CHIP…“ She also stated, “Efforts like
these to improve the health of communities and reduce cost while
sparking the economy are
a priority of the Obama administration.” But with the disastrous
administrative start-up and low sign-up rate, Obamacare’s $100 billion
estimated budget cost ready to double to over $200 billion.
With Obamacare stimulus failing, Democrats will increase
pressure on the Federal Reserve to stimulate the money supply. But the
Fed has shown no capability to create jobs, because it cannot stimulate
investment in new plant and equipment, which drives the economy and gives
workers the growing incomes to increase their consumption. The Fed’s
efforts have been very successful at inflating new asset bubbles, with housing
prices up another 13.5% and the stock market up 26% this year. Demanding the Fed
blow even bigger bubbles runs the risk that those bubbles eventually pop and is
preventing the banks from focusing on lending that creates jobs.
The Federal Reserve’s prints money to investment in
bonds. The Fed’s investment portfolio averaged about $700 billion for the
ten years leading up to 2007. When the financial crisis hit in 2008, the
Fed immediately began buying bonds to increase cash in the hands of the public
and prevent any panic. This type of intervention was not unusual and had
happened over 20 times since the Fed was founded just over 100 years ago.
But what is not “business as usual” is that the Fed is continuing its crisis
purchases and now holds over $3.5 trillion of bonds.
Banks historically paid interest to recruit deposits from
senior citizens living on the income from their savings, and then lent money to
businesses at higher rates to make profit spread. But between 2009 and 2010,
the Fed made $9 trillion in overnight loans directly to the major banks and
brokers at a rate of 0.1%. The Fed’s cheap money drove down the interest
rates paid to bank depositors. Seniors’ income collapsed and many were
forced to spend their savings to survive. As seniors’ consumption shrank,
businesses curtailed new invest and employment stagnated.
Despite an average of almost $1 trillion in annual deficit
spending and the Fed’s massive money-printing, over the last two years
employment has been treading water by growing at the same 1.7% rate as the
annual population growth. But failing to grow jobs faster than new
entrants join the labor force, has caused the duration period of unemployment
in America to leap from an average of 10-20 weeks from 1980 to 2009, to 35-40
weeks over the last two years.
Just five years after being bailed out by the American
taxpayers, the U.S. banking system is generating record profits thanks to the
Fed’s generosity. All the legislation Congress passed to supposedly
reduce bank risk taking has had the perverse effect by reducing lending and
expanding leveraged derivative speculation. No one is exactly sure how
much risk banks are taking in derivatives; but the world’s economy is only $72 trillion and the outstanding derivatives have
been leveraged up to $700 trillion.
Powered by the Fed’s cheap money, JP Morgan’s trading and
investment banking activities now generate more than forty
per cent of the firm’s net profits. After JP Morgan
reported a jaw-dropping annual profit of $24.4 billion in July, the bank began
a national layoff of thousands of lending officers in August. The size of U.S.
banks was once a competitive edge to spur American investment and sustain job
growth. But the Federal Reserve’s continuing money printing has caused
banks to restrict lending and focus on trading activities. By inflating
asset bubbles with cheap money the Fed’s actions have been great for a few
investors and bankers, but the Fed cheap money policies actually continue to
hurt American job growth.
As the budget talks begin to dominate the political news
for the next couple months, the left will scream that somehow government
“austerity” is holding back the economy and employment. But with big cost
over-runs from Obamacare hammering the budget deficit and the Fed monetary
expansion hurting employment, the Democrats better start screaming even louder
for their own election bail-out.
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