by Craig Masters
Regardless of what else you may think about Obama’s policies, religious ideology, reports filled with false numbers, or unconstitutional implementation of laws, the one area where there is no doubt is that he believes the economic plan for recovery is to follow the advice of John Maynard Keynes: borrow our way out of debt!
Economists Friedrich Hayek, Karl Marx and John Maynard Keynes all had one thing in common according to BBC economic editor, Stephanie Flanders, all three understood both the genius of capitalism, and its inherent instability.
Karl Marx was a communist of course and therefore focused much of his efforts against the idea of a free market system in favor of total government control. Hayek was pretty much the opposite in believing that minimum government interference is better. And then there is Keynes who believed that when an economy gets into serious trouble, the best way to force it to recover is for the government to borrow and spend like there was no tomorrow.
Flanders put it this way; “Keynes was one of the first to say, in the 1930′s, that economies could just get stuck: they might sink, and then NOT float magically back up. When that happened, he said, the only solution was for the government to borrow its way out.”
Most Americans don’t know who Keynes was and probably fewer care that he is credited with establishing the World Bank. But as the national debt of the United States grows so large it threatens to bankrupt the world’s only remaining lenders, it is important for voters to understand there are very real differences between economic ideologies of Obama and Romney.
This difference could have been clarified by either candidate during the second debate between the President and Governor Romney when a supposedly “undecided voter” woman asked Romney specifically about the differences between himself and former President G.W. Bush. She was given the microphone long enough to explain she was “afraid” another republican president would return the country to the path that she believed put us in the recession we are still experiencing.
In spite of the obvious that this woman was an Obama supporter, her question was selected based on the premise that the public wouldn’t be smart enough to recognize the bias. She intended to feed Obama a soft pitch, blame Bush, and let him hit one out of the park. The whole plan backfired when Romney hit a stand-up triple. But he didn’t get the point home that unless Earthlings can reach out and establish a Universe Bank, Obama’s “borrow till we all get rich” economic strategy will soon run out of money. Fall over the fiscal cliff the ‘insiders’ keep warning us about.
In this campaign it is to Obama’s advantage that very few Americans have any depth of knowledge about the mathematical philosophy known as “macro-economics.” So long as the sitting government keeps sending checks, the voters who receive them will not look any further than their next month’s check. Each check can pay only so many bills each month. Many of those bills – often too many – are payments on credit extended to pay for a lifestyle that exceeds means. The very real problem for most people is not understanding that principles that work well in micro-situations, like our families, do not apply to macro-situations, like economically developed countries and eventually the world. How often do we hear politicians speak about the U.S. budget in terms of households being forced to live within their means? This is comparing apples to oranges.
These arguments sound logical since most households buy big things they want by borrowing instead of saving. The idea of the government borrowing is easily – but mistakenly – equated to family borrowing. The reason is in the scale of the “bank.”
In spite of the fact that the ratio of government debt to the value of the economy Keynes was discussing in the 1930′s was quite small compared to Obama’s trillion dollar deficits today, Keynes’ basic idea that governments should intervene when things go wrong, was gradually built into the fabric of every Western economy from the 1940s onwards.
Today, the idea that a nation borrows from a “bank” somewhere that can afford to carry the loan is the basis for the concept of the World Bank. A giant bank with giant piles of cash to lend. But the World Bank has never accumulated the gigantic pile of money Keynes envisioned after World War II. In fact, the World Bank has never become anything more than a currency clearinghouse for developed nations. Worse, the Bank itself borrows the money it lends as it has failed to create a world currency as the source of its monetary power.
The U.S. remains one of the major sources of the money loaned by the World Bank. But the U.S. is now borrowing the money it is loaning to the Bank which is borrowing to loan money to debtor nations which have a history of failing to repay those loans. Meanwhile, England is in debt, yet borrows to loan money to a collapsing European Central Bank which is borrowing to loan money to failed countries like Greece and Spain. And everyone is borrowing money from China where the economy is slowing because its exports are down because its customers are forced to borrow money (often from China) to pay for Chinese imports.
When China’s circular cash flow finally requires that government to borrow, who will have any money to loan them? If China cannot borrow, the alternative is to collect the money it has loaned.
In spite of his convoluted explanations to the contrary and all the rhetoric about “helping” the middle-class, Obama has forced the U.S. middle class to borrow the overwhelming majority of China’s outstanding money. The day China calls in those loans is the day Obama’s policy of borrowing to get rich will finally bring about the “change” he has always promised.
But don’t worry, NASA has spent millions of dollars developing a menu for Universe Bank tellers on Mars. Perhaps the Martian branch of the UB will loan us enough money to pay off our Chinese loans. In the meantime, spend like there is no tomorrow! The Fed can always print more money.