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Works and Days

No Free Lunch

August 2nd, 2009 - 8:18 am

The Piper Must Be Paid

I think the natural tendency of the US economy to rebound from recession, coupled with the enormous inflationary forces of borrowing another $2 trillion, will result in some sort of a brief economic recovery. But almost immediately we will be hit with a number of consequences that are now rarely voiced. Likewise the new ‘reset’ button foreign policy has a similar tab to come due. What to watch for the next year:

Energy. As the global recovery begins, oil prices will again climb, maybe even skyrocket. Will Obama continue his neglect of nuclear power, clean coal, and natural gas and oil exploration, or will he revert to his campaign expediency, and suddenly call for all such sources to be tapped? Wind and solar sound fine in campaign mode, and during a recession, but should gas hit nearly $5 a gallon again, talk of “green power” most certainly will not be enough. Sadly, this is precisely the time when government should be giving incentives to develop domestic energy of every sort, from nuclear to natural gas.

Taxes. Talking about new taxes in 2009 and paying them in 2010/11 are two quite different things.

Not long ago I tried to explain to an Obama supporter that he belonged to the targeted 5%, who, as an elite taxpayer, had “made out  like a bandit under Bush”, was obligated to “spread the wealth around” a bit, and should prove his patriotism by paying more. But it was a hopeless task: most well-off Obama supporters simply do not believe that their marginal tax rates are going up, that they may have to pay a health care surcharge, that the income caps of the FICA payroll tax will come off, subjecting much of their income to steep social security taxes, and that their state income tax in California is now over 10%.

In other words, a number of professionals in my state do not yet grasp that their own icon has them in the cross-hairs, and that within 2 years they will be paying perhaps 65% of their gross income to government—AND—receive no particular thanks by the rest of the population for their contribution, see no reduction in the federal deficit for the new bite out of their income, and probably be in line for future tax increases given their “wealthy” status.

So it will be quite interesting to see how the Obama elites react when they soon discover that they will have about 30-40% of their income to operate on. It is easy to talk about “higher taxes”, but so far all this is mere table chat. Wait until the real bite shows up in smaller monthly checks or larger quarterly estimates.

Interest. Interest rates to curb inflation will have to go up. But the problem is that we are going to be financing a new $2 trillion per annum deficit, on top of an expanding $11 trillion debt. It is relatively easy to do that now in times of crisis and recession by paying the Chinese or Japanese or U.S. bond holders here in the states a mere 1-2% on their treasury holdings, but what happens in recovery when we have to pay 4-5% or even 7-8% on treasury-issued debt to attract buyers?

In other words, in the good times to come we will see enormous strains on the annual budget to pay out the sort of interest needed to attract new borrowers. My larger point is that the current mega-borrowing is scarcely sustainable in a period of low energy and low interest rates, but will become intolerable when prices and interest rates skyrocket. Stocks will plummet once capital diverts to T-bill and passbook holdings that pay well over 5%. Tragically, as we come out of the recession, this was the time to be prudent, balance the budget, and pay down debt at low interest before it climbs, rather than to borrow for cap-and-trade, new education entitlements, and nationalized health care.

Race. Some of us—who read literally and carefully Dreams from My Father, and its quite disturbing declarations about race—were worried about Obama’s racial obsessions. Rev. Wright and Father Pfleger only accentuated that concern. Add in the Pennsylvania slurs, Michelle’s various rantings, “typical white person”, Eric Holder’s “cowards”, and the latest “stupidly”, and I think we see that one cannot so easily be deprogrammed from 20 years of Trinity indoctrination. The point is, however, that ever so slowly the public is starting to become wary (note the reaction in the polls to Gates-gate), that their post-racial President is, in fact, rather angry and, more importantly, for most of his life has benefited by aligning himself with those forces of racial anger.

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