Obama and Ben Bernanke Have Us Facing the Abyss

If the congressional midterms, gubernatorial races, and various state and local electoral contests result in the large-scale repudiation of the left so many are expecting, it will represent only the barest of beginnings towards a genuine long-term national economic recovery.

Only now is it beginning to dawn on many American just how deep our short-term and long-term holes really are. Many others, including politicians who appear to be on their way to key positions after the elections, still don't seem to get it. This column will focus on the near-term economy -- because if we don't get a handle on a quickly mushrooming mess, and soon, there may not be a long-term.

This nation's government just completed its second fiscal year with deficits of well over a trillion dollars, a number that was unthinkable just two years ago. Despite claims to the contrary, true cash flow from federal government operations during fiscal 2010 was more negative than the previous year. It only looks better because of increased receipts from the Federal Reserve (more on that in a bit) and cleverly manipulated non-cash accounting entries that arbitrarily and artificially reduced this year's reported outlays. Net tax collections are still about 20% below where they were two years ago, and are only showing bare signs of turning upward.

After separating several stakeholders from billions of dollars to which they were legally entitled during its bankruptcy and creating a new entity with $30 billion of "fluff" known as "Goodwill" on its balance sheet, the government is finding itself saddled with an investment in a giant but shrinking car company which it may be unable to unload, even in part. Uncle Sam is also having a hard time unwinding its "investment" in Citigroup, the bank former Clinton Treasury Secretary Robert Rubin helped bring down, without disrupting the markets.

You'll have to excuse me for doubting that the Obama administration really wants out of either situation. That's because they are deliberately diving into the ownership game even further. One example: Almost no one knows that the alleged "small business lending" bill which recently whipped through Congress requires government "capital investment" in participating banks as a precondition for their involvement in the program. Their real objective isn't small business lending; it's enlarging the scope of the state's control.

Speaking of enlargement, has anyone noticed what Ben Bernanke's Federal Reserve has been up to?