ATLANTA— Bond vigilantes forced long-term interest rates higher on inflation expectations during the early 1990′s, derailing many of Bill Clinton’s big spending initiatives and causing him to redirect his focus to reducing the federal deficit during the waning years of his presidency. I have long wondered if the same could happen to Barack Obama. I believe his policies are reckless and his massive deficit spending will help fuel longer-term inflation. Accordingly, I firmly believe Obamaflation is going to be on everyone’s minds during the 2012 election cycle.
With that said, it is interesting that we read the following in the Financial Times today:
…demand for US Treasury inflation-protected securities has accelerated in the past month, reducing supplies of such bonds held by Wall Street dealers to their lowest level in three years, said the Fed.
A Tip is like a Treasury except that the principal and coupon payments are adjusted to eliminate effects of inflation.
Market inflation expectations can be calculated by comparing the difference in yields on a 10-year Treasury and a 10-year Tip. In the US, that gauge has reached the highest level in 15 months.
With gold rocketing upwards and TIP rates on the march, how much longer until real inflation hits our shores? My guess is the year 2011, but it could definitely happen sooner…
Will this be Barack Obama’s waterloo?
UPDATE:
For those of you who have not been diligently keeping score at home, here are some very brief highlights of the ways in which Obamanomics is a budget buster. This list is just for starters. The $1 trillion health care bill is still snaking its way through Congress.
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$787 billion stimulus package passed in February. It was the largest government spending bill in our history by a mile. And this is just the price tag- this doesn’t consider the interest costs for the borrowing that will be needed to finance the stimulus.
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$75 billion committed for the mortgage relief program.
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$80 billion committed in the take-over of General Motors and Chrysler, which the Government Accountability Office projects is at a high risk of not being recovered.
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$13 billion for one-time social security payouts in October that most Americans opposed.
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$3.5 trillion proposed 2010 budget. This is Barack Obama’s roadmap for remaking America. Granted, it doesn’t represent law, but it is indicative of where Obamanomics is taking us. It represents the largest budget in history. For details about the goodies Barack Obama would like for your grandchildren to pay for you to have, click here.
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In summary, the Congressional Budget Office projects budget deficits over the upcoming 10 years at $9.1 trillion. The Obama Administration has agreed that this figure is a reasonable projection. Currently, the Administration has no plans to do anything about it.
TennesseePaul
Stephen VanNuys
Brooklyn Daniel
The Freedom Thinker
[I believe his policies are reckless and his massive deficit spending will help fuel longer-term inflation.]
Funny how you right-wingers never specify what policies and deficit spending are causing the deficit. The fact is, Obama’s policies are responsible for only a small sliver of the deficit.
Funny how you right-wingers never specify what … deficit spending [is] causing the deficit.
what deficit spending… causes the deficit … I see your point. It is a complicated one to figure out.
Apparently, the deficit is too complicated for you to understand.
There are a couple hundred billion from the TARP giveaway last year before Obama took office. There has been a great reduction in revenues, due to high unemployment from the Republican Great Recession. There are the two wars, which previously hadn’t been included in the budget. There is the huge increase in unemployment benefit payments due to high unemployment.
That’s the bulk of the increase in the federal deficit. Let’s see you spin that.
Yes. How does a deficit create a deficit??? Totally confused. I was under the impression deficit spending created a deficit.
There has been a reduction in Revenues due to a bear market which has existed since 2001. It was the result of the great Tech Bubble bursting.
But, again pictures might help you with this Ben (in addition to actually reading the rest of this blog):
Mr. Van Nuys can correct me if I’m wrong, but I believe these are the deficits of which he is speaking.
TARP giveaway last year before Obama took office
I like this one though. Will this continue next year when there is a deficit as well? Does it matter that Mr. Obama voted in favor of the TARP funding? Is it relevant that the Congress holds the power of the Purse?
None of that is spin to pin it on one party or another. Read carefully.
Why doesn’t Obama just reign in the deficit spending if it’s all Bushes. Stop the war’s, recall TARP, recall ARRA, etc. Just stop the spending since it’s not his and he doesn’t want it.
Just in case you need the source, I believe the CBO/White House projected Deficit spending chart shown above was from the Washington Post. Mr. Van Nuys provided the chart some time ago, he could clarify the source.
There guys, with a few minutes of clicking and surfing the web, I’ve updated my post above with just a couple of the goodies Barack Obama has either done or proposed that will bust our nation’s budget.
Remember, when I say “policy” and when I say “Obamanomics,” I’m not talking in the past tense or about tthings that are already law- I’m talking about the direction that Obama is taking us. His policies include rapidly increasing government spending as a percentage of GDP, because like a good liberal, he believes this is beneficial to the US economy (against all evidence to the contrary).
This is factual logical evidence something most liberals don’t usually like. Instead facts are party line spin. While emotional equality and class warfare rhetoric are truth.
Obama is the leader of this nation. He is responsible for the budget and leading congress. This would be like a CEO of a company saying he wasn’t responsible for the financial results of the company because it’s only his first or second year.
In the “Breakthrough Imperative” it is researched and analyzed that Executive Officers are given 2-3 years to achieve breakthrough results. Obama for his part may have only past things that account for billions of the national deficit but he is surely not doing anything to scale back the national deficit and therefore debt. A company that was bring in revenue of 1.4 trillion yet spent 1.8 trillion what would you do to fix that? In this past recession look at what happened to companies that spent more money when they found out they were losing money? What happened? How long can a enterprise spend more then it earns before going bankrupt? Yet somehow Obama is doing this very thing. That can’t be denied it is a fact. Yes, perhaps every President has done the same thing however this doesn’t make it right. As your mother use to say, “Just because one person is jumping off the bridge doesn’t mean you should jump of the bridge.”
Saying Obama is on a part of the problem is not focusing on the solution. It is closing a blind eye. What can you do about what past President’s spent? Do you have a time machine to go back in time? This would be the only valid argument to blame the past for the present and future. The past is the past.
As Mr. VanNuys points out we’re not talking about the past. Who cares it’s history. Learn and move on.
[His policies include rapidly increasing government spending as a percentage of GDP, because like a good liberal, he believes this is beneficial to the US economy (against all evidence to the contrary).]
We are in the midst of one of the worst economies since the Great Depression, and as with the Great Depression, the government is the only entity big enough to ease the pain.
[1. $787 billion stimulus package passed in February.]
Most economists believed the stimulus was necessary to prevent our economy from plummeting into a full scale depression. We’ll see returns on this investment. From the jobs it created or saved, we’ll see additional revenues in the form of tax payments. Workers will spend their incomes, which will help stimulate the economy. With the stimulus bill was additional funding for education. Helping people go to college results in high returns on the investment, since college educated people earn a lot more and pay more in taxes. There is also funding for alternative energy development which creates jobs and will help alleviate our dependency on oil and the Middle East.
[2. $75 billion committed for the mortgage relief program.]
That was in response to the housing crisis in an effort to save some people from foreclosure, but the efficacy of the spending is questionable. I’ll give you that one.
[3. $80 billion committed in the take-over of General Motors and Chrysler]
Those were in the form of loans. The collapse of GM would have resulted in a domino effect. A lot of other industries rely on GM for their livelihood.
[4. $13 billion for one-time social security payouts in October that most Americans opposed.]
I’ll give you that one.
[5. $3.5 trillion proposed 2010 budget. This is Barack Obama’s roadmap for remaking America.]
That’s the spin on the spending, but let’s look at where the biggest increases are:
40.9% more to the State Department. What’s Hillary going to do with all that money? 12.2% more for defense. 34.6% increase to the E.P.A.
While I don’t agree that Obama is remaking America, the spending is crazy.
[6. Congressional Budget Office projects budget deficits over the upcoming 10 years at $9.1 trillion. Currently, the Administration has no plans to do anything about it. ]
That’s just plain not true. Obama is going to let the Bush tax cuts expire. Here is a chart for the deficit and debt forecast:
http://upload.wikimedia.org/wikipedia/en/thumb/3/3b/2010_Budget_-_Deficit_and_Debt_Increases.png/800px-2010_Budget_-_Deficit_and_Debt_Increases.png
Ben, Thanks for the additional chart (actually an inverse of the previously posted chart).
Point 1: Most economist believed the stimulus was necessary The term “most” is highly debatable. There was a vocal group of economist which believed Keynsian economics was the way to go. There was also a vocal group of economist who believe Keynsian economic policies were not the way to go.
Point 2: in response to the housing crisis This is an interesting one as well as it could strongly be argued the the housing crisis was a direct result of the governing monitary policy, which was also an inacted theory of keynsian economics, as espoused by Paul Krugman, in response to the tech bubble bursting:
Point 3 is also debatable. There are also many other automobile companies operating in the US and in the world. The magnitude and scope of the “domino effect” is unknown, and by the nature of being unkown, could have been much less than feared. For example, typically when one company fails, the remaining industry competitors consume the talent and assets of the failed company. But even still the $80 billion listed was the second bailout for the companies, in total the automotive bailout was $105 billion, as $25 billion in bailout funds were granted last year.
Point 6: The chart you present is the same chart I posted above (only flipped, but the figures are the same and they include the tax increases). Even with the tax increases, the country is still running a deficit hence the threat of inflation.
This is plainly not true. During the great depression we had a “depression”. Inflation has fallen very low but their has been very little “depression”. The facts just don’t support this.
Not true “most” economists is just simply not true. And just because most economists didn’t see the housing bubble coming doesn’t mean that even if most thought government bailout was a good idea that it is. Second. There will not be a return of investment because nothing of value is created. Their won’t be jobs created that put more back into the economy then what the cost to create.
To be paid back with convertible shares. Before GM unlisted and went to trade on the pink sheets this was a 19,000+% return probably more today. We’re not getting paid back…
I 100% agree with that. Regardless of whether Obama is remaking America or not the spending is CRAZY. It was crazy under Bush and before we have to get it under control. The answer is not MORE spending.
That will make things worse…see the Laffer Curve.
Great article by the way Stephen.
One more thing. I’d like to point out that many of those costs are estimated. We all know that always the government undershoots those budgets. Take for example Medicare what was supposed to be a 3 billion dollar program that became a 300 billion dollar program. Many of these costs you point out here will be the same type of “oops” mentality. “Ooops! we’re sorry ARRA ended up costing not 787 billion but something like 78 trillion or some crazy number”. Just like the interstate to nowhere here in WV that was only supposed to cost a few million and is now in the hundreds. It seems like a factor of 50x to 100x needs to be applied to government “estimates” of cost. The ARRA is a prime example of this there is no way 787 billion is remotely close to what they will spend. The cost of that will run into the large trillions within a decade or two. It only took Medicare 3 decades to go crazy out of whack and it was just a small little 3 trillion dollar program.
My oops it should have read “small little 3 billion dollar program”.
I just wrote on today’s news. It appears real inflation may come sooner rather then later. Given the spending going on it’s only going to get worse unless Obama changes directions.
He has to raise taxes on the wealthy. Using the Laffer Curve, taxes can be raised quite a bit to achieve maximum revenue. Returning tax rates to what they were under Reagan would generate a lot of revenue and would still not max out the revenue as the tax rate would fall before the peak. Returning tax rates to what they were under Clinton would help, but wouldn’t balance the budget.
Why not cut spending instead of raising taxes? Why is it always the first choice to just assume that government grows in power.
Who else is he going to raise taxes on? Of course the rich because for whatever reason their is this irrational intolerance and hatred of this particular group.
I’m not saying taxes should be cut at all but I’m also not saying they should be raised. I personally think the entire tax system needs to be completely scrapped and redesigned from the bottom up.
Changes to the tax rate at this point and time make little difference. As Medicare and Social Security explode over the next decade on top of our already huge debt load and drastic trade imbalances we won’t be able to manage as large of GDP to debt ratios as other countries. Japan is basically and forever marginalized by China now with 200% Debt to GDP we probably won’t even have to break 100% Debt to GDP either before we’re in shackles to China. Between China and Islam I don’t know which is the greater threat to freedom…
[Why not cut spending instead of raising taxes?]
I’d agree with you if our economy was healthy, but cutting spending at this time would add to the unemployment. And nobody in Congress is willing to cut popular programs, anyway, including Republicans.
The only way to reduce the deficit is increasing taxes on the wealthy. I’m all for entrepreneurs getting rich, but there are too many people earning multi-million dollar salaries by bilking the system.
but cutting spending at this time would add to the unemployment
Increased spending hasn’t stalled unemployment. In fact unemployment is higher than expected with no government investment.
there are too many people earning multi-million dollar salaries by bilking the system
Please provide some proof or documentation for this assertion.