Celebrating his first 100 days in office, President Barack Obama told the American people: “One hundred days ago, in the midst of the worst economic crisis in half a century, we passed the most sweeping economic recovery act in history…One hundred days later, we are already seeing results.” And he’s right, we are. Unemployment has risen to 9.5%, stocks fell to their lowest level in 10 weeks on Tuesday, and consumer credit delinquencies have hit a record high. Responding to the obvious failure of the Obama administration’s $787 billion stimulus package, some liberals in the House and Senate are calling for a second (really the third when you count President Bush’s 2008 effort) stimulus. How big of a second stimulus? Center for Economic and Policy Research co-director Dean Baker told Politico: “To my mind it’s pretty obvious we need another stimulus package, probably a lot bigger than the last one.”
To be fair, the Obama administration itself is not yet ready to admit their first $787 billion stimulus package failed. Both Vice President Joe Biden and Obama Council of Economic Advisers member Austan Goolsbee recently said it was premature to discuss crafting another stimulus. But outside adviser to President Obama Laura Tyson told an audience in Singapore yesterday that the stimulus package was indeed “a bit too small” and that the administration should consider a second effort. According to Bloomberg, Tyson then stressed “The U.S. needs to communicate its determination to reduce the annual shortfall once the economy recovers.” Unfortunately the Obama administration is sending no such credible signals.
Not that Obama hasn’t tried. First he held a “fiscal responsibility summit” the week after signing the largest single-year increase in domestic federal spending since World War II. Then he ordered his cabinet to identify $100 million in budget cuts, and proposed his own $17 billion in program terminations and reductions. He has even promised to try and resurrect the completely ineffectual PAYGO rules, but made it clear they would not apply to his own health care spending. Informed observers have not bought any of these shenanigans. The numbers don’t lie, and here is the story they tell:
Ignoring Obama’s lofty rhetoric and focusing on the hard numbers, investors are demanding higher interest rates to soak up the tremendous flows of debt coming out of the Treasury. This will mean higher interest rates for consumer loans, mortgage loans, business loans, etc. The debt-based Obama economic stimulus plan has become a major drag on economic recovery, just as expected. Looking at Obama’s housing rescue effort the Washington Post reports today: “More recently, long-term interest rates have increased as generalized investor panic has given way to a more specific worry: that the huge U.S. budget deficit is unsustainable and may set off high inflation. In other words, rising deficits are canceling out at least some of the Fed’s efforts to keep mortgages cheap.”
The President and the Congress must realize that world investors will not be swayed by new budget rules or other posturing. They want to see the economy strengthen while the deficit comes down now, and fast. The solution is to set aside all the new spending proposals and start cutting spending fast. Otherwise we’re going to have double digit unemployment for a long time to come.