Sunday, December 07, 2008

Engineering disaster: the Obama rescue.

Just when it seems that economists and historians have finally gotten around to debunking the myths of the New Deal and the Great Depression it appears that Barack Obama wants to replay the Rooseveltian disaster. It is now widely accepted that Roosevelt's policies extended the problems of the depression. Obama appears set to do the same thing. In other words, Obama's solution is not a solution, no matter how well-intentioned he is or how often he promises to deliver "hope" to the masses.

The so-called "bailouts" were simply the wholesale theft of the masses of Americans for the benefit of some very wealthy elites. Now some of the highest paid workers in America, the auto workers whose extreme demands for salary packages helped spur the success of foreign car manufacturers, seem set to get the Democrats to hand them millions via the Big Three (no longer of course, due in large part to the unions). And the government has been cranking up the money supply by astounding levels. The assumption is that more "easy money" will solve the problems created by the previous "easy money" policies. Hey, if a little arsenic didn't kill you right away why worry about a massive dose?

Now Obama "promised Saturday to create the biggest public works construction program since the inception of the interstate highway system a half century ago...."

The New York Times says Obama is not putting a price tag on his grand plans but said "he would invest record amounts of money in the vast infrastructure program..."

Obama dishonestly pretends that this is a "jobs creation" program. Rubbish. As I've explained before all public works projects are fraudulent. They don't create jobs they merely redistribute some jobs while destroying other jobs lead to a net loss of jobs over all. Doing nothing would be far less lethal than doing this.

Begin with a simple question. Obama says he will "invest vast sums of money" into his politically controlled central plan. Where will that money come from?

Politicians rarely answer that question. There are two options to secure the "vast sums" he wants to spend. One is through taxation and the other is by cranking up the printing presses at the government mint. The first method means that the private sector will see "vast sums" sucked out of productive sectors of the economy. Those sectors will then have to constrict their activity and jobs will be destroyed. By this method the only way to create jobs in one area is to first destroy them in the other.

However, "vast sums" of money in the hands of politicians gives them massive opportunities to reward special interest groups and big donors. So expect Obama to continue his fraudulent policy of rewarding the wealthy at the expense of the poor, all in the name of helping the poor. The total sum of jobs created will, by necessity, be less than the total number of jobs destroyed.

Of course the jobs created will be for individuals beholden to politicians. The jobs destroyed will be in the private sector which has to be plundered in order to create the fake "jobs program". And when that sector loses more jobs the politicians will crow that this is proof that the private sector is deficient and only government can save us. A great trick and they can pull it off easily as most people pay zero attention.

The second option is even more deceptive. In this method the government pays for some or all of the government jobs by printing more money. The government, as the first spender of this expanded money supply gets to spend it at current prices. Once that money seeps into the economy the increased supply reduces the value of all money. As the value of the money decreases prices go up. This is the cause of inflation -- an increase in the money supply.

Of course the politicians will once again blame the private sector for "higher prices". They ignore the fact that the price of a good reflects both the value of the good and the value of the money being used. Reduce the value of money and the price of the good has to increase just for the producer to get the same payment as he was receiving before. This is how Robert Mugabe destroyed the economy in Zimbabwe, through the use of printing presses to pay for government programs.

Obama is quite simply a charlatan. In fact I would say he is one of the most successful charlatans in long time. He pretends to care for the poor and then announces programs that rip off the poor to benefit corporate interests. He says he is antiwar and then leaves a major Bush administration war monger to run the damn thing. He says he is for change and then puts into his administration a plethora of old time party hacks who represent politics as usual. He said he would repeal "Don't Ask Don't Tell" and then abandoned that before taking the oath of office. And now Mr. Obama is doing all the things necessary to turn this recession into a long-lasting, major depression.

In light of that what should you do? Well, when we see the effects of an inflated money supply it means you can pay off current debt at a fraction of the real cost -- provided you still have any income at all. On the other hand kiss your retirement plans good bye. An inflated money supply will strip your retirement of its value. All the better for the Democrats as that means you will have to depend on the state and the plans of that party is to make everyone reliant on the state unlike the Republicans who want to make everyone terrified of the state.

I would expect that hard assets like gold and silver would be a good idea. Having savings will be a bad idea.

Under the Obama scenario productivity in the country will drop. More precisely production of goods and services in demand, those things people value, will drop and be replaced by the production of goods and services not in demand. So the actual products which have value will become more scarce that means they will become more expensive. As the value of your money is dropping the value of the goods and services you need will be increasing. So the Obama solution, if inflation is used, would mean that you will find it harder and harder to survive on what you earn -- if you one of the lucky ones to be employed. It wouldn't hurt to stock up on items that will last, and which you will need, before their costs increase and the value of your money decreases.

What we have with the Obama administration is a group of politicians who have a clear cut, but wrong, plan to save the economy. If Obama were captain of the Titanic he would survey the damage caused by the iceberg and then announce that the only solution is to punch a second hole on the other side to let the water out. So grab your life preservers.

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