On Sep. 7, Barack Obama waded into the midterm elections fray with a speech at the University of Illinois, proclaiming that the good economy we're currently enjoying actually started under him. According to Obama, Trump inherited it all. Be that as it may, what did Obama inherit?
Some will make Obama's economic inheritance out to have been the worst situation ever. But actually, the crisis that we faced in Sep.-Oct. of 2008 had already been dealt with by the Bush administration. Recall that the financial markets were seizing up; we were looking into the abyss, the collapse of capitalism. Treasury secretary "Hank" Paulson even reportedly knelt before Speaker Pelosi, begging her to usher the $700B TARP through Congress.
Bush, Paulson, and Fed chairman Ben Bernanke stepped into the breach and stopped the hemorrhaging. By the time of Obama's inauguration, the markets had reopened, money was flowing again, and disaster had been averted. So the worst of the crisis had been dealt with before Obama became president. But don't tell that to Barry, as he likes to think not only that he is responsible for all the good stuff that came after him, but also that nothing that preceded him was important.
What Obama's recovery was really about was propping up prices in the stock market and real estate, and in funneling money to his base – e.g., union members. What Obama's recovery was not about is government reform. Because Congress didn't deal with the underlying causes of the crisis, we're still vulnerable.
Obama's recovery, the most anemic since the 1940s, came at one helluva price. What's more, America has not yet paid that price and settled accounts. The Federal Reserve created trillions of dollars through multiple rounds of quantitative easing – i.e., Q.E. The "unwinding" of the Q.E. asset purchases continues.
More sobering than the Fed's Q.E. are the unprecedented deficits that Congress ran during the Obama administration. Even so, in his speech, Obama claims to have cut the deficit "by more than half." But in FY2008, the last full fiscal year before Obama became president, the deficit was $458B, which at the time was the largest deficit in history. Only one of the deficits during Obama's tenure got below the 2008 figure, and that by only $20B.
So when Obama claims to have cut the deficit by half, he's talking about cutting it from his own high point, and the high and low deficits under Obama were $1,412B in 2009 and $438B in 2015. From the high to the low, the deficit was cut by almost 69 percent; that's nearly $1T. So the cut in the budget deficit was not just more than one half, but more than two thirds.
However, this improvement did not happen under Speaker Pelosi. The improvement happened only after the 2010 midterm elections, when Republicans took back the House and replaced her. Pelosi and the Democrats were never able to get the deficit below a trillion dollars. (One can verify these numbers by looking at Table 1.1 on page 25 of the OMB's historical tables.)
Over the last two years, Republicans have disappointed on the deficit. But giving control of the budget back to Democrats at this time would be quite stupid. That's because the bill for the Democrats' deficits under Obama will start coming due on October 1, which is the start of fiscal 2019 and will mark the ten-year anniversary of Pelosi's first trillion-dollar deficit.
Any ten-year securities sold in 2009 will mature in 2019. And here's the thing: most of the public debt is Treasury notes, not bonds, and T-notes have a max term of ten years. Democrats actually expect voters to put them back in charge of the budget at the exact moment that we start paying back the bulk of the trillion-dollar deficits that they, the Democrats, ran up under Obama.
The federal government will soon be rolling over an unprecedented amount of debt, which will cause the interest rates on those U.S. securities to rise. Now is long past time for Congress to cut spending, but all you hear from Democrat candidates for Congress is more spending: "free" college, single-payer government health care, and other "free" stuff.
When Nancy Pelosi was campaigning to take control of Congress back in 2006, she touted PAYGO, pay-as-you-go financing meant to keep the deficit from rising. But her first budget, FY2008, had the largest deficit up to that point; her second deficit was nearly a trillion higher; and trillion-dollar deficits followed. In the midst of running her $1.4T deficit in 2009, Pelosi shamelessly flogged her fraudulent PAYGO at a House news conference. Talk about chutzpah.
On June 6 this year at The Hill, we read: "House Minority Leader Nancy Pelosi (Calif.) and other top Democrats are vowing to abide by fiscally hawkish pay-as-you-go rules if they seize the majority next year, rejecting calls from liberals who feel they'd be an impediment to big legislative gains."
Also on June 6 at The Nation, we read: "Bold progressivism and 'pay-go' fiscal conservatism are mutually exclusive."
On June 7 at the Washington Post, we read: "If they're successful in winning back Congress this year and winning the White House next year, it [PAYGO] could seriously hamper their ability to pass progressive legislation."
On September 4 at The Intercept, we read: "Minority Leader Nancy Pelosi has made the public a big promise, vowing to handcuff her party's progressive ambitions, including in the event that a Democratic president succeeds Donald Trump, by resurrecting the 'pay-go' rule that mandates all new spending is offset with budget cuts or tax increases."
Fret not, my progressive friends: Pelosi's promise to abide by PAYGO was a lie in 2006, and it's a lie today. Voters should remember that in the middle of the Great Recession and a trillion-dollar deficit, Democrats passed a huge new entitlement: Obamacare. If Democrats really cared about fiscal responsibility, then rather than the easily ignored PAYGO, they'd be urging a balanced budget amendment.
On Sep. 10, former speaker Pelosi told CNN that she feels comfortable with the support she has in the Democrat caucus and that after the midterms, she will again be speaker. Decency would dictate that the person who ushered through the nation's first trillion-dollar deficit might demur from commenting on smaller deficits run by others, but not Nancy.
If it becomes ever larger in comparison to the economy, the debt will someday become unmanageable and America will have a "debt crisis." Leading up to that dreadful day, there'll be interest rate hikes, which are already underway. These rate hikes are coming at the very time when we'll be rolling over more government securities than ever. Politicians of both parties are responsible for this scary situation, but Democrats are worse. Democrats belong to the only party that has run trillion-dollar deficits while controlling both the Congress and the presidency.
Rather than a "blue wave," Democrats need to be spanked in November. When Democrats told us in 2006 that they would not make the deficit worse and would abide by the constraints of PAYGO, we gave them power, and they made the deficit far worse than it'd ever been. Now, twelve years later, Democrats again tell us they'll abide by PAYGO and expect us to put them back in power. And this, at the very moment the bill for their extravagant borrowing and spending under Obama is starting to come due. Holders of U.S. securities aren't like Obama's General Motors bondholders – they must be paid.
If there's even a remote possibility that Democrats might retake Congress and again control the budget and spending, real Americans should run to the polls on Election Day and vote Republican.
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