Pethokoukis: America’s Banana Republic Economy


James Pethokoukis (Reuters) cites two examples of why America is well down the road of a banana republic economy. Our record debt levels and deficits, combined the fiscal fantasy land the White House and Congress work and live in are writ large in both examples.

First, the White House announces a $250 payment to every senior for inflation that didn’t exist. “In effect, a COLA was paid on inflation that no longer existed,” notes Andrew Biggs of the American Enterprise Institute.

Second, the White House in its desperate attempts to get its health reform passed, has tasked the all-too-willing Majority Leader Reid to walk the plank by convincing him to push a $247 billion portion of health reform as an off-budget item, in a separate bill, to be on the Senate floor this week before moving to the merged ObamaCare bill. Even the Washington Post editorial board said “Mr. Reid proposes not to pay for any of it, not even $11 billion, but simply to write a $247 billion IOU.”

Pethokoukis correctly notes the considerable spin associated with JPMorgan Chase economist Jim Glassman’s attempt to convince the world that the falling dollar should rightly be interpreted as a sign of “new economic optimism” because dollar flight means the world economy is getting better and the world is pulling its money out of a safe investment. Really?

Pethokoukis writes the dollar flight is likely exactly the opposite — the world is pulling its money out of a highly unsafe investment — examples one and two above show a White House and Congress which cannot help spending more and more, and piling up more and more debt — all the while insisting with passion and a strained voice that they really do care about the deficit and America’s debt and are for a strong dollar.

But the world is not fooled. America keeps spending and spending. When Speaker Pelosi announces that her ObamaCare bill is only $900 billion it feeds the perception that America’s Congress and White House are continuing to live off the Chinese and Japanese credit card — especially when the White House and the U.S. Senate Majority Leader tell the world that they will not increase the deficit under ObamaCare, but then want to spend $247 billion on health reform off-budget, so it does not count towards the deficit.

The credibility of the U.S. dollar is tied to the credibility of the fiscal discipline of the White House and the U.S. Congress. The world does not think either are credible is evidenced by the decline in the U.S. dollar. And as Pethokoukis says:

Two examples [the $247 billion off budget health spending and the $250 per senior check] — one ridiculously expensive, one just ridiculous. But both reveal a nation completely unwilling to deal with current trillion-dollar deficits or long-term shortfalls many multiples of that number.

What confidence should dollar investors have that America will really cut entitlement spending? Very little. Instead, we are more likely to see huge tax increases that could cripple productivity, or further dollar neglect, or a central bank that turns dovish on inflation. Or perhaps all three.

If Washington doesn’t care to support the dollar, why should investors?

And on the front page of the Drudge Report you will find this little item, titled “We are ‘worried’ about weak dollar: Eurogroup chief” — after all, if you are Senator Reid, you can spend a quarter of a trillion dollars without counting it in the budget. Neat trick, huh?

Senator Gregg warned a few days ago that the U.S. could be headed towards a “banana republic situation” and Pethokoukis is simply pointing out two examples — the most expensive of which is happening now right now — of why we are well down that road.


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8 Comments Leave a comment

Dayo------Daaaayo

Scope (Diary) Wednesday, October 21st at 9:16AM EST (link)

Daylight’s comin’ and I want to go home!

 

And now, a rebuttal from the Government

Next93 (Diary) Wednesday, October 21st at 9:18AM EST (link)

Obama was The One in 2008.
He’ll be a BIGGER one in 2012.

Laughing out loud!

Dan Perrin (Diary) Wednesday, October 21st at 9:21AM EST (link)
 
 

GM bondholders and CIA interrogators didnt want any of this?

Alberta (Diary) Wednesday, October 21st at 12:07PM EST (link)

just two more off the top of my head

Sir, my concern is not whether God is on our side; my greatest concern is to be on God’s side, for God is always right.
Abraham Lincoln

 

Sold into retirement

mosander Thursday, October 22nd at 5:48AM EST (link)

Obama just sold Harry Reid into retirement permanently. He can count the days ‘ til he can stay in Nevada. Voters are really mad. In fact, the Dem party is going to suffer because of the Marxist moves Obama is making. Not sure we can survive 4 years. Need to educate public about the biggest hoax on us ever for electing an alien!

 

Do Harry Reid and Joe Biden...

voxoreason Thursday, October 22nd at 12:56PM EST (link)

…belong to the same club? There are so many footprints (their own, respectively) on their tongues that they should have Welcome mats on ‘em.

The much disparaged Ann Coulter gets so many things exactly right, as when she remarked that republicans always prefer to surrender from a position of strength. We enjoy this current “position of strength” largely because the libs are defeating themselves more than the GOP is taking ‘em behind the woodshed.

It’s beginning to look like the dems won’t have veto-proof majorities in both Houses of Congress (thanks in part to dem pols who have better sense than to alienate key groups in their base, eg, the elderly, independents, etc) if Obama has as many accomplishments in 2010 as he has had this year. (Siphoning off taxpayer dollars to ACORN doesn’t count as an “accomplishment,” but a cynical belief that the American people are unwilling or unable to follow the news and know when “foxes” – hyper-partisan criminal organizations violating the RICO Act – are assigned to guard the “chicken coop” – our treasury and what taxpayer dollars that don’t get lost to sticky fingers that always seem to be in close proximity to large sums of money, much like the UN policy.)

I recall how Pat Toomey, formerly with the conservative, taxpayer-friendly Club for Growth, was blown off by Bush for incumbent Arlen Specter (must’a seemed like a good idea at the time, but…), much like FL’s Rubio is being promoted over spineless Gov Charlie Crist. I’m still looking for Rubio to pull it off, but the GOP “mainstream” leadership (an oxymoron: barely republican, often referenced as “moderates,” or RINOs to be more precise) annoys me to no end.

I had no problems with Michael Steele as head of the RNC, but then I found out that the burner was hot, so protective gloves are required to deal with this remarkably so-so “leader.” How does he disappoint? Let me count the ways…

I just hope that the GOP will grasp reality (where the DNC deliberately resists the time-tested notion that lower taxes mean higher tax revenues, eg, Bush’s 2003 tax cuts for the wealthy, which followed his earlier tax cuts on the middle-class, was a historical success) and “find themselves,” coming up with a group identity a bit closer to the Founding Fathers instead of “middle of the road” (giving those in both lanes a better chance of knocking them off). If people really want to vote for dems, why go with faux dem republican candidates?

We have the chance to cut Obama off at the knees in 2010 if we can take enough seats in both houses to take Obama’s veto-proof majority away. I wonder what the RNC will do to try to avoid success here. My greatest fear is that they will “think” of something…and it will work better than intended.

 

Is It time, YET ?

ecroper Thursday, October 22nd at 1:40PM EST (link)

This Alien, berry whatever, needs to undergo the process of being unelected. His biggest mistake made was taking Americans Kindness as a weakness. We’ve been lied to, stole from, cheated on and when we were down, been kicked in the face. We The People of The United States of America Have NEVER EVER BEEN WEAK Nor shall we Be. Kindness is an Attribute of FREEDOM. LIBERTY creates the quality of doing what is Right and Avoiding what is Wrong. Its called VIRTUE, Moral excellence and Righteousness; Goodness Prudence Justice Temperance and Fortitude. All of which this administration is trying to strip away from the American People.I hope we are still on God side as a people. Like Alberta quoting Abraham Lincoln, God is Always Right. God Bless America.

Nope

Neil Stevens (Diary) Thursday, October 22nd at 2:28PM EST (link)

No such thing as being unelected. Defeated, yes, but that comes in a few years.

Bear down and fight hard politically. Make the case, do the legwork, and help us defeat him in 2010 and 2012.

RS contributing editor, technical administrator, and “a hardy variety of crabgrass.”
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“I rejoice that America has resisted.” – William Pitt, the Elder