President Obama is convening a summit of CEOs at the White House, revealing a re-election strategy similar to Latin American leaders in the 1970s and 1980s when fiscal irresponsibility ultimately resulted in sovereign debt failures.
Like those leaders, the president is borrowing too much, co-opting critics and organizing an oligarchy of the privileged to support him in 2012.
With a $1.4 trillion federal deficit, the Treasury is printing bonds both to pay interest on existing debt and to finance a fundamental budget deficit -- a $1.2 trillion shortfall between operating expenditures and tax revenue. Meanwhile, the Federal Reserve, recognizing rising rates in a skittish bond market could kill the recovery, is monetizing $600 billion of that new debt.
Call it what you like -- QE2, the Titanic in the Tidal Basin or Peter crying wolf -- that's printing money to pay your bills.The morass is caused by an economy that can't grow fast enough to create private-sector jobs that pay taxes to finance the government. Businesses aren't hiring because they lack customers and bank credit. President Obama and Federal Reserve Chairman Ben Bernanke have declared that China's undervalued currency, which creates a huge trade deficit with the Middle Kingdom and results in slack demand for what Americans manufacture, is slowing the U.S. recovery. Those deficits on trade and in domestic demand limit growth to 2.5% to 3%, or barely enough to keep unemployment from rising above 10%. Any hiccup could cause a new wave of layoffs, send consumer spending tumbling and push the economy into a second recession and 15% unemployment. This fall, President Obama declared, after frustrating talks with Chinese leaders, the United States can take steps to rectify the situation unilaterally if China does not revalue the yuan. Economists on the left like Paul Krugman, on the right like myself, and in the middle like Peterson Institute Director Fred Bergsten have offered suggestions as to how that could be done. President Obama is shy to act, in part, because with his popularity sinking he dares not upset Wall Street contributors to the Democratic Party and executives at U.S. multinationals with large investments in China, whose criticism of the president's anti-business bent he is busily trying to silence.
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