Commentary » Blog Archive » Reality Hits Obamanomics

Commentary » Blog Archive » Reality Hits Obamanomics

The damage being done to us is unquestionable now. When will people start calling the congressional switchboard and demanding that Obama be reigned in?

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Reality Hits Obamanomics

Jennifer Rubin - 05.28.2009 - 12:10 PM

When the president let it slip that our current fiscal situation — ever higher mounds of debt — was “unsustainable,” some pundits shrugged it off as a “long-term” problem. Not so long-term.

The Wall Street Journal explains that Treasury yields have shot up, reaching 3.7% on 10-year notes, the highest since November. Why are bond purchasers demanding higher rates? They are spooked:

They have cause to be worried, given Washington’s astonishing bet on fiscal and monetary reflation. The Obama Administration’s epic spending spree means the Treasury will have to float trillions of dollars in new debt in the next two or three years alone. Meanwhile, the Fed has gone beyond cutting rates to directly purchasing such financial assets as mortgage-backed securities, as well as directly monetizing federal debt by buying Treasurys for the first time in half a century. No wonder the Chinese and other dollar asset holders are nervous. They wonder — as do we — whether the unspoken Beltway strategy is to pay off this debt by inflating away its value.

This, of course, translates into higher interest rates for homebuyers and works to undo Ben Bernanke’s handiwork. Obama strong-armed the hapless AIG executives and the Chrysler bondholders,but he can’t bully all purchasers of U.S. debt. The best he can do is send Tim Geithner to China to beg them to keep buying our debt.

Obama likes to complain that this is not his doing. But, as John Taylor explains, the facts say otherwise:

Under President Barack Obama’s budget plan, the federal debt is exploding. To be precise, it is rising – and will continue to rise – much faster than gross domestic product, a measure of America’s ability to service it. The federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years.

Those bondholders are right to be nervous. And the inevitable creep in interest rates, the resulting drag on the economy, and the ever greater share of it devoted just to servicing our debt are direct results of Obama’s economic policies. Perhaps the president should be nervous too.