Stock Market Up 41% Under Obama

Exclusive: America has ‘reached the point of no return,’ Reagan budget director warns

By Nathan Diebenow

Monday, January 10th, 2011 -- 8:53 am

The Obama administration's $78 billion cut to US defense spending is a mere "pin-prick" to a behemoth military-industrial complex that must drastically shrink for the good of the republic, a former Reagan administration budget director recently told Raw Story.

"It amounts to a failed opportunity to recognize that we are now at a historical inflection point at which the time has arrived for a classic post-war demobilization of the entire military establishment," David Stockman said in an exclusive interview.

"The Cold War is long over," he continued. "The wars of occupation are almost over and were complete failures -- Afghanistan and Iraq. The American empire is done. There are no real seriously armed enemies left in the world that can possibly justify an $800 billion national defense and security establishment, including Homeland Security."

Short of that, he suggested, the United States has "reached the point of no return" with its artificial creation of wealth, and will eventually face a sharp economic decline.

Stockman last fall criticized the extension of the Bush tax cuts while the federal government continued to borrow money abroad to pay for its public welfare and warfare programs. His solution to deficit spending -- a huge across-the-board tax increase -- is contrary to the current anti-tax ideology shared among tea party activists as well as fiscal conservatives in the Republican Party.

Stockman, who was appointed by President Ronald Reagan in 1981 to run the Office of Management and Budget, offered two models for the US military's compulsory demobilization: the one after World War I in 1920 and the one after World War II in 1946.

Calling today's military spending running at 5.4 percent of GDP "simply an absurd level that begs for radical contraction and surgery," he said that a "reasonable target" to shrink the defense establishment would be 3 percent of GDP by 2015.

What budget cuts?

Republicans, who were elected to a majority in the House of Representatives on promises to cut government spending, promised to cut $100 billion from the budget in their first year. Relatively few have proposed significant decreases in defense spending, and GOP leadership has outright dismissed the possibility.

Some prominent members of the House GOP caucus have even suggested the sum of their austerity measures could fall to only $30 billion, if that.

Republicans in Congress have instead championed their success in extending President George W. Bush's tax cuts for the wealthiest Americans. The Congressional Research Service reported (PDF) that extending debased tax rates to the wealthy will add an additional $5.08 trillion to the US deficit over the next 10 years.

The Bush-era tax rates that Republicans had set to expire were continued for another two years in a legislative compromise that cleared the way for a series of Democratic legislative victories in Congress. President Obama vowed to press the issue again in 2012.

Among their first actions as the House majority, Republicans also pushed for a repeal of President Obama's health care reform laws, even as the Senate's Democratic majority vowed to block the measure. Repeal of the laws would cost an additional $230 billion, according to the Congressional Budget Office (PDF), and would likely drive the number of uninsured Americans to over 54 million by 2019.

But with the US national debt ballooning past $14 trillion in recent days, even a debasement of the military-industrial complex might be too little, too late.

Some analysts have warned the next debt crisis could be municipal bonds, where a $2 trillion market bubble currently exists. One, who correctly predicted the Citigroup credit crunch, even suggested that over 100 US cities may default in the process.

But very few, if anyone, in Congress, the National Security Council, the State or Defense Departments have even dared to publicly raise the prospect of reducing the military establishment and its spending to offset the national debt, Stockman said.

"Unless you have a profound change in foreign policy, you're not going to have the possibility of a radical change in defense spending. The later follows from the former," he said.

"This is a profound disappointment that there's not even a debate -- a serious debate about dramatic change in our imperialist foreign policy and war-making establishment in this administration -- allegedly the most left-wing administration that we've had in modern time."

"I don't have much hope that what needs to be done will be done until it's finally forced on us by a world bond market crisis, which will happen sooner or later," Stockman added.

The 'Ponzi scheme' of 'artificial prosperity'

Stockman, who described himself as a libertarian during a recent interview with Reason.tv, told Raw Story that the economy got into this mess because of the public and private sectors' addiction to "guns and butter Keynesianism," an economic policy that amounts to a Ponzi scheme that has ballooned since 1990.

"If we see what's going on carefully, we've reached the final unmasking of the Keynesian illusion, that Keynesianism is really nothing but borrowing, stealing from the future to induce consumption today," he said. "There are no multipliers. Every one of these programs we've had from 'cash for clunkers' to housing purchase credits have disappeared as soon as they expired and simple shifted activities in time by a few months."

Stockman explained that before 1980, it took about $1.50 of new borrowing -- public or private -- to generate $1 of GDP growth. By the mid-1990s, it was $2.50 or $3 of borrowing for a $1 of GDP growth. By 2007, before the big collapse and meltdown finally came, $7 of public and private debt was added to the national balance sheet in order to get $1 of GDP growth.

"When you get to the point of $7 of borrowing to get $1 of income, you're obviously on an unsustainable path and pretty close to hitting the wall, which more or less we have," he said.

"So the addicts in Washington are now unfortunately terrified to stop all this borrowing whether it's for guns or butter for fear of the economy will collapse.... That's why we're just at the beginning of solving this massive financial collapse we had in 2008 and not in the process of healthy recovery as some of the pals in the White House or on Capitol Hill or on Wall Street would have you believe."

America's "massive debt-created, artificial prosperity" is unprecedented in history, he continued. The dependence on consumption supported by public and private borrowing, not income, is a new stage for Western Europe as well.

A global public debt crisis was inevitable and likely unstoppable, given the political conditions, Stockman added.

"We've reached a point of no return. The size of the government. The massive size of the deficits and the national debt that has been created. The precedents that have been established for bailouts and intervention in every sector of the economy. The K Street lobbying system which totally dominates the Congress. All of these are very unhealthy developments.

"And I'm not sure how they are going to be reversed or eliminated," he concluded. "It may be a permanent way of life. Then, if it is, it'll be both a corruption of democracy and a serious weakening of the private capitalistic economy."

With additional reporting and editing by Stephen C. Webster.

Mtn Dew wrote:

Gas prices are up even more. Gas was under $2.00 when Obama took over, now it's over $3.00.

Obama is engaged in wars in Iraq, Afghanistan, Pakistan and who knows where else. He's ramped up debt and unemployment hasn't improved (don't let that drop from 9.8 to 9.4 fool you, it's a misleading stat).

If he's considered a peacetime president we're screwed.

Typical ignorance we've come to expect from the right.

This is a chart of the Goldman Sachs Commodity Index for the last 25 years:

The REAL destruction of purchasing power occurred under Bush and the totally mismanaged economic policies of the Republicans. The destruction includes the 22% drop in the value of the SP500, the nearly 40% drop in the value of the US dollar, and the erosion in purchasing power due to commodity price inflation. The mismanagement resulted in a sharp drop in 2008, when the markets were discounting a worldwide depression. Since then, we have only partially recovered the price gains in commodities that had occurred.

Just more indication of the total economic incompetence of the Republicans:

Since 1970, the average annual job growth and the average annual gain in the SP500 is TRIPLE under Democrats what it is under Republicans.

I didn't realize how bad Republicans/conervatives were for job growth until one Standard and Poors analyst pointed out the the average job growth under Reagan was less than it was under Carter, and I looked up the BLS database information.

BTW, the tax-cutting under Bush resulted in an overall 700,000 job LOSS in private employment during GWB's presidency.

Republicans totally suck, period.

Alf Shrubb wrote:

Incidentally, here's what then-Sen. Obama said on the Senate floor in 2006:

"The fact that we are here today to debate raising America's debt limit is a sign of leadership failure.

It is a sign that the U.S. government can't pay its own bills.

It is a sign that we now depend on ongoing financial assistance from foreign countries to finance the government's reckless fiscal policies."

Obviously someone fed him that line so that we would be lead to believe he was a smart guy. All you so-called liberal "elitists" think you are so smart. Ha! Who's lookin' dumb now?

1. under what measure is the dollar tanking? by the UUP exchange traded fund, which tracks the dollar roughly, the dollar is down a grand total of 0% over the past year.

Please tell me how the dollar is tanking.

2. Smart investors abandoned the dollar? name names, please. While investors are certainly diversified currency-wise, I've never heard of anyone other than maybe Jim Rogers completely out of dollars.

3. foreign countries 'fleeing?' well, they are diversifying. But fleeing? No.

4. Please tell me who owns the federal reserve.

5. The government is not overly printing dollars. A slighly out of date chart

http://mjperry.blogspot.com/2010/03/why-inflation-concerns-are-overblow-m2.html

shows that dollars are not being printed insanely fast.

6. The US doesn't have any intention to pay back what it owes and doesn't have to. The US only has to make the debt servicing pmtns. Which are getting high, but not out of control, esp given the low interest rates now.

7. you have little understanding of global economics if you think it is likely that the USD will lose its reserve status this year. Could happen, but it would take an epic financial meltdown involving a coup d'etat and street fighting.

Ok, Alf?

Joey Simpleton wrote:

Alf Shrubb wrote:

Incidentally, here's what then-Sen. Obama said on the Senate floor in 2006:

"The fact that we are here today to debate raising America's debt limit is a sign of leadership failure.

It is a sign that the U.S. government can't pay its own bills.

It is a sign that we now depend on ongoing financial assistance from foreign countries to finance the government's reckless fiscal policies."

Obviously someone fed him that line so that we would be lead to believe he was a smart guy. All you so-called liberal "elitists" think you are so smart. Ha! Who's lookin' dumb now?

What part of the over $5 trillion in debt run up during the Bush presidency do you not understand?

Is see in Obama's 2011 budget $770 Billion as TARP obligations during 2010. That is the cost of saving the world economy from the mess that Bush and the Republicans created. The TARP obligations are down to about $550 Billion in the 2011 Budget.

No honest person can suggest Obama's economic policies are good. No honest person can suggest Bush's economic policies were good. They're just about the same person in terms of action. They are both awful. One is just a bit more eloquent than the other.

I brought up the gas issue because I saw a bumper sticker on a car not too long ago that talked about the price of gas when Bush took over. Not only was it a really old sticker, it highlights that person's laziness/ignorance.

ohhhhh - even Jim Rogers isn't abandoning dollars. He is actually bullish on dollars. For 5 years anyway.

http://jimrogers-investments.blogspot.com/2011/01/there-is-good-chance-us-dollar-will.html

what - you are calling warren buffet a liar? He seems still to be a big supporter of Obama. Buffet is clearly an honest person. You might be too narrowly focused here - look at all of what the Obamans are doing, not just the couple of things you can't take your focus off. You might see that they pointed the ship in the right direction.

Mtn Dew wrote:

No honest person can suggest Obama's economic policies are good.

Mtn Dew wrote:

No honest person can suggest Obama's economic policies are good. No honest person can suggest Bush's economic policies were good. They're just about the same person in terms of action. They are both awful. One is just a bit more eloquent than the other.

Finally some honesty! Just because one uses proper pronunciation and can speak in complete sentences doesn't mean they aren't exactly the same when you look at the results.

All of those fancy-schmansy big words are not makin' a bit of difference when it comes to the deficit (it's trillions by god, it's trillions I tell ya). Ya don't need to be some snobbish college-boy type 'ta balance 'da budget. Heck, I do it every week in my house and as treasurer for my local place of worship in my spare time. I don't get what is so hard about it. Jeeesch!

agip wrote:

what - you are calling warren buffet a liar? He seems still to be a big supporter of Obama. Buffet is clearly an honest person.

You might be too narrowly focused here - look at all of what the Obamans are doing, not just the couple of things you can't take your focus off. You might see that they pointed the ship in the right direction.

Perhaps I should have worded it differently. Perhaps not. Buffett is rich, but that doesn't mean he knows the best prescription for an economy.

look, you are essentially correct when you say that Bush and Obama economic policies are essentially the same.

You are wrong when you imply that everyone who says Obama is doing the right thing is not an honest person.

Your method of debate is something like 'call the other guy a liar.' weak sauce - you can do better.

This proves that Obama is the greatest president of the last 300 years

Mtn Dew wrote:

No honest person can suggest Obama's economic policies are good. No honest person can suggest Bush's economic policies were good. They're just about the same person in terms of action. They are both awful. One is just a bit more eloquent than the other.

They are both awful, but Obama is perhaps 3-5 times as awful as Bush, if we go by $$$.

lol lol lol lol wrote:

They are both awful, but Obama is perhaps 3-5 times as awful as Bush, if we go by $$$.

Not really. Had Bush been elected in 2008 he would have run up just as much debt, maybe more with military spending.

Coach D wrote:

What part of the over $5 trillion in debt run up during the Bush presidency do you not understand?

Is see in Obama's 2011 budget $770 Billion as TARP obligations during 2010. That is the cost of saving the world economy from the mess that Bush and the Republicans created. The TARP obligations are down to about $550 Billion in the 2011 Budget.

You suffer from the misconception that the consequences of Obama's deficits will somehow be ameliorated by the fact that Bush also ran up huge deficits. They will not. The laws of economics don't take the party affiliation of the President into account when they operate, and Obama's actions cannot be excused by criticizing George Bush and Republicans. And in a few years when you are jobless, your savings have been wiped out by inflation and all the "social safety nets" has collapsed under the weight of government debt, criticizing George Bush will not feed you, shield you from the elements or pay for your healthcare. You supported the monster in office and you will deserve what you get.

Someone should point out that most of the successful Democratic administrations also had Republican congresses. Wonder who was responsible for Clinton's economic success? When the the debt has been raised alot, Reagan, Bush, the majority of that deficit was spent when democrats had control of congress.

dood wrote:

Someone should point out that most of the successful Democratic administrations also had Republican congresses. Wonder who was responsible for Clinton's economic success? When the the debt has been raised alot, Reagan, Bush, the majority of that deficit was spent when democrats had control of congress.

Clinton did not have economic success. Clinton merely held office duing the early stages of our decline, when it was still possible to be irresponsible without feeling the consequences of our fiscal behavior. During the Clinton years, it was still possible to tax people heavily without crushing the economy. Try doing the same thing now and see what happens. During the Clinton years, a virtually infinite amount of cheap credit was readily availible, but the size of the debt had not yet become alarming, and our creditors still had reason to believe they would be repaid. Not anymore. The prosperity of the so-called "Clinton economy" was an illusion that enabled the even worse fiscal recklessness of the Bush years.

Wendell Gee wrote:

against what?

Against gold.

I'm not sure why this is supposed to be a problem, as my purchasing power for just about everything else is roughly the same, but it appears to be a BIG FREAKING DEAL to some people.

hyperinflation wrote:

[quote]Coach D wrote:

You suffer from the misconception that the consequences of Obama's deficits will somehow be ameliorated by the fact that Bush also ran up huge deficits. They will not. The laws of economics don't take the party affiliation of the President into account when they operate, and Obama's actions cannot be excused by criticizing George Bush and Republicans. And in a few years when you are jobless, your savings have been wiped out by inflation and all the "social safety nets" has collapsed under the weight of government debt, criticizing George Bush will not feed you, shield you from the elements or pay for your healthcare. You supported the monster in office and you will deserve what you get.

Yeah but shouldn't the 41% gain in my stock portfolio help me through the tough times ahead? . . . just sayin'