Sunday, February 15, 2009

The fiscal trap of Hope

The Washington Post reports on the fiscal bind into which we have been led by the neo-Keynesian "stimulus" approach to the recession:
The nation can't sustain trillion-dollar deficits without driving up the debt owed to private investors to dangerous levels that could undermine the nation's global economic dominance. That debt now stands at nearly $6 trillion.
A tax hike to pay for all this "stimulus" would certainly make matters much worse, yet the bond market -- a subject I referenced this morning -- must calculate the likelihood of repayment, and it's not just "global economic dominance" that is at stake, but rather the fundamental integrity of the federal government's "good faith and credit."

The Post article goes on to cite the unfunded liabilities of Medicare and Social Security, and Jennifer Rubin comments:
The president and his spinners declared this all to be a "long term" problem that had to take a back seat to the short term "solution" for the recession. But little they have done in the short term will improve the economy, which by their own calculations would have begun to bounce back on its own by the end of 2009.
The "long term" problem is now. The first act comes with the next major auction of Treasury debt. Are we going to start printing dollars ourselves to buy up Treasury paper? Raise the interest rate on bonds to keep Chinese and other investors in the game?
Rubin hits the nail on the head. The fiscal fantasies of Hope are about to slam head-on into the economic realities of the bond market. Economic reality is an unmovable object, and liberals are about to discover that Hope is not an irresistible force.

Or, in fewer words: It Won't Work.

(Cross-posted at AmSpecBlog.)

1 comment:

  1. Does this make the supporters of this fiscal disaster neo-keynes?