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Obama Success or Failure, Which is Better for the U.S. Economy?

Politics / Economic Stimulus Mar 06, 2009 - 03:14 PM GMT

By: Peter_Schiff

Politics Best Financial Markets Analysis ArticleTalk show host and conservative icon Rush Limbaugh recently ignited a firestorm of criticism for expressing his desire that Barack Obama should fail. Democrats, and even some Republicans, suggested that he had put aside his patriotism to wish for an economic collapse that would result in political advantage for conservatives. However, if you believe as I, and apparently Rush, that Obama's plans will prevent recovery, then wishing that they fail to become actual policy is the right thing to do. The problem is that since Mr. Limbaugh has a history of partisanship, and since he did not forcefully criticize the Bush Administration for similar (if slightly more modest) plans, many cannot see past the messenger to recognize the truth in the message.


I am certain that if Obama and the Pelosi/Reed Congress succeed in fully implementing their agenda, there is no chance the U.S economy will recover its position as world's leading economy. Instead, America will start down the road that has condemned so many nations to economic mediocrity. By continuing and magnifying the Bush stimulus and bail-out policies, the economic rebalancing that is so vital to a sustainable recovery cannot occur.

Limbaugh merely said what members of the loyal opposition would say if they were true to their supposed philosophy. But since so many Republicans supported the Bush bailouts and stimulus packages, it would be too blatantly hypocritical to reverse course now. In truth, for all his talk of change Obama has merely continued and expanded the failed policies of Bush.

The one aspect of Obama's agenda that has galvanized Republican criticism is higher taxes on the rich. While I also abhor tax increases, the spending increases supported by both parties are far more damaging to the economy. In fact, I actually support Obama's decision to eliminate the “carried interest” tax advantages that had so unequally benefitted hedge fund managers. If I had my way the income tax would be abolished completely, but as long as we have one it is not fair for hedge fund managers to pay lower marginal taxes than the guys who shine their thousand dollar shoes.

The arguments that higher tax rates will discourage hard work and initiative are true across the entire income spectrum. It makes no sense politically to single out the mega-wealthy for special treatment. The sad truth is that Republicans are spending their dwindling political capital on a non-issue. Most hedge funds relied on leveraged borrowing to produce oversized returns. Now that the debt markets are essentially closed, there is not much “carried interest” income left to tax.

The bigger issue is that few Republicans are making any serious effort to oppose the staggering deficits that will guarantee huge future tax increases and runaway inflation for everyone, rich and poor. By simply clinging to tax cuts as their single economic miracle cure, Republicans risk further marginalization.

The president claims that his constituency is Main Street, not Wall Street. But for all the scorn heaped on the “fat cats,” we must remember that it took two to tango. Sure, Wall Street loaned out too much money, but it was Main Street that borrowed it. Average Americans used the windfall for the biggest shopping binge in world history. As a result our entire economy has been transformed from one based on savings and production to one based on borrowing and consumption.

Now that this false paradigm has been exposed, the transition back to economic viability will be painful. Jobs must be lost in the service sector so that labor can be reallocated towards goods production. Asset prices, for both stocks and real estate, must decline to levels appropriate for current circumstances. In addition, the dollar's exchange rate must fall to reflect our weakened competitive position. However, by postponing these adjustments we merely assure an even more painful transition in the future, especially for the average Americans whose interests our new president claims to champion. But by then Obama will have his coveted second term. Rush is right on this one: Obama's agenda must fail now, lest we wander too long down the road to destitution.

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

For an updated look at his investment strategy order a copy of his just released book ‘The Little Book of Bull Moves in Bear Markets.”  Click here to order your copy now

By Peter Schiff
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

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