2011: The State Of The Union Economy

In the near future, Obama will be giving his State of the Union address. Here are some deeply troubling facts about our economy that you will not be hearing in that speech.

1. Food Prices At Record Highs & Heading Upwards; Ethanol Mandates & Subsidies Put Fuel In Competition With Food

Food prices are skyrocketing upward, running last month at an annualized rate of 8.7% inflation.

In December, the wholesale price of vegetables rose by 22.8 percent, and fruit was up 15.4 percent. . . . The price of beef rose 2.7 percent in December and was 15 percent higher than a year ago, the Department of Labor said in the PPI report. Pork is up 22.3 percent from a year ago, and fish is up almost as much. Turkey is up 18 percent.

This is a world wide issue. Food prices are at their highest ever. Just today, the chief executive of one of the world's largest food producers warned that the global crisis in food production is reaching "dangerous territory" with demand outstripping supply.

The causes are multiple, but a large portion of it is the insane push to create "bio-fuels" out of food crops and the concomitant misuse of agricultural land:

In the United States, which harvested 416 million tons of grain in 2009, 119 million tons went to ethanol distilleries to produce fuel for cars. That’s enough to feed 350 million people for a year. The massive U.S. investment in ethanol distilleries sets the stage for direct competition between cars and people for the world grain harvest. In Europe, where much of the auto fleet runs on diesel fuel, there is growing demand for plant-based diesel oil, principally from rapeseed and palm oil. This demand for oil-bearing crops is not only reducing the land available to produce food crops in Europe, it is also driving the clearing of rainforests in Indonesia and Malaysia for palm oil plantations.

Bio-fuels are the world's greatest boondoggle. The fuel is inefficient, expensive and actually contributes to the growth of CO2 in our atmosphere. Not only does it make no sense to mandate or subsidize ethanol, it is a major contributing factor to poverty and hunger world-wide. Yet it is now a vested interest and thus, seemingly impossible to dislodge.

This particular problem in America has bi-partisan origins. It began under the Bush administration and now being furthered by the Obama administration. Within the past months, Obama's EPA actually increased by 50% the amount of ethanol allowable in gasoline, from 10% to 15% ethanol. Between that and the recent renewal of the ethanol subsidy, this problem of food prices will only get worse.

2. Housing Market

Our housing market has crossed the threshold into uncharted territory - it is now worse than it was during the Great Depression. Home values have declined 26% since their 2006 peak and there is no end in site to the slide. Foreclosures this year are expected to top 2010's record of one million, and over five million people are over two months behind in their mortgage payments.

3. Obama's War On Domestic Oil & Gas

It is impossible to underestimate the cost to our economy of Obama's war on domestic production of oil. An incredible 62% of our entire trade deficit now comes from importing foreign oil.


And the situation is poised to become much worse. Many expect the price of gasoline seems to spiral upwards, beyond the $4 a gallon threshold that caused nationwide discontent two years ago. Gas could well hit $5 a gallon this year. Opening up oil and gas drilling throughout America would add significantly to jobs, fill our declining coffers and significantly increase the supply of oil and gas, thus reducing the cost of gasoline. Yet the Obama administration is taking the opposite tack, warring on our oil and gas infrastructure.

The administration, has shut down all new offshore drilling and is making it ever more difficult to drill for oil on federal lands. Further, the Obama administration is in the midst of massive land and ocean grabs specifically aimed at cutting off ever more of our natural resources from exploitation. Lastly, the administration is expected to introduce even more regulations and increase taxes on our domestic oil industry in response to the report of the deeply partisan Oil Spill Commission, which, while tasked with investigating BP, instead condemned the entire oil industry.

4. Obama Is Killing Coal Mining & The Use Of Coal For Electricity With Deep Ramifications In The Future For The Cost & Availability Of Energy In America

The war on oil and gas pales in comparison to the Obama administration's war on coal - the basis for over 50% of the electrical power generation in our country. The Obama administration is doing all that it can to completely kill our coal industry:

"Coal is a dead man walkin'," says Kevin Parker, global head of asset management and a member of the executive committee at Deutsche Bank. "Banks won't finance them. Insurance companies won't insure them. The EPA is coming after them. . . . And the economics to make it clean don't work." . . .

Not a single new coal power generation plant was built in 2010. And lest there be any question whether investors should put their money into coal mines, the EPA recently took the unprecedented step of withdrawing a Clean Water permit for a mine it had approved three years ago. This from the WSJ, via Bizzy Blog:

The Environmental Protection Agency, in an unusual move, revoked a key permit for one of the largest proposed mountaintop-removal coal-mining projects in Appalachia, drawing cheers from environmentalists and protests from business groups worried their projects could be next.

The decision to revoke the permit for Arch Coal Inc.’s Spruce Mine No. 1 in West Virginia’s rural Logan County marks the first time the EPA has withdrawn a water permit for a mining project that had previously been issued. . . .

A spokeswoman for Arch said the company was “shocked and dismayed” by the agency’s decision, which it said would block an additional $250 million investment that would create 250 jobs. The company said it would appeal to the courts.

… As the EPA stressed that the permit decision had no implications beyond the Spruce mine, business groups outside the coal industry said the government’s action raised questions about whether permits previously issued for other businesses could also be revoked, potentially stranding investments and costing jobs even as the economy continues to heal.

The EPA has just added a significant amount of risk for any investor considering investment in a coal mine. This is killing jobs in the oil and coal industries. This war on coal and oil will soon have major ramifications for the domestic cost and availability of energy.

Update: Obama conducts this war even though his push for "green energy" is falling utterly flat. American Thinker covers the moras Obama has created with solar energy - a black hole for tax dollars and Democratic corruption that will not be replacing coal in our lifetime, if ever.

5. The EPA Poised To Harm Our Economy

Regulation as a whole has been creating an anti-business momentum for decades. But under Obama, and in particular with the EPA, the regulatory bureaucracy has taken wing. While Congress has refused to legislate restrictions on CO2, the EPA, with an assist from the climate scientists sitting on the Supreme Court, has assumed the right to do so under the Clean Air Act, a law ill suited for the task. The first leg of EPA's new regulatory scheme for CO2 went into effect this month. It is initially aimed at the "largest emitters" - i.e., coal fired power plants, cement plants, etc.



It is expected that this power grab will EPA will cost our country a million jobs and drive up significantly the price of energy.

6. Environmental Groups & The Courts Driving Energy Policy

Unfortunately, it is not just the regulatory bureaucracy that is implicated in this ever greater assault on our economy. Each of the regulatory laws passed by Congress decades ago contain a provision giving the keys to the courthouse to environmentalists. Because of that, a major driver of our nation's environmental policy is being dictated by the Courts - with drastic consequences. For example, a Federal Court decision to protect the Delta Smelt has turned one of our nation's prime agricultural areas into "Zimbawbwe." For another example, enterprising lawyers are now filing nuisance suits to sue U.S. manufacturers and power plants for their contribution to global warming. Our Supreme Court recently opted to allow such cases to proceed. It is time for Congress to end standing for all private suits under our environmental laws as well as clarifying that the regulation of green house gasses are policy questions for our elected representatives and thus cannot be heard by state or federal Courts.

7. More Regulatory Overreach & The Looming Explosion In Regulations

Before leaving the question of the regulatory bureaucracy, it is of course not just the EPA that has engaged in power grabs of very dubious constitutionality. The FCC's recent decision to assume control over regulation of the internet is yet another shining example of regulatory agencies gone wild. And we see similar overreach by HHS as Kathleen Sebilius is in the process of taking control over health insurance pricing in the U.S. Meanwhile, hundreds of new bureaucracies remain to be staffed and reams of new regulations remain to be written for Obamacare and the Financial Regulatory bill.

The regulatory bureaucracy is clearly out of control, bastardizing our form of government. We are beginning to resemble the EU - a government run by unelected bureaucrats. That is far from the vision of our Founders. As George Will notes in a column today, reasserting Congressional authority and oversight over the regulatory bureaucracy should be at the top of the agenda for the 112th Congress. Indeed, I believe that Congress should immediately pass a law holding that no regulation will become binding and enforcable unless and until approved by Congress.

8. Obamacare's Looming Taxes & Costs

As to Obamacare, its first effects are just now being felt. What we as a nation have to look forward to in the offing - higher health insurance premiums as well as hundreds of billions in new taxes, all on top of the costs of compliance:

- Excise Tax on Charitable Hospitals (2010)
- Tax on Innovator Drug Companies (2010)
- Tax on Indoor Tanning Services (2010)
- Medicine Cabinet Tax (Jan 2011)
- HSA Withdrawal Tax Hike (Jan 2011)
- Corporate 1099-MISC Information Reporting (Jan 2012):
- Surtax on Investment Income (Jan. 2013)
- Flexible Spending Account Cap aka “Special Needs Kids Tax” (Jan 2013)
- Hike in Medicare Payroll Tax (Jan 2013)
- Tax on Medical Device Manufacturers (Jan 2013)
- Raise "Haircut" for Medical Itemized Deduction from 7.5% to 10% of AGI (Jan. 2013)
- Elimination of tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D (Jan 2013)
- $500,000 Annual Executive Compensation Limit for Health Insurance Executives (Jan 2013)
- Individual Mandate Excise Tax (Jan 2014)
- Employer Mandate Tax (Jan 2014)
- Tax on Health Insurers (Jan 2014)
- Excise Tax on Comprehensive Health Insurance Plans (Jan 2018)

9. The National Debt & The Road To Becoming A Banana Republic

Our national debt is expected to balloon over the next decade, particularly in light of massive entitlement obligations. Obama and the left have us on track to have debt rise to $20 trillion, 90% of GDP, by 2020, the consequences of which will be calamitous. It means we will soon be facing massive increase in taxes, inflation, and the need for draconian cuts in spending - or default on our sovereign debt, with unimaginable consequences not just for us, but also for the world economy.

10. Unemployment

Since Obama assumed the Presidency, we have hemorrhaged millions of jobs and remain mired above 9% unemployment. For two years, Obama has concentrated on everything but the economy and jobs for Americans, apparently assuming that the economy would bounce back of its own accord while he focused on paying off labor unions and forcing through Obamacare. We are world's away from the Bush years, during which unemployment averaged 5.2%.

The December unemployment report showed that the jobless number dropped to 9.4%. That seemingly small piece of good news is illusory. This from Morning Bell via Bizzyblog:

You are going to hear a lot of noise from the White House about how this drop from a 9.8% unemployment rate to 9.4% means the economy is in a strong recovery. This is false. The reality is that the only reason the unemployment rate dropped is because the U.S. labor force decreased by 434,000. More importantly 260,000 Americans dropped out of the labor force entirely. This means that the Obama economy is now driving Americans out of the labor force faster than it is bringing them in.

Unemployment will remain an intractable problem under this deeply incompetent administration. Indeed, it will take a major change to all of the conditions dicussed above if we are to turn our country around, lower unemployment and grow our way out of this fiscal crisis.

11. Conclusion

Obama inherited a bad economy that he has made worse. Instead of changing tack, he is on the cusp of making our economy infinitely worse. True, he has finally appointed a token capitalist with business experience to his administration - William Daley. But unless this means Obama is willing to do an economic u-turn on gas, oil, Obamacare, the EPA, the FCC, ethanol and deficit spending, nothing is going to pull us out of our downward trajectory between now and 2012. The best we can hope for is for the House to slow the slide. But don't expect to hear any of that at the State of the Union.

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Keynesian Economics Finally Discredited?

Dave Price, writing at Dean's World, opines

Tim Cavanaugh has a devastating cite from just-retired Obama economic adviser Christina Romer:

The generally precise Romer spells out the difference for us: Using this approach, the estimated multiplier for monetary policy is 0.823 and the estimated multiplier for fiscal policy is -0.233.

You don’t say. Gee, that would have been nice to know a few trillion dollars ago.

Democrat Party water-carriers like Paul Krugman love Keynesian economics, with its assumed large fiscal multiplier, because it meshes so perfectly with leftism’s general preferences: more government, bigger government, more public-sector employees, higher pay for those employees — and, naturally, higher taxes to go with all that. Their continued insistence we need to spend (and tax!) more, more, more even as unemployment goes higher and deficits mushroomm is growing ever less credible with each additional “unexpected” signal of economic failure.

If there’s one positive to come out of the Great Recession, it should be the end of Keynesian economics as a serious policy choice. The notion you can grow the economy via North Korea-style command economics should have been long-dead even before Romer’s 1992 paper, but Obama’s miserable failure may finally drive a stake through this productivity-sucking, economy-killing meme.

Let me put this simply — and contradict a too-widely-held assumption of macroeconomics:

THERE IS NO SUCH THING AS AGGREGATE DEMAND. . . .

Keynesian economics, coupled with our modern welfare state, has been a disaster. And if the only thing that comes out of this "Great Recssion" is the discrediting of Keynesian economic theory, than it will be a postive thing indeed.

On a related note, if you missed it, you can read Paul Krugman's defense of his beloved Keynsianism and his attack ad hominem attacks on Paul Ryan for articulating a conservative economic plan here.

And on another related note, do see this exceptional short video explaining the fallacy of the Broken Window Theory - a theory related directly to Keynesianism as well as, more generally, the Democrat's seemingly innate desire to tax and spend.



(H/T American Digest

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Obamadness - EPA To Start Regulating Carbon Emissions From Energy Producers Next Year

Our economy is in dire straights with the combined total of unemployed and underemployed well into the depression era levels of the 1930's. As the NYT pointed out a few days ago, many of those out of employment today can expect to be out of employment for years. The Obama administration has warred on private enterprise - paying not but lip service to the creation of jobs in the private sector. And now, the next shell is loaded in the Obama's howitzer aimed at private industry and the unwashed masses. Obama's EPA announced today that they will impose regulations on our energy industry next year in an effort to curb the dangerous pollutant that is carbon dioxide - all in an effort to stem global warming.

This from WaPo:

Environmental Protection Agency Administrator Lisa P. Jackson laid out the timetable for regulating greenhouse gas emissions Monday, writing in a letter to lawmakers that she plans to start targeting large facilities such as power plants next year but won't target small emitters before 2016.

The letter makes it clear the Obama administration will move ahead with curbing global warming pollution under the Clean Air Act unless Congress moves to stop it. Jackson emphasized that the administration was required to act under a 2007 Supreme Court decision that said greenhouse gases from motor vehicles qualified as a pollutant under the 40-year-old air-quality law. Jackson was responding to a letter several coal-state senators sent her late Friday.

"I share your goals of ensuring economic recovery at this critical time and of addressing greenhouse-gas emissions in sensible ways that are consistent with the call for comprehensive energy and climate legislation," she wrote.

Under the plan Jackson outlined, major emitters of carbon dioxide that are already seeking air-pollution permits would face regulation as early as the start of 2011. Medium-size emitters such as a large liquor distillery would not face restrictions until the second half of 2011 at the earliest, and smaller facilities such as dry cleaners and hospitals wouldn't come under the rules until 2016. . . .

Wonderful. The science of anthropogenic global warming is, today, in absolute tatters. As discussed here, the best that can be said about AGW today is that it is unproven. They are figuring that out in Europe (though it would seem that nary a word of that is appearing in our MSM). Yet the Obama administration isn't even blinking on this, thus proving beyond a shadow of a doubt that global warming is a political - not scientific - issue. Even treating it as a political issue, does it make any sense to impose higher costs on our energy sector - all of which will be passed on to the end user - during our greatest fiscal crisis since the Great Depression. It makes as much sense today as the Smoot Hawley Tarrif did in 1930. This administration doesn't just need to be voted out of office, they need to be banished to a Siberian gulag where they can contemplate global warming for the rest of their very cold lives - and not do any further damage to our nation.

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22% Real Unemployment? Is This Great Depression II?

The official jobless rate from the Dept. of Labor is 10%. But that number, because it does not include people who are underemployed or not actively looking for a job in this economy, grossly undercounts the number of unemployed in America. As the AP points out, the real unemployment rate stands at least at 17.3%:

The unemployment rate held steady at 10 percent. It did not creep higher only because so many people stopped looking for work and are technically not counted as unemployed.

But the jobless rate is likely to rise in coming months as more people see signs of an improving economy and start looking for work again. Some economists think it could near 11 percent, which would be the highest since World War II, by June. . . .

Complicating the recovery are remnants of the recession: high debt, a sputtering housing market and the inability or reluctance of people and businesses to borrow and spend. Most economists think unemployment will rise this year and stay high into 2012. . . .

The 85,000 lost jobs for the month is based on a government survey of employers. A separate government survey of households found a much darker picture — nearly 600,000 fewer people said they had jobs in December than in November.

That gap could reflect layoffs at small businesses that are having trouble getting loans and can't afford to hire new people. That's something many economists think the employer survey misses because it undercounts small companies. . . .

Counting the people who have given up looking for work and the part-time workers who would rather be working full-time, the so-called underemployment rate edged up to 17.3 percent in December. The record high is 17.4 percent, reached in October. . . .

AP here uses the 85,000 lost jobs from the employer survey to arrive at the 17.3% figure, but John Crudele at the NY Post points out that, if you use the higher household survey figures, that jumps the actual unemployment figures up to nearly 22%. Referring to the historic unemployment figures in the graph at the top of this post, either figure puts us into Great Depression range, with the figure of 22% being close to the record unemployment at the height of the Great Depression.

So what is Obama doing about this? As I pointed out here, his stimulus bill has not just been ineffective, it never stood a chance of being effective. Of the 789 billion dollars of that massive pork laden plan, sold as a plan to keep unemployment below 8%, only 2.6% was aimed at helping the maor jobs producing engine of our economy, small business, and only a little over 10% went to funding "shovel ready" construction jobs - none of which have had any effect on employment one year on. The rest went to secure government/union jobs and a host of other Democratic pork.

So what does Obama have planned to get America out of this mess caused by Democrats in the first place? Let's see . . . he's doubling down on the Community Reinvestment Act - which is at the center of our financial meltdown, he's looking to place massive new taxes and costs on businesses with Health Care and Cap and Trade. He wants to spend $2.3 billion to create 17,000 temporary green jobs, and, oh yes, he is going to change how his government now counts stimulus jobs to inflate the already inflated figures. Hey, well at least that's a positive step. Its like the old joke about the golfer whose best club was a pencil.

Obama can at least breathe a sigh of relief about one thing. While at the end of his term as President, a lot of people are probably going to want to march on the White House to tar and feather his incompetent self, most will be too destitute to afford the Greyhound bus ticket to get to DC., let alone pay for the tar or feathers. Perhaps there is method to his madness after all.

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Depressing (& Depression) News

The Great Depression began in June, 1929 and lasted until the early 1941. FDR didn't solve it with his "New Deal", WWII did. By 1933, unemployment had risen to 24.9%, average incomes contracted by 40%, global trade fell by half in volume, and millions lost their homes and farms. How do we compare to the Great Depression?

We are now running a budget deficit closing in on two trillion dollars. Unemployment is at 9.4% and seems headed only upward. Our bond rating is on the cusp of being downgraded - an occurrence that promises a whole host of problems. The fed is printing money as never before:



Even with no new deficit spending, new and heavy taxes seem inevitable to service this debt. Plus, with such an increase in the money supply, massive inflation and devaluation of the dollar seems inevitable.

But much more is waiting in the wings to hit, some sooner rather than later. Obama is doing nothing to rein in spending or to avoid taxation. Indeed, to the contrary, Obama has not even begun to tax and spend. In an Orwellian move, he is calling for institution of "pay as you go" legislation that will make future tax cuts next to impossible but will not apply to any of the massive new deficit spending he has planned in his pet projects.

Social Security - a massive ponzi scheme that the left utterly refused to attempt to reform during the Bush years, is now running in the red. Medicare isn't being fixed, its being subsumed in a plan that will only expand care to 1/3 of the uninsured, yet cost us trillions in extra dollars. Cap and Trade is another massive regressive tax.

We are on the cusp of an energy crisis that Obama is ignoring. The price of oil is set to skyrocket from a host of contributing causes. The green energy Obama has promised us is not even cost effective, nor can it possibly be scaled up as quickly as it would need to be to provide a realistic alternative to oil and coal.

Global trade, already under extreme stress, is set to experience far more stress. Some 80% of all goods traded internationally are shipped. David Smick, writing at the Washington Post, notes "[t]he U.N. agreement last October on sulfur-burning levels for ships . . . is expected to send shipping costs skyrocketing." Thus the price of the vast majority of goods traded internationally will be effected, all in the name of global warming.

Then to top it off, we have Obama, instead of fixing the issues that led to this global economic meltdown, proposing a massive new regulatory regime for our financial sector. This is precisely what the respected Harvard economist Niall Ferguson warned against a few weeks ago.

Could this news get any more dire? Well, . . . yes. We now have sufficient data to make a reasonable comparison of where we are as compared to the same time frame after the start of the Great Depression. And the news is depressing indeed. Even without this next round of price increases, massive spending and high taxation, we are at or below the same economic indicators in the same time frame as existed during the Great Depression. This from the Financial Times:

Green shoots are bursting out. Or so we are told. But before concluding that the recession will soon be over, we must ask what history tells us. It is one of the guides we have to our present predicament. Fortunately, we do have the data. Unfortunately, the story they tell is an unhappy one.

Two economic historians, Barry Eichengreen of the University of California at Berkeley . . . [document] that this recession fully matches the early part of the Great Depression. . . .

First, global industrial output tracks the decline in industrial output during the Great Depression horrifyingly closely. Within Europe, the decline in the industrial output of France and Italy has been worse than at this point in the 1930s, while that of the UK and Germany is much the same. The declines in the US and Canada are also close to those in the 1930s. But Japan’s industrial collapse has been far worse than in the 1930s, despite a very recent recovery.

Second, the collapse in the volume of world trade has been far worse than during the first year of the Great Depression. Indeed, the decline in world trade in the first year is equal to that in the first two years of the Great Depression. This is not because of protection, but because of collapsing demand for manufactures.

Third, despite the recent bounce, the decline in world stock markets is far bigger than in the corresponding period of the Great Depression.

The two authors sum up starkly: “Globally we are tracking or doing even worse than the Great Depression ... This is a Depression-sized event.” . . .

You can read the rest of the article here. The authors go on to discuss the fact that Obama is attempting to rely on both Keynes and Friedman to guide his acts. Keynes theorized that massive public spending could be used to stimulate an economy while Friedman concentrated on monetary supply. The authors conclude hopefully that this will stop the full spiral into depression.

What gives me great pause is that these authors give no consideration to all of the additional taxes and the rising costs that we are about to have imposed upon us, plus what looks like new draconian regulation of our financial sector. Fed Chairman Ben Bernanke warned a few weeks ago that we needed to taking steps now to rein in spending and borrowing or we face severe problems in the foreseeable future. Obama is doing anything but that. I have never been so pessimistic about America's future. This could easilly go from bad to castrophically bad.

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Heading Towards A Self Inflicted Depression?

And to think that Obama ran against Bush on the charge that Republicans lacked fiscal responsibility.

The economic news gets progressively worse by the day. Obama has broken the bank with his profligate spending. Indeed, the borrowing for his spending has been so massive that Moodys is warning that it may have to downgrade federal government bonds - a move that would send us far deeper into debt. Further, this downturn is turning into a perfect storm, as it is merging into a crisis with social security and Medicaid. One would think all of that is more than enough, but no. Obama is pursuing plans for massive taxation through several vehicles, the sum total of which will massively burden every American and portends to derail any recovery. Then there is Obama's non-sequiter that in order to stem the bleeding from Medicare, we have to enact another trillion dollar program, universal health care. And lastly, from Carl at No Oil For Pacifists, a detailed review of Obama's economic programs to the present, set in an econ 101 grading scheme.

Economists debate whether FDR's massive "New Deal" spending was effective in combating the Great Depression. Given that the depression did not end until WWII, that is an open question. But Obama has bet the farm - and the second mortgage on the farm - on the theory that FDR had it right.

The national debt today is four times higher than it was just one year ago, standing at $1.84 trillion dollars. Of that, half has been borrowed. And that is a figure likely to rise as the year progresses both through increased allocations, increases in the cost of borrowing, and the failure of the Obama rosy predictions to fail to materialize. Just paying down that figure is daunting, if there was nothing more.

But we are in the midst of a near perfect economic storm. Democrat protests to the contrary, we have known for years that Social Security and Medicare were going to balloon in size - into the multi-trillions of dollars - as more baby boomers age. Democrats have run these plans as a ponzi scheme, and the scheme is being exposed by falling receipts. This will come to crisis proportions in a few years, if not sooner. But Obama has yet to say word one about how he will address social security. More on medicaid below.

Between Obama's profligate spending and our looming massive crisis in Social Security and Medicaid, we face yet another major obstacle. This from Financial Times:

Long before the current financial crisis, nearly two years ago, a little-noticed cloud darkened the horizon for the US government. It was ignored. But now that shadow, in the form of a warning from a top credit rating agency that the nation risked losing its triple A rating if it did not start putting its finances in order, is coming back to haunt us.

That warning from Moody’s focused on the exploding healthcare and Social Security costs that threaten to engulf the federal government in debt over coming decades. The facts show we’re in even worse shape now, and there are signs that confidence in America’s ability to control its finances is eroding.

Prices have risen on credit default insurance on US government bonds, meaning it costs investors more to protect their investment in Treasury bonds against default than before the crisis hit. It even, briefly, cost more to buy protection on US government debt than on debt issued by McDonald’s. Another warning sign has come from across the Pacific, where the Chinese premier and the head of the People’s Bank of China have expressed concern about America’s longer-term credit worthiness and the value of the dollar. . . .

The bottom line of all of this is that we are headed for far more difficult times if the cost of our ability to borrow rises significantly - as will assuredly happen if we lose our AAA rating.

One of the clear lessons that came out of the Great Depression was that increasing taxation can defeat a recovery. Obama is planning to do tax increases on steroids. Obama intends to fund his profligate spending on the backs of all Americans through massive direct and indirect taxes as well as a business tax that portends to drive multinational businesses from our shores. As discussed by Martin Feldstein in the WSJ:

The current outlook for an economic recovery remains precarious. Although the stimulus package will give a temporary boost to growth in the current quarter, it will not be enough to offset the combined effect of lower consumer spending, the decline in residential construction, the weakness of exports, the limited availability of bank credit and the downward spiral of house prices. A sustained economic upturn is far from a sure thing. This is no time for tax increases that will reduce spending by households and businesses.

Even if the proposed tax increases are not scheduled to take effect until 2011, households will recognize the permanent reduction in their future incomes and will reduce current spending accordingly. Higher future tax rates on capital gains and dividends will depress share prices immediately and the resulting fall in wealth will cut consumer spending further. Lower share prices will also raise the cost of equity capital, depressing business investment in plant and equipment.

The Obama budget calls for tax increases of more than $1.1 trillion over the next decade. . . .

Mr. Obama's biggest proposed tax increase is the cap-and-trade system of requiring businesses to buy carbon dioxide emission permits. The nonpartisan Congressional Budget Office (CBO) estimates that the proposed permit auctions would raise about $80 billion a year and that these extra taxes would be passed along in higher prices to consumers. Anyone who drives a car, uses public transportation, consumes electricity or buys any product that involves creating CO2 in its production would face higher prices.

CBO Director Douglas Elmendorf testified before the Senate Finance Committee on May 7 that the cap-and-trade price increases resulting from a 15% cut in CO2 emissions would cost the average household roughly $1,600 a year, . . .

But while the cap-and-trade tax rises with income, the relative burden is greatest for low-income households. According to the CBO, households in the lowest-income quintile spend more than 20% of their income on energy intensive items (primarily fuels and electricity), while those in the highest-income quintile spend less than 5% on those products.

The CBO warns that the estimate of an $80 billion-a-year tax increase could be significantly higher or lower, depending on how the program is designed. The Waxman-Markey bill currently before Congress calls for reducing greenhouse gasses 20% by 2020 and by an incredible 83% by 2050. As the government reduces the amount of CO2 that is allowed, the price of the CO2 permits would rise and the pass-through to consumer prices would also increase.

The next-largest tax increase -- with a projected rise in revenue of more than $300 billion between 2011 and 2019 -- comes from increasing the tax rates on the very small number of taxpayers with incomes over $250,000. Because this revenue estimate doesn't take into account the extent to which the higher marginal tax rates would cause those taxpayers to reduce their taxable incomes -- by changing the way they are compensated, increasing deductible expenditures, or simply earning less -- it overstates the resulting increase in revenue.

This is a large part of the smoke and mirrors of the Obama unrealistic forecasts. If a 10% tax in place on $1000 of income brings in $100 today, raising the tax to 15% almost assuredly does not mean that tax receipts will rise to $150. The more confiscatory taxes become, the more people do what they can to lessen the burden. To continue with Mr. Feldstein:

Since the projected revenue from this source is already designated to be used for Mr. Obama's health plan, some other tax increases will be needed. Moreover, Mr. Obama's budget characterizes the projected $634 billion outlay for health-care reform as just a down payment on the program. The budget notes that there would be "additional resources and new benefits to be determined with Congress." Those additional resources would no doubt be even higher taxes.

The third major tax increase is the plan to raise $220 billion over the next nine years by changing the taxation of foreign-source income. While some extra revenue could no doubt come from ending the tax avoidance gimmicks that use dummy corporations in the Caribbean, most of the projected revenue comes from disallowing corporations to pay lower tax rates on their earnings in countries like Germany, Britain and Ireland. The purpose of the tax change is not just to raise revenue but also to shift overseas production by American firms back to the U.S. by reducing the tax advantage of earning profits abroad.

The administration is likely to be disappointed about its ability to achieve both goals. Bringing production back to be taxed at the higher U.S. tax rate would raise the cost of capital and make the products less competitive in global markets. American corporations would therefore have an incentive to sell their overseas subsidiaries to foreign firms. That would leave future profits overseas, denying the Treasury Department any claim on the resulting tax revenue. And new foreign owners would be more likely to use overseas suppliers than to rely on inputs from the U.S. The net result would be less revenue to the Treasury and fewer jobs in America. . . .

Read the entire article. To add to this list of proposed taxes, we find today that the Senate is looking into raising taxes on sin - specifically, alcohol, tobacco, chips and sodas. The bottom line, Obama's plans seem to be a clear path to a much weaker economy - and the people who are going to bear the biggest brunt are those in the lower and lower middle class.

As to Medicaid, that is clearly a plan that has to be addressed. But instead of trying to staunch the bleeding, Obama is making ridiculous claims that it can only be done as part of an incredibly expensive move to universal health care. As Megan McCardle points out:

Perhaps predictably, someone showed up in the comments to my post on Medicare and Social Security to argue that liberal analysts have very serious plans to cut Medicare's costs, which is why we need universal coverage, so that we can implement those very serious plans.

I hear this argument quite often, and it's gibberish in a prom dress. Any cost savings you want to wring out of Medicare can be wrung out of Medicare right now: the program is large and powerful enough, and costly enough, that they are worth doing without adding a single new person to the mix. Conversely, if there is some political or institutional barrier which is preventing you from controlling Medicare cost inflation, than that barrier probably is not going away merely because the program covers more people. Indeed, to the extent that seniors themselves are the people blocking change (as they often are), adding more users makes it harder, not easier, to get things done.

Lastly, in this whirlwind of bad news, Carl at No Oil For Pacifists has an exceptional post documenting Obama's economic moves over the past 100+ days:

What if the Presidency were a college course? Should Obama get good marks for making the first steps towards financial sanity? Imagine Obama's mid-semester report card from an ivy-covered academy . . .

Read it, and do hit all of the links. You will be amazed that Obama gets an A in econ 101.

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