Is said to be doing the same thing over and over and expecting different results. If that’s the case, then our government’s economic policy seems steeped in this principle. Just today, the president has announced that the economy is showing “glimmers of hope” and while I do not doubt it, I would not make the mistake of declaring “mission accomplished” in our war against the recession. How did we get here and what did we do to get out of this mess? The simple explanation is that all of the participants in the economy, in one way or another, spent too much, borrowed too much, and made excessively risky investments. We refinanced mortgages, took out loan after loan, took out variable rate mortgages that proved too expensive to sustain. The financial industry followed suit, sometimes acting like loan sharks enticing would-be homeowners and current homeowners with offers that seemed too good to be true and in the end were. They used as collateral high risk assets and when these assets started to become worthless, the whole house of cards started to come down. So… what does the government do in order to save us from excessive borrowing, spending, and high risk investment? It does the very same thing: borrows from the Federal Reserve, spends on everything they can think of, and invests taxpayer dollars in corporations that are collapsing or on the brink of collapse… in the trillions. So much money has been spent that the national debt might almost double over the next decade according to the Congressional Budget Office’s estimate.

The person in charge of this mess, Timothy Geithner, was one of the principal players who dropped the ball when it came to regulating America’s largest financial firms and let them get out of control. His remedy has been to repeat the mistakes of the past and while he has proposed further regulation of the financial industry, the reality is that there were a lot of “regulations” on the books that people like Geithner and his ilk failed to use to put the brakes on the industry. So is it really surprising that after trillions of dollars materialized out of thin air the economy would recover in the short term? Of course not. Throw enough money at a problem and anything can be solved. The problem is what will happen to the economy and the country in the long-term and what it means to us.

With the government printing money at record pace, they are reducing the value of the dollar which will mean a rise in the price of everything, particularly oil (see this report). We can expect energy prices to go high in the medium-term to long-term, not only because of a weaker dollar and scarcity but because of higher taxes on coal and oil companies. Add to that, Obama’s plans to increase spending on health care and entitlements and we have another public obligation; that means that reducing spending will be ever more difficult. What the government is doing is kicking the problem down the road by simply printing money and eventually all of us will have to pay. The countries that help finance our debt are already looking to diversify and stop investing the U.S. debt… it started under Bush and has been accelerated by the current administration.

What I see is a future United States with a reduced role in the world and the end of the twentieth century definition of superpower. Obama even cautioned at the G20 summit that the United States cannot be counted on to be the driving engine of the world economy… what this ultimately means is not yet certain. What is clear is that Obama is currently setting the foundation for a future without America at the helm… a world that will allow the excesses of authoritarianism to proliferate unchecked by this last and greatest bastion of freedom. To allow that to happen is the true definition of insanity.

-AG