On March 19 the New York Times reported: “The Fed said it would purchase an additional $750 billion worth of government-guaranteed mortgage-backed securities, on top of the $500 billion that it is currently in the process of buying. In addition, the Fed said it would buy up to $300 billion worth of longer-term Treasury securities over the next six months.”
The current estimate for the 2009 budget deficit is now over $1.8 trillion dollars. This is a huge jump from the deficts of $400 to $500 billion a year that the government had been running.
It sounds nice to plan on spending this money. And in many ways, the new spending on 'stimulus' is needed. But the question always was 'who are we going to borrow this money from?' The rest of the world had already become leery of US debt, and the US didn't have a 'savings rate' even before the collapse.
So, this news is one big giant flashing red light warning of trouble ahead. The government is now playing Enron like accounting games, taking advantage of the fact that the Fed is not a government entity to use them to loan money to the rest of the government by buying massive amounts of bonds.
We need the stimulus. We need money pumped into this economy to try to create jobs. What we don't need is the wars in Iraq and Afghanistan. We can't afford them. What we don't need is trillions of dollars being pumped into banks to keep them afloat. What we don't need is one to two trillion dollars a year being spend on 'defense' and 'homeland security'.
Obama and the Democrats are making the classic mistake. They are trying to keep spending huge amounts on war and the military, while also trying to ramp up the domestic economy. They've failed to notice that its always guns OR butter. Guns AND butter at the same time never works.
We need the butter. We don't need the guns. We are heading for a major crisis worse than it is today if we foolishly fail to end these wars and massively slash what we spend on the military, intelligence, and homeland security.