President Barack Obama has capitulated to the incoming GOP majority in the House of Representatives on the subjects of spending cuts and earmarks. In his weekly television address, which was taped in Tokyo, Japan, where he was attending a meeting of the G-20 nations that control 85% of the world’s economic output, Obama called for a three-year spending freeze. A spending freeze translates into budget cuts as entitlement programs are pegged to the rate of inflation.
For inflation-mandated boosts to be realized, other programs would have to be cut to keep the level of government spending at a static level. Federal Reserve Chair Ben Beranke has implemented inflationary policies in order to reduce the debt overhang plaguing the U.S. economy and to direct capital into the stock market and housing sector. The U.S. will experience an uptick in inflation (hoped to be limited to 1-2%) that will effect entitlement programs.
The President had been on a 10-day trip through the Far East, which included stops in India and Indonesia and attendance at the G-20 conference. The trip has not been a great success. In addition to failing to secure a free trade agreement with South Korea, Obama’s economic policies have been under attack. His call for action against China, which has been intervening in the currency markets to keep its yuan low and thus its exports financially attractive, was rebuffed by the G-20 members.
His economic policies have been widely criticized by key allies such as Germany. French President Nicolas Sarkozy called for the replacement of the dollar as the world’s reserve currency.
The Democratic President once hailed as the second coming of 20th Century titan Franklin D. Roosevelt hsa made a hard turn to the right. He apparently is prepared to eschew the Keynsian policies embraced by both FDR and surrender to incoming House Speaker John Boehner’s a call for fiscal discipline.
Some liberal economists, including Nobel Prize-winner Paul Krugman and former Secretary of Labor Robert Reich, have complained that the problem with the Keynsian, pump-priming stimulus under Obama was that it did not go far enough. In fact, there are reports that many major investors are spooked by the specter of the incoming Congress cutting back on what they see as a needed stimulus to boost the U.S. economy.
The Raw Story, “Crossing to GOP’s right, Obama calls for earmark reform, three-year spending freeze”