Friday, September 21, 2012

Failed Policies of the Past

If the political polls are to be believed, more Americans are buying President Obama's contention that Mitt Romney's campaign represents a "return to the failed policies of the past." However, the latest economic report shows those same Americans are more than happy to return to the same "failed policies of the past" when it comes to their personal finances.

I'm referring to the report from the Federal Reserve on Thursday showing household debt increased in the second quarter of the year--after several quarters of reduction.

In fact, the debt load increased by the greatest amount--39.4 BILLION dollars--since the middle of 2008.  Isn't that right around the time the economy entered the "Great Recession"?  And wasn't that recession triggered by the bursting of the housing bubble because Americans couldn't afford to pay their bloated mortgage payments because they owed too much money on their credit cards and their student loans and their vehicle leases?

Of course, Keynsian economists are ecstatic over this development. "It's encouraging news. With credit growth, one would expect to see an increase in spending" said one senior economist.  Doesn't it depress you that the only way we can keep the US economy afloat is by burying ourselves in more and more debt--instead of by growing real incomes and net value?

This same report finds that over the last few years, debt payments fell from 105-percent of disposable income to "only" 103-percent.  That means the average American is still falling three-percent farther into debt every year--just by paying off the debt they accumulated in past.  Does that sound like a "sustainable economic model" to you?  Yet the folks at the Fed will tout this report as proof that their policy of "promote debt and punish savings"--by keeping interest rates artificially low for an extended period--will continue into the foreseeable future.

If political science scholars are baffled as to how a President with such a dismal fiscal record can be poised to win re-election, they just need to take a look at the work of their peers in the economics department to understand the mindset of the voters.

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