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Obama Math: Borrowing Less is Saving?

January 26th, 2010
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01.26.2010 original post date
05.11.2010 updated data
11.05.2010 updated broken links
04.08.2013 updated broken links/ added NASDAQ chart, HTML clean up

Obama Math: Borrowing Less is Saving?

original article written by Net Advisor

Washington DC. President Obama stated on 01-25-2010 that he is seeking a “3-year freeze on US domestic spending…” beginning…next year (2011).

Obama says this will save $10-15 Billion in 2011 (Source: Reuters).

However, the Congressional Budget Office (CBO) said that Obama’s budget deficit will increase $1.3 Trillion for 2010, which is on top of $1.4 Trillion for 2009, and based on current number there will still be a deficit of $980 Billion in 2011 (Source: Wall Street Journal) (Obama’s 2010 Budget analysis CBO).

How can anyone say they are ‘saving money’ or “freezing spending” for a short period of time when in reality, they are just creating slightly less debt than before?

If you borrowed $10,000 in 2009, borrow $9,000 in 2010, and was going to borrow $9,000 in 2011, but you decided to borrow $8,856 in 2011 instead, did you really freeze your spending? That is the Obama Math we are presented. The deficit did not go down. The Obama Administration just plans on borrowing a little less than they were going to borrow in the first place. The point is, it is all borrowed money, it is not deficit reduction.

Net Advisor

Government Quiz:

To reduce one’s debt is to:

A. Borrow less.

B. Spend less.

C. Borrow more, borrow even more, keep borrowing, then decide to borrow a little less.

There are two answers depending if you are a regular American private tax payer, or a member of a legislative body.

Answer 1: If you are the one who is personally responsible to pay back the debt, the answer is “B” – “Spend less.” One reduces their spending and allocates more resources to pay the debt.

Answer 2: If you are government who has no responsibility to personally pay back any of the money, the answer is “C.” This is the answer the Obama Administration has sold top the American public.

The Democrats in the Senate say they are likely to reject efforts to reduce the deficit:

“…the Senate is likely to reject a White House-backed plan to establish a bipartisan task force to recommend steps to curb the deficit.”

— Source: CBS

Clearly, this suggests that the Democrat Senate Majority has no interest in reducing government spending. In order to save this $10-15 billion, it assumes that President Obama eliminates the 2002 Bush tax cuts that are due to expire January 1, 2011. At the same time Obama has said he wants to help the middle class. The best way to do that is to have people keep more of what they earn – also known as tax cuts. [edit: Since this report, the Senate did reject the Deficit Task Force. Source: CBS]

Is Obamanomics Worse Than Busheconomics?
President Obama has repeatedly said that he “inherited” a $1.3 Trillion deficit from President Bush. President Bush’s deficit included 911, Hurricane Katrina, the cost of running two wars about $1 trillion according to Time Magazine. Bush also effectively entered his Presidency in a recession.

NASDAQ peaked March 10, 2000 at 5,048.62 (Chart Credit: Big Charts.com)

NASDAQ peaked March 10, 2000 at 5,048.62 (Chart Credit: Big Charts.com)

I would have to disagree with the economists who said the 2001 recession began in March 2001. The stock market had been slowly collapsing for a year prior where the market, responsible for virtually the entire run up in stocks at the time, NASDAQ peaked March 10, 2000 at 5,048.62. The broad market, covering the largest 500 companies in America, the S&P 500 Index, peaked in August 2000.

Opponents might argue that there has to be two consecutive quarters of negative GDP growth in order to call a recession. The term, “negative growth” seems to meet the definition an oxymoron in itself. So if you are hurting financially, you are not in a recession until you are hurting for 6 months. Anyone else subscribe to that economic model?

Since the stock market is a more reliable forward looking and leading economic indicator. I would have to argue that the recession last recession began with the NASDAQ market peak in March 2000.

Obama Deficit On Track to Exceed Bush’s Deficit
Obama plans on spending another $1.3 Trillion in 2010 and $980 Billion in 2011. “The (Obama) budget forecasts a record $1.6 trillion deficit in fiscal 2010 but predicts the red ink will decline to $1.3 trillion in fiscal 2011.” Based on these numbers, President Obama will have left Office (assuming not re-elected in 2012), creating an all-time record U.S. deficit by any President in U.S. or in world history of $3.68 Trillion. That’s 163% MORE debt than President Bush created, AND President Obama would have accomplished this massive in half the time (4 years).

Chart: Bush Deficit vs. the Obama Deficit:

chart credit: The Heritage Foundation

Can you imagine what two presidential terms in the Obama Administration would cost tax payers, and tax payer’s kids, and their kids, and their kids? How high will taxes have to go to pay for all this debt? How much cuts in Social Security, Medicare, and other entitlements would we have to cut?

If the American public is upset at the bank bailouts, which most all of the major banks and brokers have already paid back their debt in full with interest to the government. Thus major banks and investment banks are not the big problem now. The problem is once again, out of control government spending. And this is a risk that our economy and current and future tax payers cannot afford to burden.

Three days after this original article was written, another article was posed by Erick Erickson questioning how the Obama Administrations math calculations.

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