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Der Spiegel: The Obama Administration’s Five Errors

It’s always interesting to get an international perspective on the state of American economic affairs.  Germany’s Der Spiegel published a rather scathing article on the United States’ fiscal management (”Chancellor Merkel Visits the Debt President“), outlining the Obama Administration’s “Five Errors.”   We’ve condensed Spiegel’s criticisms below (though we recommend you read the whole article):

#1.  ”The US amassed much more debt during World War II, it is often said. That, though, is not true. According to conservative forecasts, Obama’s policies could end up being three times as expensive as US expenditures during World War II.”

#2. “It is generally assumed that the money is part of an effort to resuscitate the crisis-plagued economy and is thus serving a good purpose. The truth of the matter is that the bulk of the borrowed money will be used to finance the normal US budget.”

#3. “The graying of American society creates a new fiscal policy challenge for the country that so far hasn’t been reflected in any budget plan…. In addition, Obama has promised to introduce healthcare coverage for America’s close to 46 million uninsured. That would be like adding a country the size of Spain to the US.”

#4.  ”The world believes that the US is borrowing money from capital markets. It is often said that the Chinese and the Japanese will buy government bonds. But the truth [is that] the Federal Reserve is now buying securities that it has printed itself.”

#5.  ”The additional money is harmless because the economy is starting to pull together again and there is no threat of inflation. The truth is that the quiet on the inflation front is deceptive…. That imbalance will eventually make itself felt in the form of inflation.”

Perhaps most interesting is the writer’s call to arms at the end of the article.  Suggesting that the honeymoon really is over, Gabor Seingart writes,  ”The German response to the excesses of the Bush era was refusal and obstinacy. Gerhard Schröder refused to go to war in Iraq with America and he organized a European resistance front the reached from Moscow to Paris.  Germany still hasn’t provided its response to the Obama administration’s fiscal policy excesses. Perhaps its time for Merkel to take her cue from Schröder.”

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy