The failure of Obama economic plan

Dick Morris and Eileen McGann:

The data is in for April. Here's what happened:

1. Household personal income (inflation adjusted) rose, but every penny -- and then some -- went into savings or paying down debts. Consumer spending, on which Barack Obama is betting to stimulate the economy, actually fell. None of the stimulus money was sent. None.

2. Meanwhile, to pay for this stimulus spending that didn't stimulate, Obama had to borrow so much money that long-term interest rates have almost doubled since he took office, forcing postponement or abandonment of business expansion and hiring across the board.

What a record!

Here are the details. In April, personal household, inflation-adjusted income rose by $122 billion. Of that increase, one-third -- or $44 billion -- came from the government's stimulus program. But while personal income was rising, household savings (which includes paying down credit-card balances, mortgages, student loans, car loans, etc.) rose by $132 billion -- $10 billion more than the rise in income. So personal consumption dropped 0.1 percent.

The stimulus package was a total and complete failure. As predicted, as happened with Bush's 2008 tax cut, as happened with the Japanese stimulus packages of the '90s, fearful consumers sat on their money and wouldn't spend it. Keynesian economics didn't work. Again.

But the debt sure piled up. The deficit quadrupled and is sending interest rates soaring, as the government elbows aside businesses and consumers at the loan window, all in a desperate effort to borrow enough money to spend enough money to stimulate the economy, which isn't happening.

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Barack Obama has fatally undermined our currency, our solvency, our financial stability and -- ultimately -- our economy, all to spend money that has had no economic effect!

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The debt is the main problem. He is drastically increasing debt at a time when there are fewer buyers for the debt, because of the meltdown on wall street and the reluctance of China to finance the new debt. With fewer buyers and more debt he is causing what bond traders call a yield rally. When interest rates go up the price of bonds does down. In other words it is costing issuers more to borrow money. This will have a negative effect not only on the government but also on business borrowing. All of this will slow recovery or even accelerate the recession.

The wiser course would have been to cut taxes and cut government. He did the opposite and it is have an anti stimulus effect on the economy.