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Obama’s Legacy: Stagflation
By Dick Morris
Published on TheHill.com on March 1, 2011
Obama’s failure to support America’s allies in the Middle East and his
dithering endorsement of chaos in the region will send oil and gasoline
prices skyrocketing, triggering a massive bout of stagflation. This
vicious cycle of rising prices, decreased consumption, and ever higher
prices (as vendors seek to recover higher fixed costs) will cripple the
American economy for years to come.
This is Obama’s true legacy.
Consider what he has done to push up oil and gas prices:
• Endorsed spreading chaos in the Middle East.
• First banned and now slowed down offshore oil drilling.
• Considered curbs on fracking (horizontal drilling to unlock shale
deposits in the Northeast -- a potent new source of oil).
• Imposed a carbon tax on domestically produced coal and oil through
EPA mandate.
• Proposed an end to tax advantages designed to encourage oil drilling
and exploration.
Now Obama is reaping the fruits of these misguided policies --
$4-per-gallon gas, soon to go up to $5 or $6!
And the fuel-price increases will take their place alongside food-price
rises. Food prices for corn, soybeans, wheat and other basic crops have
almost doubled in the past year.
(The Consumer Price Index deliberately understates fuel and food
inflation in its formula to avoid triggering cost-of-living adjustment
increases in private pay and government programs.)
Finally, he has encouraged the Federal Reserve Board to almost triple
the money supply, over $1 trillion of it based on the purchase of
worthless mortgage-backed securities.
The combination of reduced confidence in the dollar (at home and
abroad) and the rises in fuel and food prices will force up prices as
costs push them higher. Already, the International Monetary Fund (IMF)
has pressed for the replacement of the dollar as an international
currency by “drawing rights” printed by the IMF. Such a policy, of
course, would be a disaster since it would attempt to base global
currency on an institution without the power to tax. But it is a
measure of how far faith in the dollar has fallen that it is being
seriously urged. U.S. inflation can only fan that movement.
Since the Fed has got to stop printing money soon -- lest it become
wallpaper -- interest rates, too, will rise, also contributing to the
cost push price inflation.
But the economy cannot afford to pay these higher prices. Consumer
demand, which accounts for three-quarters of GDP, is already stagnant.
With inflation, it will drop. Then, unable to recoup their costs,
vendors will be forced to raise prices even higher. An inflationary
psychology will take hold of the economy. Higher interest rates will be
needed to break its hold, forcing us into yet another recession, this
one fully courtesy of President Obama.
For months now, political pundits have wondered if the economy would
improve, helping Obama’s reelection chances. It now appears that the
exact opposite is likely and that his reelection chances will be washed
away by a massive flood of inflation as a consequence of his misguided
policies.
Obama will doubtless blame oil companies and speculators for the fuel
price increases, but his role in encouraging instability in the
oil-producing regions of the Middle East is apparent enough. He put the
demand of the Egyptian people for political change ahead of America’s
need for financial stability. He was so enraptured by being “on the
right side of history” that he forgot about his role as the head of our
economy and its vulnerability to the very instability his policies
fanned.
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