The BoBo Files

A Guest Post By Vulcan’s Hammer

The American economy is on the rebound. There are a slew of positive indicators every where we look: durable goods orders have increased for a third month, the Dow is closing in on 11,000, and best of all, the conference boards leading economic index is on the rise. All of this is as welcome as breaking sunshine after a brutal hurricane.

And as the economy edges into positive territory, we will start to hear from Democrats and liberals that the uptick in the economy has a lot to do with the economic policies of Barack Obama and his administration. We will hear more about the alleged effectiveness of the $800+ “stimulus” package, even though from what I can tell, and leaving the absurdity of “saved” jobs aside, it seems that the “stimulus” has done more to increase employment in the public sector than the currently desperate private sector. We will hear more about how all of the bank bailouts aided banks out of certain doom even though it seems that banks used most of the funds provided by taxpayers to pad their capital requirements, acquire other banks, and pay bonuses to their executives.

Meanwhile, we have the federal reserve keeping short term interest rates at historic lows as it attempts to re-inflate the economy out of the doldrums—more easy money shenanigans. Add to all of this, chairman Bernanke has been blessed with a stroke of luck as the Dollar strengthens due to the plummeting value of the Euro as it grapples with the Greek crisis. A bit of luck coupled with the seemingly right dose of economic policy certainly seems just what the economic gods ordered. Right?

I’m sorry to say that this is all a sham, my dear friends. The recent high economic-growth numberssee here.) Sadly, this is the kind of economic expansion that does not constitute genuine economic growth. What happens when all of the stimulus funds run out? Or better yet, what happens to all those employed in state jobs when their respective states (most of which are running deficits) can no longer keep their jobs going and the federal pork that has shored them up has run dry? Then what? The economic growth we are currently experiencing is not real growth. It is growth spurned on by aggregate demand thanks to Uncle Sam, his credit card, and an easy money policy from the Fed. How much faith do you have in all of that? After all, an easy money policy brought us the housing bubble and the subsequent collapse. And now the Fed is using an easy money policy to prop us up again; it’s their favorite tool to wield in a very lean tool box. for the United States, is just one more deception in a long series of deceptions that have inflicted policy makers, investors and the average American. The present economic expansion is brought about by massive government stimulus policies and their subsequent mal-investments. (If you don’t know what I mean about mal-investments,

It’s not as if we have not witnessed this sort of fiscal strategy before with its subsequent grave results: Japan practiced fiscal and monetary expansion on a massive scale since its economy entered a recession in the early 1990s, and the result? Stagflation. Before Japan, the 1970’s taught us a lesson that seems to have been forgotten as stimulus policies in Europe and the United States resulted in crippling stagflation.

Having this type of manufactured growth is very popular with politicians who portray themselves as having “done something” while targeting select groups with all sorts of high profile pork projects. And in this downturn, it’s no secret that being a union memberhas had its benefits. The Obama administration knows that the business cycle and very low interest rates, will move the economy forward into growth. (How much is anybody’s guess.) When it does, the administration will then claim that all of the programs that it initiated have been a great success. But in truth, the administration is simply kicking the can down the road past the 2012 elections. Don’t be fooled.

Fiscal conservatives should not be easily convinced by the coming arguments, no matter how much liberals drum it up; they should be ready to disabuse those that hail the heavy handed government practice of “priming the pump.” America’s economic recovery rests on glass pillars formed on unsustainable levels of public debt (bailouts, stimulus packages) and excess reserves in the banking sector, which could explode at any moment into a surge of inflation when the Fed is finally forced to raise interest rates.

So if the economy “recovers,” it would be wise to take it with a very large grain of salt and prepare for the next rounds of deluge.

VH