The new federal Budget submitted by the Obama Administration raises a number of significant concerns. Based on the funding priorities, the administration appears to be backing away from nuclear power (which generates 80% of France’s energy), school vouchers for poor children in Washington, DC, and earmark reform. The most significant concern is obviously the massive increase in federal spending.
The new Administration is not even two months old but we have already appropriated more money than the combined cost of what our military has spent in Iraq, Afghanistan and on Hurricane Katrina. This is the largest increase in discretionary spending since the Carter Administration. Despite all of the promises made during the 2008 campaign, the new omnibus spending bill has over 9000 earmarks.
The President focused on health care today, and is planning to pay for his new program with $646 billion which will be raised over a decade from pollution permits from industries that produce greenhouse gases. Many experts believe this could lead to an 80% jump in electrical rates and an EPA study says the result could be an additional $1.60 for every gallon of gas.
The primary architect of the new budget is Treasury Secretary Tim Geithner. A surprising Geithner critic is former Australian Prime Minister Paul Keating. Yesterday he spoke to the Lowy Institute in Sydney about Geithner’s record in handling the 1998 Asian crisis. Geithner fundamentally misdiagnosed the problem, and this led to the wrong prescription, Keating said.: “Tim Geithner was the Treasury line officer who wrote the IMF [International Monetary Fund] program for Indonesia in 1997-98, which was to apply current account solutions to a capital account crisis.”
Geithner thought Asia’s problem was the same as the ones that had shattered Latin America in the 1980s and Mexico in 1994, a classic current account crisis. In this kind of crisis, the central cause is that the government has run impossibly big debts. The solution? The IMF, the Washington-based emergency lender of last resort, will make loans to keep the country solvent, but on condition the government hacks back its spending. The cure addresses the ailment.
Malcolm Turnbull in the “Australian” said “But the Asian crisis was completely different. The Asian governments that went to the IMF for emergency loans – Thailand, South Korea and Indonesia – all had sound public finances. The problem was not government debt. It was great tsunamis of hot money in the private capital markets. When the wave rushed out, it left a credit drought behind. But Geithner, through his influence on the IMF, imposed the same cure the IMF had imposed on Latin America and Mexico. It was the wrong cure. Indeed, it only aggravated the problem.”
Keating continued: “Soeharto’s government delivered 21 years of 7 per cent compound growth. It takes a gigantic fool to mess that up. But the IMF messed it up. The end result was the biggest fall in GDP in the 20th century. That dubious distinction went to Indonesia. And, of course, Soeharto lost power.”