The Blog

Back from the Brink

Will the United States be able to dig out from the debt accumulated in 2009?

11:00 PM, Dec 29, 2009 • By IRWIN M. STELZER
Widget tooltip
Single Page Print Larger Text Smaller Text Alerts

No sense wasting too much of this year-end report on what you already know. The financial sector is back from the brink; the largest banks are able to raise capital and earnings sufficiently to repay their government bail-out loans and have enough left over for generous bonuses. Share prices have recovered half of the ground lost since they peaked. Consumer spending is up a bit. Sales of existing homes are at close to a three-year high, but a large supply of new homes gluts that market. The job market seems to be improving, but the unemployment rate is in double digits, and almost 40% of those out of work have been jobless for 27 weeks and longer. The American health care system is to be overhauled, with the 17% of the U.S. economy it represents to be firmly under government control. Ben Bernanke is to be confirmed for another term as chairman of the Federal Reserve Board while he figures out when and how to drain liquidity from the system. And President Obama, although still popular, has seen his popularity rating drop below that of Bill Clinton and George W. Bush at this time in their presidential careers.

So much for what is obvious even to the casual observer. Less obvious are some important changes that are likely to be with us long after the current recession is history.

For years, perhaps decades to come, Americans will be whittling away at the mountain of debt the Obama administration has built, in part to apply Maynard Keynes's nostrums to the sagging economy, in greater part permanently to expand the size and role of government. On the day before Christmas, immediately after its dawn vote to pass the health care bill, when few were watching, the Senate joined the House in raising the debt ceiling so that the administration could borrow enough money -- $290 billion -- to keep the government running, but only for a few months, so great is the amount of red ink pouring onto the federal books.

Congress is also preparing a second stimulus bill -- it will have a different name -- and instead of using the money flowing in from the banks to repay the government's bail-outs to reduce the deficit, the president and Congress are converting it to a slush fund to be spent on a variety of new programs. Throw in the fact that no one believes the health care bill will not add to the deficit, and Americans will remember 2009 as the year they loaded huge burdens on their children and grandchildren.

They will also remember 2009 as the year that class warfare reared its ugly head in a country long free of the political divisions associated with that European disease. Of necessity, the government devoted its resources to bailing out Wall Street, while the unemployment rate, house foreclosures and repossessions, and hard times hit Main Street. No use explaining that the financial system had to be saved so that it could again extend credit to small businesses and worthy consumers, not when the bankers, having been saved by the taxpayer, used the first sign of profits to vote themselves enormous bonuses for, according to the head of Goldman Sachs, doing "God's work." Little wonder that the president sees political profit in using his bloody pulpit to attack "fat-cat bankers."

The good news is that this "us-versus-them" attitude, emerges periodically in America -- Teddy Roosevelt attacked "malefactors of great wealth" and his cousin Franklin claimed that "unscrupulous money changers stand indicted in the court of public opinion" -- but rarely survives after needed reforms are made. Unfortunately, we now have the toxic combination of extraordinarily insensitive bankers, a president determined to "transform" American society, a swollen army of government employees and other dependents on it, and congressional leaders sufficiently to the left of mainstream America to make it uncertain that envy can once again be pushed to the margins of American political life. Be afraid, be very afraid.