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The Major Flaw in Obama's New Plan

A lack of stimulus is not America's problem...

YOU KNOW something? It would be almost laughably easy to bring about a real renaissance in the US right now, says Bill Bonner, founder of the Daily Reckoning.

But first you have to understand the real problem. It's not a lack of stimulus...Or, the inequality of income distribution...Or because the feds didn't regulate enough. Or that bankers are greedy...or that capitalism won't work.

The problem is debt. There's too much of it.

And there's too much of it because the feds encouraged people to borrow and spend too much. That's what a pure paper Dollar system does. The US spends. Money goes overseas. But instead of returning it to the Treasury and exchanging it for gold, the foreigners keep the money overseas. It's used as bank reserves. In effect, Americans never have to settle up. The debt just builds and builds and builds. Accumulated US trade deficits since 1971 tote to some $8 trillion. That's the difference between what Americans have spent overseas...and what they've sold to foreigners.

And it is still growing by about $50 billion a month.

Much of this money does eventually come back to the US. But it comes back as debt. The foreigners lend it back to the US government. This helps enable US government debt to grow at about $100 billion a month.

Too much debt causes problems. It turns malignant. Economies can't 'recover' until the debt is reckoned with. But reckoning with debt is painful. The bankers (who hold much of the bad debt) and the politicians (who often work for the bankers) don't want to suffer pain. They want someone else to suffer it...preferably someone in the future, someone who is not yet of voting age.

But it doesn't work. As the economy slows under the weight of debt, the pain spreads.

Last week, President Obama announced a $447 billion jobs program. The Dow went down 300 points.

That is all we know. And all we need to know. Investors no longer believe that stimulus measures will produce the long-awaited recovery. Stocks are headed down.

Bernanke has pledged to keep lending at negative interest rates for the next 2 years.

And now Obama has come up with nearly a half-trillion in new spending (making nonsense of the recent debt-ceiling discussions).

They've fired both barrels, in other words — fiscal and monetary — and the Great Correction didn't flinch.

Why? Because the Obama plan adds debt; the very thing the economy needs least of all.

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Bill Bonner has co-authored a number of New York Times Bestsellers including Financial Reckoning Day, Empire of Debt and Mobs, Markets and Messiahs. In his own opinion, Bill's most recent title, A Modest Theory of Civilization: Win-Win or Lose, is his best work yet. Bill also founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group have exposed and predicted some of the world's biggest shifts since that time, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and more recently the election of President Trump.

See full archive of Bill Bonner articles

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