The Obama Administration’s Period of Fiscal Woes

In the Sept. 29 issue of China News, the article “The Obama Administration Has Encountered a Period of Fiscal Woes” stated that this summer Obama encountered a series of financial setbacks; yet, according to the government’s actions in recent months, it appears they have not learned their lesson. On the one hand, Obama’s administration has continued the fiscal stimulus program, not long after it was rejected by the leaders of many foreign nations. At the same time, increasing government expenditure has brought about strong opposition in the American voters. My analytical opinion is that come this November’s midterm elections, Democrats — because of Barack Obama’s continued fiscal stimulus problem — will encounter a crushing defeat.

Article excerpts are as follows:

This summer, Obama hit a series of financial setbacks. But has the government learned any lessons in recent months?

First of all, at the G-20 Summit in Canada, the president again pitched the proposal of more fiscal stimulus (i.e., more government spending), and once again it was rejected by many foreign leaders. At the summit, Obama said that next year he will take steps to severely cut the current deficit. But that is easier said than done. So far, he runs counter to his strategy of reducing the deficit by adding new items of expenditure. While you want to worry about the deficit and debt, Obama is calling for tax increases that may even include European-style value-added tax.

But the American electorate does not want to sell our debt. So left-leaning political figureheads and the majority of political commentators find it unexpected that people do not want an increase in government expenditure. Instead, people are strongly opposed to the federal government’s expenditure and the collection of deficits and debt.

Most political forecasters believe that in this November’s midterm elections, Democrats will face defeat because of this problem. Voters want to reduce spending, not increase taxes. They think the main reason the U.S. economy is better than that of Western Europe is because the U.S.’ expense ratio is relatively small.

Second, the International Monetary Fund suggests that the U.S. government increase efforts to reduce the budget deficit by more than the original target of 3 percent (GDP) — an increase of the amount of deficit reduction by more than $400 billion (U.S.) per year. The International Monetary Fund believes that the current financial plan will hinder the economy’s recovery.

America’s major trading partners hope that the U.S. economy will grow and that Americans continue to buy their exports. In the national economic recovery, the U.S. government’s massive borrowing in turn restricts the capacity to offer both government and private loans. In short, the world’s other countries want the United States to fix their finances as soon as possible.

Third, the administration released its annual medium-term fiscal new report. The report forecasts the financial deficit to increase exponentially. Among solutions proposed in the report is that the committee balance the main deficit by 2015 (i.e., get rid of all the interest collected from the deficit).

Fourth, with only a few weeks before the midterm elections, Obama announced a series of new stimulus plans. His political opponents quickly criticized Obama’s move as equivalent to recognizing the failure of his first stimulus plan. One of the new proposals is to allow immediate preferential tax cuts for capital investments. This should immediately be made a permanent business taxation reform, but Obama set the deadline for this proposal at one year, in order to promote business capital expenditure in 2011.

So who will be able to advise Obama through the heap of high deficits and debt to pay for a significant portion of the deficit, when opinions on government expenditure are extremely low, when costs are higher than benefits and when raising taxes could have a detrimental effect on the economy?

We can only hope that the current issue of reducing the deficit will get a lot of discussion. Voters can always find the means to hold elected officials responsible for their own public statements. Otherwise, we cannot expect political leaders to have the courage to carry out drastic reforms. Fortunately, American voters seem to see farther than the politicians.