New forecasts for 2009 GDP Q1 decline are very concerning. The range is from 8-10% negative growth on an annualized basis. That is worse than any quarter in decades. It is clear this has been caused by the Federal Government. The primary culprits are Henry Paulson, Tim Geithner,  Barack Obama, Nancy Pelosi, Barney Frank, and Harry Reid. The most important person going forward will be Obama.

My point is not that these people caused the recession, but that they caused the "depth" of the recession, even as some of them had a hand in causing the recession as well. Politicians can do little affirmatively to help the economy. What they can do is forebear, or stay out of the way. The more they do not forebear, the more difficult it is to not cause some damage. During the course of the last 80 years, the federal and local governments have steadily increased their role in economic decision making. Some of these involve social policies which trade growth for some social good, real or imagined. Some expenditures are really just transfer payments where people are merely getting back their money. For example, some portion of Social Security and Medicare, not all of it, can be characterized this way. Some are expenditures which really only government can supply, the military being the most obvious. But an increasingly large percent of federal and state spending has been directed at redistribution--or choosing winners and losers--in the economic and political sector.

Paulson and Geithner created unnecessary panic in the Fall by not understanding the nature of the banking crisis and by having, in the case of Paulson at least, conflicts of interest.  My last essay, Anatomy of a Bailout, discussed these issues. This series will provide more details of what should have been known by Treasury and the New York Fed. On the fiscal, or spending, front Pelosi/Reid/Obama have proposed an accelerated path of governmental economic interventionism and even Fascism, Mussolini style, pursuing policies of political and economic cronyism, which in the end can only result in massive waste and spectacular inefficiencies. The spendthrift and ideological trio would have pursued these policies regardless of our economic conditions. But under our current conditions they can assert these are to help the economy. Yet their forward budget is anti-stimulative. It supports pursuing costly policies in the midst of a radical decline in economic activity. These proposals are partly the reason for the depth of the decline itself. This reveals a willfulness and willingness to create and use national hardship as a tactic to achieve their ideological goals and increased power.

Obama is an extremely dangerous politician and, economically at least, well outside the historical American norm. He named a new CEO for GM; which will soon be followed by a strategic direction chosen by the government. If this WSJ story has merit Obama Retains Bank Control By Refusing To Accept TARP Repayment., then he has upped the ante even higher and his Fascism is no longer implicit. To quote Newsweek's Evan Thomas, who was "embedded" in the Obama campaign, Obama is an "explicit follower of {the socialist} Saul Alinsky", "a deeply manipulative person", and engages in a "creepy cult of personality". Because many in the media, right and left, insist on discussing how "charming" and "engaging" he is, there seems to be a blind spot toward how dangerous his goals and purposes are. Various moderate Republican "Mr. Jones", in particular, have had trouble seeing this from the beginning. I hope they will eventually see the light.

Obama also does not instinctively understand, or believe perhaps, America's net contribution to good in the world. In a satirical but scathing attack on Obama's rhetorical skills at the G20, the UK newspaper, The Guardian, dissects a confused response by Obama to the question of whether the US caused this global crisis. I actually think it did. But Obama's response, seen at the link, was pathetic. The easiest answer would have been along the lines of putting the reporter back on the defensive and diffuse it with a counterpoint. Something like; "that may or may not be true, but if the US is to take the blame now, should the US also take the credit for the global prosperity Europe and the world has universally enjoyed since 1945? Engaging in this kind of questioning is not productive". Then let it drop, versus his rambling apologetic non-sequitur of a response. But that takes intuitive and instinctive knowledge and belief about the role the US has played in the world, something he does not have.

There is still some reason for optimism, albeit flickering. There is a growing bottoms up political movement, characterized by the enormous number (barely covered by the major media) of Tea Parties. Many individual Tea Parties were larger than the G20 protests--yet which gets the coverage? Also, most of the new Democrat programs have not yet been passed, let alone implemented. So there is still time for the Republicans in the House and Senate to make alliances with so-called blue dog Democrats to stop and/or reverse them.

The most damaging programs are the energy cap and trade proposals, the national health care proposals, the saber rattling toward and explicit takeovers of private businesses, the extraordinary financial system meddling, tax hike proposals, demonizing financial success, and interference in the natural creative destruction inherent in any efficient capitalist economic system. I am holding back on final judgment of Obama's foreign policy. Certainly, his interactions with foreign nations have ranged from the merely irritating to an almost denigration of our country. But his actions in Afghanistan and Iraq cannot yet be deeply criticized. His policies toward Israel, Iran and Russia have to be watched closely. At best, his approach with these nations seems more consistent with typical liberal Democrat policies, and not yet a radical departure from American norms. But this needs to be monitored with  diligence.

The other cause for optimism is the "run on the bank" crisis appears to be subsiding. How more absurd can it be when the Financial Times reports that the banks, who themselves are supposedly the beneficiaries of Geithner's TARP 1.001, are the very entities who want to use Treasury and TALF funds to buy each other's so called toxic assets!? This is supportive of my main point criticizing the actions taken in the Fall. That is, these assets were inherently undervalued and were further driven down in price by policy actions. However, fear of new investment by entrepreneurs, big business, individuals, and financial institutions--banks included--has not yet subsided as Q1 GDP growth indicates.

This series will explain why the government caused the depth of the recession.The primary causes as implied are 3: 1) Making the bank crisis worse than it needed to be;  2) proposing massive deficit spending to create greater government power under the guise of promoting growth; and, 3) most dangerous of all, an increasing casualness by Obama of eradicating the distinction between the public and private sector. In my next 2 essays I will discuss in detail William Lucy's housing study released around March 1, 2009, review some of the points I made last fall, discuss some of the more blatantly bad fiscal/social policies, and try to heighten our awareness of Obama's dangerous power grab.