The Current Administration - A Case of Financial Mismanagement

The current administration has overseen the largest growth in government spending in our country’s history. In my opinion, many of our recent woes are directly attributable to this. The blame cannot be really placed squarely on Republicans or Democrats, Congress or the President, since the largest new spending measures had significant support on both sides of the aisle: homeland security spending, the wars in Iraq & Afghanistan, and the recent financial bail-out. At the same time that spending increased at unprecedented levels, taxes were cut causing our budget surplus from the Clinton years to slide away and become a tremendous deficit.

This is where the economic effects can start to be observed. First, exporting countries such as China started investing their vast financial reserves in dollars and thereby funding our deficit. As the deficits and spending increased and the U.S. economy started to falter, contagion spread around the world about the strength of the dollar and foreign countries with U.S. dollar reserves started turning instead towards the euro or yen. This greatly diminished the value of the dollar and caused oil prices to reach record levels since oil sales are primarily denominated in dollars. Record oil prices caused large increases in prices Americans were paying at the pump and wrecked havoc on manufacturing and transportation companies who ultimately passed on the price increases to consumers. All this, while Americans were already overextended after having gorged themselves on easy credit card debt and home equity loans secured by inflated home values.

Another unwelcome effect was one of the greatest wealth transfers in world history as oil exporting countries raked in the dough at $100+ oil. Unfortunately, not many of these oil exporting countries have our best interests at heart. Saudi Arabia, flush with oil money, has founded thousands of madrassas in Pakistan (schools teaching Islamic extremism). Also, these particular countries are the ones currently ready with cash who would like to acquire hard U.S. assets and significant stakes in our ailing banks. With all these negative effects, my greatest hope with the new administration is that spending is controlled; however, I don’t think we’ll get that from either candidate.