Bond Vigilantes Confront Obama

... as Housing Falters

by Liz Capo McCormick and Daniel Kruger - May 29th, 2009 - Bloomberg News

Bonds usually rally when the economy is in recession and inflation is subdued. Gross domestic product dropped at a 5.7 percent annual pace in the first quarter, after contracting at a 6.3 percent rate in the last three months of 2008, according to the Commerce Department.

This time it’s different because the Congressional Budget Office projects Obama’s spending plan will expand the deficit this year to about four times the previous record, and cause a $1.38 trillion shortfall in fiscal 2010. The U.S. will need to raise $3.25 trillion this year to finance its objectives, up from less than $1 trillion in 2008, according to Goldman Sachs Group Inc., one of 16 primary dealers of U.S. government securities that are obligated to bid at Treasury auctions.

There are three major pieces to any economy. Industry, commerce and finance. Two have the goal of creating wealth. Those are Industry and commerce. Finance either serves these two or serves government... depending on actions of the nation's rulers. Barack Obama is such a naive and ignorant man that he does not have a clue how destructive of his own goals the finance piece can be. He charges forward taking actions that only such an inexperienced person would consider. Unfortunately, the American people are the ones that will be punished for his amateur mistakes.

Pay attention to the numbers above. During the worst deficit in history, 2008, we struggled to sell $1 trillion in debt. Even with the huge monetizing of the debt which Obama and Bernanke have announced, we still will have to sell $3.25 trillion in debt to cover Obama's massive spending in 2009. Both actions, monetizing the debt and incurring huge new obligations, will drive up inflation.

By the time inflation starts, it will explode exponentially. Obama's utopian dream will falter on the alter of inflation. You may as well get ready because it is clear nothing will dissuade Obama from causing this disaster. He seems oblivious.