The Audacity of Hype

Gary North nails it:

Optimism regarding Obama's Administration, as with every new administration, rests on a presupposition: politics trumps economics. This is another way of saying that legalized coercion trumps voluntarism.

Faith in the means of this triumph is lodged in three institutions: the national government, the Federal Reserve System, and foreign central banks. No matter how bad things get economically, voters believe in these three institutions, if they actually have heard of central banking, which few have and fewer remember.

Today, the national government is running at least a $1.2 trillion annual deficit. To this will be added whatever the proposed stimulus law will cost. Estimates run in the range of $400 billion a year for two years. Obama has said that annual deficits in the trillion-dollar range will go on for years. He has not been specific, rather like his date for a pullout from Afghanistan.

The public does not care. Optimism is still widespread. Like a spouse in a second or third marriage, who does not yet know of her partner's snoring, the voters expect smooth sailing through treacherous financial waters.

The Bush Administration established the precedents: a $700 billion bailout (plus $150 billion in Congressional pork), the various bank bailouts, and the nationalization of the mortgage market. Whatever President Obama proposes will be an extension of existing policies. There will be no successful opposition. There will be no turning back.