Author of Saving Democracy!, Wasted Genius and Common Genius

Obama’s Money Tree and Washington’s Ponzi Schemes

The latest news out of Washington indicates that our fearless leaders have not let the recent financial meltdown lessen their affection for Ponzi-type schemes. It may be recalled that the 2009 stimulus act saw the federal government lending the most bankrupt state governments billions of dollars to postpone their imminent financial crises. The loans were interest free for two years and “easily” financed by the feds because they can just print money as needed!

However, on this past December 31 the two years were up, 30 states owed $42 billion, with interest now accruing, and their resident businesses faced with increased mandated federal payroll taxes to help repay the loans. It appeared that the Ponzi scheme might unravel. The states are too broke to make any substantial repayment, and the Administration is leery of hiking taxes on the beleaguered business community. So, a tough and courageous decision was called for. Guess what we got?

The apparent “solution” will apparently come in President Obama’s 2012 budget where he will propose waiving the tax increase and postponing the interest charges for two more years. Presumably he could also lend them more money and defer repayment till some future undesignated date. Thus the money tree at the Federal Reserve takes on the State deficits as well as the federal deficits. The problem is thus postponed, true to its Ponzian roots, and the escalating debt will only come home to roost at some future time.

We can only hope that some intrepid, brilliant, and unscrupulous Goldman Sachs employee will accumulate these “sub-prime” notes, securitize them, and sell them to the Chinese. Otherwise they will not go away quietly.