The coming Obama inflation nightmare

The central economic crisis of the next five years may not be the greed-induced worldwide depression in which we are now mired.

Indeed, it may well be the rampant global inflation the politicians’ response to that depression will inevitably trigger.

Depressions, or recessions, come and go. But inflation has the potential to stick around for decades.

Look at the horrific increase in the money supply caused by the TARP bailout. Not even counting the coming stimulus package, the money supply has risen from $600 billion in 2000 to $800 billion in 2007. This year, it has risen from $800 billion to $1.7 trillion! (Source: Federal Reserve Bank of St. Louis)

We can all probably now agree that the current depression was induced by a combination of a political willingness to let business make money by making loans they shouldn’t have and of business’ alacrity in walking through that open door in search of mind-numbing profits.

But we seem to be collectively blind to the likelihood that the same political tendency to give out goodies and spare us pain is now leading the government to borrow so much and so increase the money supply that inflation will be the consequence.

After all, it was the political desire to bring good news to voters that led government to make it possible for people to buy homes they could not afford and kids to go to colleges they couldn’t pay for and families to buy cars that were too costly and businesses to survive off debt long after they ceased to turn a profit.

Now it is the same desire to get re-elected that is leading politicians to offer a trillion-dollar stimulus package to voters and a bailout to banks, insurance firms and car companies.

Eventually, we will all feel the pain when inflation sets in. Then, government will have no choice but to induce a deep recession akin to that which Paul Volker created in the late ‘70s and early ‘80s to cool off the inflation Lyndon Johnson and Richard Nixon set in motion by running up huge deficits to pay for the Vietnam War.

So Barack Obama and the Democrats are selling soothing syrup to their political base at a price of massive inflation and agony in the future.

What Franklin Delano Roosevelt said in his first inaugural address holds doubly true today: “Faced by failure of credit, they have proposed only the lending of more money.”

Democrats have, of course, always been willing to tolerate a certain level of inflation to hold down joblessness, while Republicans have usually placed an absolute priority on fighting inflation. But the lengths to which the Democrats are now going to spare us immediate pain and the implications of a doubling of the money supply in one year are beyond rational calculus.

It is hard to believe that any administration, set of economists or political party could be this irresponsible or so focused on the next election that they are literally willing to mortgage much of the next decade to win it.

Part of the huge deficit, of course, comes from a political calculation, also breathtaking in its cynicism. Obama and the Democrats are seeking a $500 refundable tax credit on the payroll tax for each American. This credit will assure that a majority of Americans pay no net taxes at all to the federal government, but, instead, can look forward to a refund.

Right now, 70 percent of all federal revenues and 85 percent of all personal income taxes are paid by the top 25 percent of the nation (those with household incomes over $65,000 a year).

Under Obama’s proposal, virtually all of the revenues will be paid by this group. Once the anesthetic of tax exemption desensitizes the majority of American voters to tax increases, the surgery of extracting massively increased amounts from the upper-income groups will become politically feasible.

After all, with most voters excused from paying taxes, why should they mind if the taxes on the minority are jacked sky high?

Welcome to the Brave New World of the Democratic Party.

[Dick Morris, former political consultant and pollster, writes a nationally syndicated political column and provides commentary for Fox News.] COPYRIGHT 2009 DICK MORRIS AND EILEEN MCGANN; DISTRIBUTED BY CREATORS SYNDICATE INC.