The 2009 budget introduced a few days ago by the WH revealed a lot more info about Obama’s specific economic plans including that of his econ recovery plans.

In short the plans not only represent a gargantuan risk to the nation’s solvency but also to what is left of the New Deal entitlements. Specifically his plan to press forward with expensive initiatives, that will cost well in excess of a trillion dollars, and his decision to increase the deficit to $1.75 trillion before he first manages to correct the problems with the economy in general are a recipe for disaster should his economic recovery efforts fall short.

This is no small matter, we are not talking about poor management or fiscal irresponsibility, we are talking about putting at risk the very existence of social security, Medicare and his new health care initiative.

The plan is based on assumptions that are by no means certain or even likely (possible?) to manifest. The plan also is undermined by the compromises that Obama and his staff have accepted going in as a means to reduce political opposition to implementation.

The compromises are easiest to understand so I will begin there and then delve into the assumptions. Lastly I will cover the internal contradictions within the plan and cover some of the reasons why his recovery plans are likely to be problematic or simply to fail altogether.

The most obvious compromise that Obama engineered into his own national health care plan was the decision to forego a single payer system with a system that maintains a role for insurance companies brokering insurance coverage.

In an ideal world a reasonable goal might have been to extend health care coverage to the uninsured population at a cost that was actually less for most people than the price they pay for insured coverage today. While I believe that is possible I absolutely do not believe it is possible if you abandon the advantages of single payer.

Insurance companies make money on both ends of the medical profession, milk the cow from both ends. First they make money insuring doctors from malpractice suits and then they make money charging medical care recipients for the additionally expensive care that malpractice insurance creates.

A national health plan could have eliminated insurance company effecting health care costs at each end. First by arranging the contract law so the federal government is liable and responsible for all malpractice claims that originate for care under their management. Since it is nearly impossible to sue the federal government that eliminates the costs of malpractice insurance.

Private insurance for medical coverage could have been eliminated by simply making the government the insurer for the nation’s health care.

A minimum of 20% in overall health care costs could have been eliminated immediately based on these two simply remedies.

The second easy example of a compromise that Obama accepted up front that undermine his own plan is his decision to “save the banks” instead of saving the economy. There are numerous false assumptions behind that decision, I will cover some of those later, but for now let’s examine the direct costs of that decision.

First off the “save the banks” is incalculably costly. Nobody has any idea how many trillions it will cost to succeed, how long it will take or even how to do it because this economic remedy has never been used to combat a deflationary trap like our current credit crisis.

Secondly By adopting that approach Obama rejected a viable economic recovery plan that would have worked, and quickly and cost absolutely NOTHING.

The federal government had and waived the option of simply offering refinancing to any and all distressed mortgage holders at fixed interest rates similar to those that they currently offer to banks at the discount window plus a small premium based on individual risk/credit rating.

This approach would have lowered mortgage payments for every household that participated, stopped the default bleeding, slowed or arrested the decline in home prices, cleansed all of the toxic paper out of the MBS’s that are plaguing the banks and it would have EARNED the government a profit in the end and not cost a dime.

It also would have been very fast acting and a major boost to confidence in the economy.

Additionally the federal government could have done the same thing with consumer credit, reducing debt service for households and making it possible to restore some of the debt based growth that our economy is designed to depend on.

Debt based growth is fully sustainable for eternity if the interest rates charged are only 0%. Slightly less sustainable if the interest charged is 2%. But dramatically less if the interest rates charged are 6%, 13%, 32%.

The fed could have offered most Americans the chance to qualify for consumer credit at a 3% annual rate of interest with no bullshit like $35 charges for a one day late payment or universal default, or changing the terms of a credit contract without notice.

The fact that both of these extremely potent tools for recovery and cutting costs in expensive health care initiaves (almost a trillion dollars budgeted already for Obama's health care program) were just ignored so they could instead just throw money at banking and insurance did as much as anything to increase the risk that Obama is taking with our nation, our entitlements and our economy.

I will post another installment tomorrow night.

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