Bankrupting America Part 2

Here is a well argued response to my last blog Bankrupting America from D.Brea:

A few things I want to make clear right off the bat. There are currently two immediate problems facing the US Economy, the first one (one that is already happening) is deflation. Prices on everything from real estate and stocks to gasoline and consumer goods are plummeting, creating the very real danger of a deflationary spiral.Inflation is a long term risk in the economy as the FED has used most of its powers (cutting interest rates) to fight its ascension to the economy. I believe as many other economists do that our economy will be a victim of both with the latter coming late this year or early next year.

Right now, it shouldn't be in our governments interest to increase the value of the dollar. If we do this then the price for U.S. exports will be more expensive for foreign countries and will have the effect of even more faster job losses in the U.S. market. The dollars value has been decreasing (wait for it) since the Republicans took power. It's made the U.S. cheaper for foreigners but the has stretched the purchasing power of the dollar for Americans cheaper.

The second and very important point, the U.S. economy is based on consumption (60+%) more than any other nation in the world. If consumers stop spending then the shit-storm will hit the fan and our economy will be in a downward spiral. For the first time since the 1980's, American consumers had a net savings rate in the 4th quarter of 2008. That means that Americans saved more money than they spent,which is good for consumers but bad for the economy in this time of need. Economic theory states that when consumer spending decreases the govt needs to INCREASE its spending to stall/prevent a recession (in this case a deeper one.) This is why the proposed stimulus package is very important and must be passed, as much as I hate adding to our debt we must do this to try and prevent a shit-storm.

Correction, we got in this economic crisis in the first place by the huge rise and fall of housing prices (i.e. sub-prime mortgage meltdown), corporate greed, and deficit spending. All this happened and egged on under Republican watch.

As for the actual proposed stimulus package, I read and saw on TV that Obama said that it will not include ANY special earmarks and he doesn't care who he pisses off because of that decision.

Keep the great responses coming!

Bankrupting America

As I am sure many people are aware by now, President Obama wants to push through another gigantic $825 billion stimulus package. The plan is intended to infuse a large amount of cash into the economy in order to reestablish jobs, industry, and health care. His economic advisers believe that unemployment can hit 10% before we are really out of the recession and President Obama expects Congress to pass legislation by mid-February. However the stimulus package may not be so stimulating.

First, the value of the dollar is still declining and inflation is rising. Arbitrarily printing more cash and essentially creating money out of "thin-air" will do nothing to increase the dollars value, in fact it will only decrease its value further. I have said in past blogs that there are times when government needs to get involved in the economy and put cash in, but enough is enough. This "stimulus" package (if you can even call it that) will run government deficit over $1 trillion dollars. That is twelve zeros, $1,000,000,000,000. Most of that debt is from foreign countries as well. This recession began because of excessive spending across the board with government, private industry, and individuals spending more than their means can provide. So in the grand wisdom of government, what would compel them to say "Hey, let us spend even MORE money when we just spent a record amount in September". That is exactly the point though. Since the recession began because of excessive debt, it does not make sense to spend even more and run up even more debt.

Second, this "stimulus" package certainly contains a lot of earmark spending that (at least to me) does not seem relevant to the economy. There is hundreds of millions of dollars set aside for contraceptives, art, the Congressional Mall, and seemingly random public works such as building community swimming pools. Now do not get me wrong because some of these projects sound quite nice, but are not vital to the economy. This is the exact same earmark spending that got government in trouble and they are still doing it from a president who promised to stop it. Not only that, but President Obama said to Congressional Republicans to stop listening to Rush Limbaugh because he does not support the bill (not to mention partisanship Pelosi style)! Maybe Rush does not support the bill because of all the earmark spending by Congress!

What government needs to be doing right now is controlling its spending and paying its bills back. Running up trillion dollar deficits will only damage the economy further and take years to correct. It does not seem government has learned anything from how we got in this financial crisis (nor does it seem to care to learn). If spending is going to be Obama's solution to everything, then America could go bankrupt before he is out of office. If this is a glimpse at future domestic policy of the Obama administration then it is going to be a very long four years.

The Inaguration of St. Obama

President-elect Barak Obama will be inaugurated today in front of an adoring crowd numbering over 350,000 people at the Capital building itself. This is a great day for the United States for many reasons. First, the United States is getting some much needed change to the White House in both domestic and foreign policies. More importantly though, by noon today, the United States will swear Barak Hussein Obama in as the 44th president and the first minority to ever be elected to the office. It is a great day for the United States.

I would however like to offer some words of caution to his fan filled crowd. First he is still a politician and politicians are not to be trusted by anyone. They will say things simply to get a vote, I would not take anythign Obama says at face value because politicians do not get this far by telling the truth. Do not set his expectations so high either and do not expect things like the economy to get better tommorow. Remember that government is slow and Congress makes the rules and not the president, the president meerly sees them enforced. These expectations are doing nothing except setting Obama up to fail because everyone expects so much of him. It will take time for the economy to recover and people must be patient. Finally, there is a danger in the amout of adoration people seem to have for him. Do not deify him as many people seem to be doing, he is a man and a politician which is certainly no saint. Just because Obama says something does not mean he is always going to be correct. Politicians should be taken with a grain of salt, not blind faith. When politicians have a blind followings dangerous events can happen because there is no opposition to question what a leader is doing.

Enjoy Inaguration Day and good luck and G-d's speed to President Barak Hussein Obama.

Only Government Can Fix the Economy

Obama believes wholeheartedly that only government can fix the current state of the economy. He says that the state of the US economy is reaching a downturn not seen since the Great Depression of the 1930's. I will not disagree that the United States has certainly hit lows I never thought possible; unemployment is 7.2% now, the stock market cannot seem to break even 9000 for an extended period of time, retail stores are still struggling as Macy's announces it will shut down 11 more stores, and meanwhile the deficit is approaching one trillion dollars. The United States is in a whole heap of trouble right now and yes, I do agree that something needs to be done fast, but what?

According to Obama the United States needs another $775 billion stimulus package or the recession could "linger for years" using the president-elect words. The package will include more government oversight and will put even more money into the economy, but will also include a "whopping" $300 million in tax cuts. Obama seems perfectly willing to spend even more money at a time when the value of the dollar is dropping further. Obama is even running into opposition from his own party. The senators and congressmen are worried about how to explain another bailout from the government when the last one was really forced down their constituents throats.

I have some real issues with this latest government bailout/stimulus package or whatever you want to call it. Why should I even trust that the government is going to get it right this time? Government just passed that big $700 billion bailout just last fall which was supposed to stabilize the housing, mortgage, and banking markets. Yet housing prices continue to decline along with Wall Street and other financial outlets. This is the same government that has driven this economy into the ground with excessive spending (and blame it on whoever you like, but I blame everyone), the same government who is not investigating the SEC to find out how Madoff got away with a $50 billion Ponzi scheme, the same government who has virtually bankrupted social security, and the same government who now wants to spend another $775 billion to "rescue" the United States economy!

Let me ask one question, where exactly is this money coming from? Is the Fed simply just going to print more money and therefore raise inflation in a stagnant economy? Wait, is this not stagflation, a time when an economy is stagnant and inflation is on the rise? Sure seems like it to me. This policy also looks a lot like what Carter did when he was in office too, which failed as well. Government wants to expand their role with more taxes, more oversight, and more spending that it is getting to the point that can we even call ourselves capitalists anymore because everything is becoming so centralized. The banks have already been centralized, why not take over the auto and airline industries too?

The point I am trying to make is that the government does not need to get involved anymore. Sure, what is wrong with another $775 billion anyway since the Fed can just print the money as they please (or as Congress tells them). You simply cannot create money out of nothing because it will only lead to higher inflation and even more devaluing of the dollar. Yes there certainly needs to be some government intervention in tough times, but enough is enough. So no, I do not agree that only government can fix our predicament. Let the people do it, let Americans rediscover what it means to be American again through personal responsibility, failure and success alike. We do not need another "bailout" or stimulus package, what America needs is to use what we have and get back on our feet with that. This is America and yes we can.