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Friday, January 25, 2008

Staving off Recession? Only in an Election Year.

Years ago, when other countries were going through the same housing bubble burst/low industrial spending/low consumer confidence and about to enter a recession, the United States was very free in its advice: Bite the bullet; live though it; it's a necessary adjustment which needs to occur.

But that line of economic thought apparently doesn't apply to us. In a rare show (read Presidential election year) of bipartisan support, the White House and the Congress compromised endless times on both sides to come up with a $140-$150BB Economic Stimulus Package. Both are already chastising the Senate for wanting to fiddle with the bill a little: they want it approved as-is and sent to the President for signature. Rebate checks would be sent out as early as May and finish up in July.......3-4 months before the election.

About $50 billion would go to business to jump-start the supply side of the equation. The remaining $100BB or so would go to taxpayers (and folks that didn't pay tax) in 2007.

The theory is if all these taxpayers (and non-taxpayers) suddenly get a check for $600 or $1200 (more if you have children), they're going to rush out and by iPods and computers and Rolex watches....used Rolex watches at that price.

The plan starts reductions at $75,000 a year in income but actually stretches up to $250,000. The theory behind giving cash to $100,000+ families is that they are more likely to go out and blow it shiny new toys while those below might actually use the rebate to pay bills.

I've got a few problems with the White House/Congress Plan. I'm not going to quibble with the business portion of the plan: they will invest the money in their companies which is good, and besides, since Big Business controls this country, you knew they were going to get something anyway. Here are my concerns:

1. Where are we getting the $150BB to pay for this? There are no offsetting cuts in spending so I guess we're just cranking up the old Treasury printing press again. How long until it takes a shopping cart full of money to buy a loaf of bread?

2. The second is where they are targeted. Before my current bout with unemployment, I used to make 6 figures. Couples making over $150,000/yr ARE just going to spend it on shiny toys or vacations. By and large, unless they completely financially irresponsible, they don't need the money to survive.

3. The flip-side of the coin are those making less than $75,0000; especially if they have children. They're more likely to use the money to pay down debt. The White House and Congress are against this: they want the money spent now. But they're sending the checks during the summer. A lot of people will use them for vacations. A lot of people will use them for vacations outside of the United States. Where's the benefit?

Every day we read of banks writing down billions of dollars in sub-prime mortgages and credit card defaults. THIS is the news that is weakening consumer confidence and bringing the recession. Let the people that NEED the money pay their mortgage or credit card payments on time for a couple of months and the bad news disappears. Consumer confidence goes up. Banks are more willing to lend at the insanely low interest rates available today. The dollar will stop sliding so much against foreign currencies.

Then we have the Presidential Elections. Regardless of who wins, it's like airing out a stale room. We know something is going to change and hopefully for the good. Retail sales rise in the 4th quarter. Business confidence rises.

Then comes January 21st 2009 and we get a new President. Even if its someone as venal and vile as Hillary, she'll get the traditional "honeymoon" with Congress that all new Presidents get (unless they blow it). The economy moves forward.

On the other hand, if the $100BB all goes to one-time frivolous purchases, they money will be spent by August. Then forget all the good stuff I said above.

4. If you lower the threshold for rebates, you have more money to spend. You can either up the rebates to the $1800 mark President Bush wanted or (God help me, I'm about to agree with Ted Kennedy) you can extend unemployment benefits for those whose have run out. The extension won't motivate the unemployed to buy a new car, but it will keep them shopping at Walmart instead of a Food Bank to put food on the table. For some it may make the difference between keeping a house or defaulting on a mortgage. President Bush is against this, Congress "compromised", and the Senate may sink the whole plan by trying to add it. President Bush "compromised" on making his tax cuts permanent.

President Bush is wrong. President Bush was also wrong when he pushed through the change Big Business wanted in the bankruptcy laws, forcing most people to file Chapter 13 instead of Chapter 7. Bankruptcy is a degrading last resort that used to give people a clean start on life. No more. I've come to the sad conclusion (since I voted for him twice) that President Bush is the advocate of Big Business and Big Money. He either doesn't care about or understand the plight of the "average" American. In Dallas, most families don't make over $65K a year. Maybe in California or the NY Metro area where the cost of living is much higher they make $200K/yr, but not here or in most of America.

Ironically, it's the chronically stifled and ignored Ron Paul who has the best answer: end our overseas empire and use the savings to pay off the deficit AND eliminate the income tax. And then get government out of the economy and let the free market work.

But Ron Paul is a man before his time. People would still rather put their fingers in their ears and go "Na,na,na" before admitting Americans and America are financially broke. They still, despite the failures and trillions of dollars spent since WWII, believe we can have Pax Americana AND all live like millionaires. Until other countries start paying US taxes, it's a fantasy. Unfortunately, it's going to take America's financial collapse until action is taken....and by then it will need to be far more drastic and draconian than what Dr. Paul is proposing now.

The country is financially falling apart and Washington is sending out gift checks printed on IOU's. I hope Big Business, Big Media, Big Government, and the Military/Industrial Complex will at least have the courtesy to acknowledge Ron Paul was right "way back then". They won't have any money for a plaque or statue.

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1 Comment:

Lucramc said...

Yeah, as if the redistribution of wealth from the rich yet again to the poor (and yes, I qualify for one of these rebates, so I'm technically poor) will cause a stimulation in economy. If ANYTHING, giving money back to the upper tax brackets who have MORE DISPOSABLE INCOME will result in a stimulation - if this theory even worked under economic common sense.

If you want to stimulate the economy, you lower taxes you idiots. Giving rebates IS NOT THE SAME THING. Those of use who get the rebates don't create jobs! YES, IM BASHING MY POOR SELF AGAIN, BUT ITS THE TRUTH! I don't want to get fired because the government feels the need to tax the ass out of the small business I work for to redistribute a small check to me at the end of the year. Thanks for making me lose my $45,000 a year job so I can get a $1200 rebate Washington! Idiots!

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