Are you for (or against) the economic stimulus plan?

Let me see if I can explain this in a way that makes sense. This is long, but it explains what's coming with all this spending.

Including the 850BN last fall, America has borrowed so much money, so fast, that there is no way to "put it on the books". This Rip Off is greater than the total cost of the Iraq War, but that's not the point. The Iraq War was financed over 5 yrs. This bill will be financed all at once, on top of the 850BN last fall, ON TOP of the Fed loaning 2 Trillion through the Fed Window.

The Fed printed its money from nothing, an inflationary tactic (although, technically, those dollars are "booked" against bad debt). The Treasury has to borrow its money. It does so with T-Bills. Those bills are currently paying almost no interest, because everybody is sheltering their dollars from equity losses (stock market). That's a good deal for the Treasury Dept. For now.

Until.

Until that bubble pops. The T-Bill is a full faith and credit play on the stability of the dollar. If that faith fails, so will T-bill auctions.

2 Trillion in play money at the fed, and now, 1.7 Trillion total "stimulus" counting both major bills (last fall and current) = a combined total of more than our annual budget (which is normally billions in the red).

You are talking about borrowing about 2 Trillion and printing another 2 Trillion. Borrowing takes the money out of the economy directly, while printing reduces the value of the dollar at the back end: when spent.

Combined, this is a TERRIBLE strain on the money supply and the private economy. There is no stimulus here; these money grabs are sucking the life-blood FROM the economy.

Both borrowing and printing money will be heavily inflationary. Printing extra money not backed by real value reduces the overall value of money.

But borrowing is worse. So much money, so fast, means an awful lot of people have to buy T-bills. If they don't because inflation scares them on the value of the dollar, or because there is simply more that needs to be borrowed than people willing to borrow, then the only way to entice buyers is to raise interest rates. Sharply. (Or, to confiscate their 401k accounts for this purpose, but that's another lesson.)

(Not to mention ETFs that are essentially short-selling T-bills, leading to the kind of speculation in T-bills that recently crashed the oil market - another reason T-bills are in such demand that they aren't paying interest. People are speculating that T-bills will crash, making the short-sellers rich. This is artificially tamping down interest rates. For now.)

This is what happened in the '70's. Add to that a new spin: the economy is currently deflationary, temporarily hiding the effects pumping out so much money. If the economy does actually catch any traction, the result of 4 extra Trillion Dollars in the economy will be disastrous.

You can't borrow your way out of debt. You can't print yourself into prosperity. If you could, Zimbabwe would be the World's newest First World Nation, as they just printed a 100Trillion Dollar Note (before declaring that the entire money system was collapsed.)

If it passes, buy commodities as a hedge against value. Buy gold, land, food, guns, ammo, anything that can be resold at a later time on a floating fix to a runaway dollar. (If an apple costs $1 today and $5 dollars tomorrow, then, if you own apples, your value floats with the dollar; they're worth $1 dollar/each today, AND, $5 dollars/each tomorrow.)

If this passes, expect a short period of deflation (1-2 yrs) until the T-bill market collapses under the strain of so much borrowing, followed by a very long period of hyperinflation (up to 10 yrs or longer, depending on how the gov't responds)

Japan lost a decade of economic growth in a similar fashion. The smart boys in the Swamp should take a hard look. Unfortunately, they're more interested in porking out than they are in what's actually good for the economy.

What's good for the economy is for the gov't to back off and let it find its bottom. This is what Reagan did. 1981/82 was a brutal recession. But, then. The market (with the help of tax cuts) found its bottom and 1984 was so much better as a result. Reagan won 49 States in re-election because it was "morning in America" after years of economic anxiety.

There is no advantage to the gov't trying to hedge the economy. As if. The gov't doesn't have that power. Remember the phrase, "pushing on a string". You'll hear it again.

It's going to be brutal anyway because people just have too much debt. That has to be 'leveraged' through the system. The more the gov't interferes, the worse it will be. The sooner the market is allowed to find its bottom, the sooner it will bounce back.

Or, to put it another way: as soon as YOU can pay down some of YOUR debt, you'll be able to consume again. Not before. Pushing to get you to go borrow MORE money when the problem is that you owe too much already. Well. That's not the answer. Your Grandmother could have told you that and you could have skipped this whole post.

~faith,
Timothy.

On top of all that above: people are scared and that effects how they spend. That fear completely overshadows and compounds everything I said above.

The gov't creating a "make work" job for you IF you get laid off isn't going to ebb that kind of fear.

~faith,
Timothy.

Time to slow down and think about this.

"Wednesday night’s House tally on the Democratic stimulus package, where not a single Republican voted in favor, was another shot across the bow for this incredibly unmanageable $900 billion behemoth of a program that truly will not stimulate the economy. Sure, the Democrats won on a party-line count. But Team Obama is now regrouping in the face of mounting criticism of this package."

"GOP economist Martin Feldstein revoked his prior support of a stimulus plan in Wednesday’s Washington Post. "In its current form," Feldstein wrote, "[the plan] does too little to raise national spending and employment. It would be better for the Senate to delay legislation for a month, or even two, if that’s what it takes to produce a much better bill. We cannot afford an $800 billion mistake."

"Clinton economic adviser Alice Rivlin made the same point in testimony before the House Budget Committee. Her message: Divide up the package and slow down the process."

"And Sen. Richard Shelby told CNBC that Washington should "shelve the stimulus package" and instead attack the banking and credit problem first -- probably with a government-sponsored bad bank that would relieve financial institutions from their toxic-asset problem. Mr. Shelby believes the credit crunch remains the biggest obstacle to economic recovery."

"Later in the day when I interviewed Senate Republican leader Mitch McConnell, he agreed with Shelby that the stimulus plan should be shelved. For the first time -- as far as I know -- McConnell pledged to vote no on the package. Instead he wants larger tax cuts and smaller spending. McConnell might be willing to change his mind if the package changes, but he told me he didn’t expect that to happen."

And in what may prove to be the biggest stimulus-package hurdle of all, news reports suggest that Team Obama is contemplating as much as $2 trillion in TARP additions to rescue the banking system in one form or another. That would be $2 trillion on top of the nearly $1 trillion stimulus package.. . . . . . .

. . . . . . . . . "

http://kudlow.com/

Well, seeing the unemployment rate drop will certainly help those fears don't you think? The unemployed one certainly will be less fearful.

Getting debt ridden folks to spend more isn't much of a stimulus package.

Do you think there's anything we can do to raise the market bottom? Or do we sit and watch it fall hopelessly, so then we can start to rise up?

Frankly, I think it will work. One of the reasons Sen. McCain lost the election was the very real decline in living standards American Families experienced under Bushco.


http://www.epi.org/economic_snapshot...hots_20080827/

In a very real sense many families saw their family incomes slip below what is needed to maintain a family budget.

http://www.epi.org/briefingpapers/224/figureb.jpg



If your family was just over the budget line a 2000 dollar cut in income was felt and not easily absorbed. Add in raising health care and energy costs and the average family was really starting to feel the accumulating losses.

No. Neither will "stimulus" checks stimulate the economy.

Milton Friedman discussed this in detail. IF you give somebody a permanent tax cut, they will adopt their spending based on the long term effects of that change in their budget. Just as if they get a permanent salary raise.

If it's temporary, it has no such affect. People don't change long term outlooks based on temporary changes.

IF the unemployment rate goes down BECAUSE the gov't is the only one hiring, that says absolutely NOTHING about the security of MY job.

Besides. Pushing on a String. The more jobs the gov't "creates", the more private sector jobs will vanish. I don't expect the unemployment rate to go down, no matter how many jobs are created. Why? Because, under this bill, for every created job, the gov't will spend $100,000. That will come OUT of the private economy. The loss of an additional $100k in the private economy because it was consumed by gov't will likely translate to a loss of 1-2 more jobs.

I expect, for every gov't job created under this bill, 1.5 private sector jobs will be lost.

That being the case, no. I honestly do NOT think that make-work jobs will ease the fear of losing a job. At all. I think it will make it worse. Besides. This isn't the 1930's. Construction jobs will simply not salve a white collar economy. It's crazy talk to even suggest such a thing.

As far as finding the bottom, the trick is to REACH the bottom. As long as the gov't continues to attempt to forestall that, the bottom will remain elusively out of reach.

The market was holding steady at 10-11k until the first Sell-Out bill was passed. Then, it dropped to 8k, where it has been trading sideways ever since. If the Great Rip-Off is passed, by summer I predict a Dow of 6k. I don't think it'll stay there, our markets are amazingly resilient. (In fact, when the Dow hits 6k because of this bill, that will be the time to BUY! BUY! BUY!)

But. This Rip-Off will take us to Dow 6,000 by summer. Mark this thread.

~faith,
Timothy.

Except that the job creation efforts are targeted at infrastructure, energy grid modernization etc. These will be private sector endeavors......If you put 1 into infrastructure that yields about 1.50 in economic activity.....With 2.2 Trillion in pent up demand for shelf ready stimulus projects that will bring economic activity home again...

McCain lost the election because he voted FOR the first Sell-Out. The American people were looking for a champion, and he wasn't it.

Democrat-lite will always lose to the Democrat, especially when the Democrat is going around screaming, TAX CUTS! "Everybody that makes less than $250k will receive a tax cut under my plan."

(On the other hand, Republican-lite will also always lose to Republicans - and the blue dog Dems need to realize that when they vote for this folly. This vote will come back to haunt 50-60 close Dem races in 2010.)

For the record, the standard of living did NOT decline under Bush.
http://www.census.gov/hhes/www/income/histinc/h08.html

Median Family Income:

2007: $50,233
2006: $48,201
2005: $46,326
2004: $44,334
2003: $43,318
2002: $42,409
2001: $42,228

Median Family Income (all reported in 2007 Dollars)

2007: $50,233
2006: $49,568
2005: $49,202
2004: $48,665
2003: $48,835
2002: $48,878
2001: $49,455

Median income rose every year under President Bush, and even adjusted for inflation, remain level and on average, increasing.

~faith,
Timothy.