Monday, March 09, 2009

The Pipe Dream

The government is going to stimulate the economy and create jobs with this multi Trillion dollar plan. It’s a little like the Marshall Plan in reverse. We are going to get the money before the disaster, not after it. The reasoning is, we get the free martini and the deck chair to sit in. Logic states that if you’re lounging in a deck chair enjoying the band, you can’t be standing in line to board the lifeboats.

Giving hundreds of billions to AIG is not going to increase jobs or stimulate the economy. This company is on life support, and we don’t even know why. This has to be a bill for previous consumption (financial insurance bets). We didn’t eat the meal, but we get to pay the bill. Add insult to injury, we have massive layoffs.

Interestingly there are two different types of layoffs. In the private sector, the layoffs are the result of a lack of consumption, car sales are in the dumps and real estate has gotten too real. In the government sector, the layoffs are a result of decreasing tax revenues, teachers and police. Notice if you’re in the latter group your workload increases and your wages don’t. It might be a good thing, less education makes for dumber criminals.

We couldn’t afford to spend the money when times were good and now we can??? It doesn’t take a pencil and paper to figure out that we have been shorted a couple of cases of whiskey, on this order!

The government isn’t creating new long term jobs. These jobs have to disappear when funding stops. Of course when you think about it, four years is a long term job in the government sector.

We need to invest in the private sector and focus on building items that people want to consume. Give that a thought or two. Look at all the business expenses the owner has to outlay for pension, health care, unemployment and taxes before he even hires one person. The government already has its hand in your till.

A lot of new entrepreneurs in California are starting pot farms; there are no government startup costs, fees or taxes. Plus the state offerers a free vacation plan if you get caught.

A world war seems to have pulled us out of the depression in the 1930’s. The government was buying from the private sector, tanks ships planes and armaments. The private sector needed employees to fill the government order. So if we carry this forward to today, a government contract to purchase four million General Motors vehicles could be a hell of a stimulus to the economy. Give the cars to the people that didn’t act financially irresponsible. It’s their savings that the government is spending anyway.

Of course, it’s probably not in the cards and that's what a pipe dream is all about; there is no realty, just a lot of smoke and government mirrors.

11 comments:

Rob in NS said...

Jim

You're right on with post. The solution the government has come up with doesn't make sense. Now I read in CSMonitor that they want to bail out commercial real estate.

from CSMonitor

By April, the federal government expects to have a plan to refinance office towers and shopping centers in danger of defaulting. The scale is likely to be massive: Last week Federal Reserve Chairman Ben Bernanke hinted at providing another $1 trillion in credit.

What's next to be saved.

Rob

Sackerson said...

Good one. Like the ending of your first para.

Jim in San Marcos said...

Hi Sack

Welcome from across the pond. Thank you for dropping by.

Humor is all I'm going to have left to retire on (after the government "saves" us).

Take care.

Jim in San Marcos said...

Hi Rob

I use to read the Christian Science Monitor all the time. I had a subscription to it before the Internet. Maybe I'll start paying more attention to their web site. It has always been real good on world news.

If they wheel out another trillion to cover this mess, I don't think our own government will take dollars in payment for our income taxes.

Things are now going beyond being absurd, and that's not a good thing.

Gone Soon said...

The Titanic is sinking. Large scale loss of life is very real, very imminent. Something must be done to save the ship. If nothing is done, not only would we lose the ship, we would also lose the majority of the passengers.

To that end, the trillions and trillions that we are spending now to save ourselves, are not a waste. All this money would be lost anyhow when the Titanic hits bottom. Why not spend whatever it takes to give ourselves a chance?

It is obvious the common man has no appreciation for the uniqueness of this crisis. He keeps comparing it to past recessions and depressions. I am here to state the obvious-- this sucker is a brand new plague never before seen by humans. It's like AIDS when it first came out.

One could therefore be the greatest doctor but would be helpless in the face of AIDS. Once we admit our collective ignorance, we can perhaps work towards a cure. Too many ignorant folks are standing in the way of the search for a cure, thinking they know it all and believing there is nothing new under the sun.

It is difficult to accept, but there are forces in nature stronger than the human will. These forces can sweep us all away like straws in a tornado. We are caught in one such a storm right now. I don't know what will save us. But it's doubtful indifference, anger, and blame will do the job.

Anon on a California Mountain said...

This is the worst economic downturn the USA has experienced in 80 years. Granted, we have many safety nets, systemic cushions and advanced living systems that could prevent the degree of physical hardship that existed in the 30's, but avoidance of those hardships is not necessarily guaranteed. This crash could conceivably turnout to be the worst in this country's history.

We've had huge debt destruction and there is more to come. Huge de-leveraging is and will continue to take place. Assets have fallen precipitously in value and will continue to do so. Prices haven't followed and when the finally do (by marking to market, etc.) this will be a significant deflationary phase.

From an economic standpoint, the core reason behind this downturn is a generational period of very poor policy choices.

Healthy, sustainable economic growth is SAVING induced. Savings leads to a buildup of capital and productive capacity.

The economic "growth" that we have experienced in these decades has been POLICY induced. This has created booms that are artificial. The key areas of policy being...
Monetary Policy: long term low interest rates; Tax Policy: favoring debt and spending over equity and saving; Regulation Policy: opaqueness, laxity and lack of oversight; Social Policy: home ownership regardless of affordability.

All of the above policies created artificial economic demand that could only be financed by debt (because savings/equity didn't exist).

As I've opined in an earlier post, this is not a recession within a business cycle. This is a structural collapse... a soft depression, which could become a brutal and hard depression. A tsunami of deflation and then of inflation.

The economy must be reinvented. It must retool: it has to absorb trillions in bad debt and then transition into new productive endeavours. It must create productive capacity for the 21st century (energy, health, food and water being key areas that need new technologies and expansion).

The politicians want to reflate the value of assets, incurring trillions of dollars of additional debt to create the demand to buy these assets. Basically this is debt begetting debt.

This government intervention might bring about a limited period of "recovery"; altho it will again be artificially generated and thus false. Unfortunately, this intervention will ultimately stifle actual long term growth, innovation and creativity for years to come.

Our future will be dire unless we reinvent or restructure our economy.

Our leaders haven't learned from the past. Most anyone with first hand experience of, and an astute understanding of the Great Depression is no longer with us to point out the dangers. Our current leaders will destroy the currency through inflation in an attempt to halt the natural correction that is attempting to purge our system of it malinvestments, excesses and errors.

Mark Twain said that history may not repeat itself but it rhymes.

As individuals we can separate ourselves from the current political mindset and herd mentality, and utilize our knowledge of history and basic ecomomic principles to predict the coming conditions and trends and implement strategies to mitigate the coming destruction within our personal lives.

Rob in NS said...

To Anon 8:39

Saying common man has no apreciation of the crisis is a pretty broad statement. I don't take offense though because I think a majority of the Joe Sixpacks have no idea what is going on. That said the underlying goal to what the people in charge are attempting to do is try and maintain the wealth of the ruling class through this downturn. At least that is my opinion.

Rob

Shift said...

To Gone Soon,

Indifference, anger, and blame .

It's what's for breakfast.

WakaWaka.

AngryTaxPayer said...

GS,

Interesting that you use the Titanic to describe the financial destruction at hand. The problem with using your analogy is it suggests something can be done to save our economy, but in the Titanic's case, just like this one... the economy will not be saved by anyone including the government. Our current economy must die just like 2/3rds of the Titanic's passengers and the ship MUST go down. Its the ONLY option.

There are similarities that can be made to the Titanic and the current state of our economy and that is the wealthy elite were the first ones off the ship, saved themselves, and screwed all the lower classes as the ship sank. To me, looks like the same is shaping up right before our eyes.

ATP

Jim in San Marcos said...

Hi Angry Taxpayer

Good point.

Here is another thing that is glossed over. What made the sinking of the Titanic so horrific, was that a lot of richest men in the world of the time went to their deaths.

In the present situation, the rich still have the most to lose, but they won't have to pay with their lives.

Jim in San Marcos said...

Hi Anon on a California Mounatain

Thank you for the post, Its on page one for today. Take care