Posted: 03/12/09
Updated 3/14/09


Economic Stimulus: Will it Work? Have We Been Had?...Going Forward

The question on everyone's mind seems to be, "Was this necessary?" Did we really need to spend $787B through the American Recovery and Investment Act to save the economy after already establishing the $700B Troubled Asset Relief Program (TARP) - or - would it have been better to leave things alone for awhile and let the free market economy correct itself? One side wants to spare the pain... or postpone it. The other is ready to take its medicine, get it over and get on with it. Personally, I like the later.


One thing is for sure. The wealth built over the past twelve years is gone. There are those who believe it wasn't real to begin with but they're wrong. Value has always been more than the assets. Value = Assets + Perception... just like the value placed on tech stocks prior to the tech bubble burst. And in our next economic wild ride, value will still be assets plus perception. We should probably keep that in mind especially with regard to our own dollar...where perception is the greater part of value.


In our current bubble easy lending, inflated housing prices, and equity loans led to overspending by consumers. Banks dumped sub-prime loans quickly packaging them in instruments that were then repackaged and sold making them practically impossible to value at the end. Why? Perception of value was lost. Yet the collateral or the underlying assets were still there, even in those bundles including foreclosures. So, big financial houses fell. Other banks stopped lending. Credit hit a crisis. Businesses laid of workers. Foreclosures continued to mount hitting new records and property values plummeted. Value redefined itself. The assets didn't change... the perception did. And this dragged those who had never even touched a sub-prime loan into the mess.


Many believe that had we left the markets alone those individuals and businesses that made stupid decisions would have failed. Tax dollars would have been safe. Private parties would have picked up the fallen assets for pennies on the dollar. (Assets = Value - Perception) It's been done many times before. Opportunity is created by failure. Wall Street lives on it. Fortunes are born out of it. But when we started bailing everyone out, as cruel as it sounds... opportunity was removed from the market. That's why Wall Street didn't react well to the stimulus. It's that simple.


"Never waste a good crisis," is a statement attributed to Rahm Emanuel, White House Chief of Staff. The crisis seems to be the engine upon which a $787B stimulus package was designed. In reality it was the Democratic "kitchen sink" into which all programs they had not been able to enact over the past forty years were thrown. So, $787B was spent. Yet there was nothing in the bill to address the crux of the economic problem... foreclosures! As President Obama pushed gloom and doom fear did grab many Americans. Democrats rammed the bill through Congress. Most had not even read it when the vote was called. Yet there were those who were not fooled. A majority of Republicans stood against the stimulus package with only three siding with the Democrats... not exactly Obama's bi-partisan victory.


Good. President Obama and the Democrats own this stimulus package, The American Recovery and Investment Act. They mortgaged our grandchildren's future but the really scary thing is they're not done yet! It's almost like the old joke about the person who says, "I can't be out of money... I still have checks!" Well, President Obama and the Democrats are still writing checks. So what's a government to do? Print money! Can you say inflation and a highly devalued dollar?


Taxes are going to increase beyond the limits promised in Obama's campaign... they'll have to! Increased taxes on the so-called "rich" will trickle down to all of us. Oh but wait... it gets even more ridiculous. In addition to the stimulus package, Congress just passed a $410B Omnibus bill to keep Congress running for the year. Although the bill had more than 8,000 earmarks, President Obama signed it... behind closed doors. No public display for this measure. Next step. Also ask yourself how much more is Giethner going to need and how much more invasive will he make the IRS? (Ironic is an understatement.) AND, there is talk of yet another stimulus package! Why? Because Obama and the Democrats are attempting to correct everything but the economy! Do these people live on the moon? Note to Congress: If you kill the golden goose, there are no more golden eggs.


The United States as we know it is disappearing. The incentive to excel will diminish into "good enough." For all the rhetoric and talk, success is based on an individual's selfish healthy desire to win! It's like the desire to survive. We naturally want to win. So what's the prize? Higher taxes? A mediocre existence? Good grief. It doesn't take a Ph.D. in economics to figure this out. But then, maybe that's the problem. What ever happened to common sense?