Monday, February 9, 2009

"It is only the government that can..."

Earlier today, President Obama said-

"It is absolutely true that we can't depend on government alone to create jobs or economic growth," he said. "But at this particular moment, with the private sector so weakened by this recession, the federal government is the only entity left with the resources to jolt our economy back into life. It is only government that can break the vicious cycle where lost jobs lead to people spending less money which leads to even more layoffs."

I view this statement very troubling on many levels. What do you think?

I'm a simple guy, I admit it. The reason our economy is faltering has to do with America consuming (spending) too much and producing (selling) too little.

People are freaking out and holding on to what money they have and not buying more stuff. The house of cards is starting to come down. A government spending frenzy will only dig a deeper hole for us. Any "jolt" this "spendulus" package gives will be extremely short lived and will carry a huge credit card bill very soon.

The answer- let things fall from where they are. Yes, it will be terribly painful effecting everyone negatively at first, no doubt. The market will have to correct. We (the U.S.) will have to start producing things the rest of the world needs and wants and we'll have to exercise some restraint in what we buy.

Again, I am a simple guy, I admit it. The government can't solve this with the current approach.


tom kessler said...

I agree with you that businesses should fall and it will be very painful for a lot of people.

When it comes time to pay the bill who is going to step up? Hopefully, China and Russia will not sell off their dollars and stop investing in the U.S. Treasury or we will definitely be hurting. Fortunately, China's economy is tied to ours otherwise they could let us go down the drain by not sucking up our debt.

Before this "crisis" began I was talking to an economist about our national debt. I had thought of 2 options that might occur. The first would be for the U.S. to file bankruptcy and afterward reestablish the current benefit programs. The second would be to just print more money and cause inflation to skyrocket. He agreed both were possible then he mentioned a third which is to tax all retirement accounts now. Their is an estimate that $12 trillion this remains in retirement accounts after the current crash. After a 10% tax we would still owe just a smitten amount of approximately $9 trillion.

So what if the U.S. filed bankruptcy, reestablished the benefit programs, and then taxed all retirement accounts, we would then have a $1 trillion surplus for the current president to stimulate the economy by his ungodly policy of paying for abortions.

I don't look forward to the repercussions of the stimulus plan along with most of the policies of President O.

Rick Calohan said...

First of all a couple of things, Senators Collins, Snowe, and Specter should just leave the Republican Party. Had they voted against it the measure it at least would have shown that both House & Senate Republicans were unanimously opposed to this measure. I am trying to figure out why Senator Cornyn who was so opposed to this did not vote on it, and I know Gregg did not vote on it since he is going to be the new token Republican Commerce Secretary in the Obama cabinet.

Watching President Obama’s first press conference, I was amazed at how the press have become lackeys to this administration. It was not a press conference in so much as there were no follow up questions, the President’s responses were mini stump speeches and I just shook my head, the man has been President for three weeks and this self-appointed Messiah has not solved any of our national problems. I mean come on we have to wait 16 months before leaving Iraq? You are going to move 30,000 more troops into Afghanistan I thought on day one the war would be over and we still have a national debt and annual budget deficit? C’mon, I thought that would end on day one. You mean to tell me people’s homes are being foreclosed and people are loosing their factory jobs. C’mon

I think a shocking factor needs to be exposed, since 1967 when the percentage of Government spending to GDP increases so to does unemployment. In 1967, Government Spending was at 18% GDP, and unemployment was at 4%, in the last year of the Bush administration Government Spending was at 23% of the GDP and unemployment is at over 7%. NAFTA, the WTO, and Illegal Immigration have gutted union employee salaries and jobs in this country. Socializing this economy does not and has never worked. When FDR used the try anything and everything approached with his bloated New Deal programs between 1933-1941 it had failed. It was World War II and the need for industry and creation of manufacturing jobs for the war effort that sparked the economy not the Federal Government. We have already seen what giving money to corporations has done under TARP and throwing another trillion dollars into the fire is not going to solve our problems.

Another thing all the talk I have heard about Katrina it has been two weeks and people in Kentucky and Arkansas are still suffering from the effects of the Ice Storm with no power in many rural areas. If the Federal Government can solve everything by writing a check, and sending in FEMA why has this crisis not been solved and why didn’t President Obama while visiting an RV factory in Indiana just order a whole fleet of self-sustaining RVs to that region? By doing so he would have provided shelter and warmth to millions and maintaining demand to keep factory jobs in Indiana it’s an everybody wins situation! After all, we are just printing valueless paper money that a Democratic control Congress is going to rubber stamp.

Jim said...

If Americans were spending a lot and producing only a little, then we'd have inflation and extremely low employment.

The bursting of the housing bubble means that many people's net wealth declined significantly. So they cut back on their consumption. That affects employment & etc.

Ironically, today, almost no economist is a Keynesian. Most academic economists will agree that economic stimulus will have little effect on the economy.

The only point at which some still agree with Keynes is on the need for government spending should the economy reach the point of a "liquidity trap," at which point people do not spend money even if the interest rate is zero. At that point the economy is, as it were, high centered, and government spending pushes it off the point at which the macroeconomy moves on its own again. At least that's the theory.

"Maybe" we had one in the 1930s, which prompted the great depression. The fear last fall was that, because of the connection between falling home prices and bank assets, that there was some non-trivial probability of falling into a liquidity trap at that point.

So at that point you found a number of even academic economists endorsing government action to support the banks and, preemptively, to spend.

I suspect that most, however, are skeptical of the usefulness of the current spending proposal, believing that it only moves spending from the private sphere into the government's sphere, which is almost certainly less efficient.

Although keep in mind that it was Mike Huckabee who, during the campaign, promoted the need for a significant increase in spending by the government on infrastructure. It's a bit ironic to see many of his supporters who cheered his proposal now boo the same proposal just because it's now proposed by Democrats. Ah, well. Such is politics.

FWIW, I've linked on my blog what I think are two of the best bits of popular commentary on the stimulus package that I've read.

Frontier Forest said...

With business being in the tanks for everyone, I must confess, it is difficult to come to work, even harder to keep a positive attitude. In all the years of trading lumber, I have never seen such pessimism and angry attitudes among suppliers, fellow traders and customers. Even with our bank putting the squeeze on us, and having recently borrowed the max against our 401K, my partner and I have come to realize some very important survival tactics. If we are going to be successful and get through these difficult times, we have pledged to each other; to speak words of kindness, and words that build up, we will not point blame, we will not second guess each other or look over each other’s shoulders, we may be angry but we will sin not! We have pledged not to associate with negative people and most important, we will to refuse to compromise integrity for the sake of a sale.
So having made these pledges to my partner, I have also made some pledges to the Lord. I will pray for our president, try to remain optimistic about what the government is trying to accomplish, but most of all, I WILL maintain a radical trust in the Lord. “But seek first his kingdom and his righteousness, and all these things will be given to you as well. Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own.”

Reepicheep said...

Thanks for those links Jim, both are very helpful articles.

Frontier Forest said...

Cheri and I are leaving tomorrow for a weeks ski trip, using our timeshare in Angel Fire NM. So I will have some major withdrawals from my "Best of Tony" time.