June 8, 2009

What Stimulus

Back in February I sent the following e-mail to my friends and family about the then proposed “Stimulus Bill”:

I think we can agree the economy is having a tough time. All have been hurt by savings accounts (retirement, college, etc.) that have dropped, many have been touched by lower salaries/hours at work, some have even lost their jobs or are unsure of the future of their employment. These concerns are real. We must all look to help those who we can help, and pray for those who we can not help. It is OUR responsibility to help our family and neighbors, not Washington's!

The stock market (DOW) has dropped from 12200 last February to 8200 today! That is a 33% drop in your savings or wealth you had invested in one year!
Unemployment has risen to over 7%. A number we have not seen in 15 years.

Currently, our elected officials are in Washington trying to solve this problem. They have put their collective abilities together and have come up with a 1550 page, $900,000,000,000 plan they call the "Stimulus Bill". You can see the bill here: http://readthestimulus.org/
My friends, I don't care if you are a Republican, Democrat, Independent or other...
these 1550 pages and $900 Billion dollars WILL NOT make America's future brighter and pull us out of a recession! Our new President, Barack Obama has declared that unless congress passes this bill NOW, the recession could be "catastrophic" and "irreversible" http://news.yahoo.com/s/ap/20090205/ap_on_go_pr_wh/congress_stimulus_126
Let us examine this bill... tell me if NOT doing the following will cause a PERMANENT IRREVERSIBLE CATASTROPHIC RECESSION!!

$50 million for the National Endowment for the Arts
$380 million in the Senate bill for the Women, Infants and Children program
$300 million for grants to combat violence against women
$2 billion for federal child-care block grants
$6 billion for university building projects
$15 billion for boosting Pell Grant college scholarships
$4 billion for job-training programs, including $1.2 billion for “youths” up to the age of 24
$1 billion for community-development block grants
$4.2 billion for “neighborhood stabilization activities”
$650 million for digital-TV coupons;
$90 million to educate “vulnerable populations”

See more! http://article.nationalreview.com/?q=YjcyODIyZGM2MGU1ZDdkNDgxZDc3OTNjYjM4ZDY1ODI=

This is a terrible abuse by our government to use a crisis in the county and our collective desire to "Do something about it" to enlarge their own power. The government does not have the money for this Bill, it does not exist. It will simply be printed, be "borrowed" by increasing the national debt to unheard of levels. We will pay for it in future years by higher interest rates as inflation goes up and higher taxes that will be "necessary" to "balance the budget".

I am fortunate that my two Senators and my House representative are voting NO on this Bill. If yours is not, I strongly suggest you call them and let them know what you think. Contact them here: http://www.usa.gov/Contact/Elected.shtml

If you think that this bill will save America and is necessary, may I point you to the companies that have been "bailed out" with the last $800 Billion that was "spent" to "save the economy"

AIG received $40 Billion see stock performance http://finance.google.com/finance?q=NYSE%3AAIG
Bank of America received $45 Billion see stock performance http://finance.google.com/finance?q=bac
Wells Fargo received $25 Billion see stock performance http://finance.google.com/finance?q=NYSE:WFC
Citigroup received $25 Billion see stock performance http://finance.google.com/finance?q=NYSE:C
GM&GMAC received $10 Billion see stock performance http://finance.google.com/finance?q=NYSE:GM

Unfortunately, this bill became law, and the politicians were given almost a trillion dollars they didn’t have to spend. Well, it is now 4 months later. I thought I would check in to see where the money has gone and what it has done.

I will start with unemployment. Barack Obama claimed that unless his stimulus bill was passed, unemployment would reach 9.1% in 2010. With his stimulus plan, unemployment would top out this year at about 8% and quickly go back down. So what is the result? The below graph is from Obama’s original stimulus estimate, I have overlaid, in red, the actual numbers.

Either the stimulus bill had the opposite effect and increased unemployment, or it did nothing at all and the government underestimated how high it would go. Either way the stimulus has so far failed at its most significant measure and its main purpose, to keep people working.

In my e-mail I predicted that the result of this bill would be record debts, higher taxes and higher inflation/interest rates. Unfortunately, this is starting to come true. 10-yr treasury notes (the rate in which mortgages and other loans are measured against) has jumped almost 50% from March to 3.7%. 30-yr mortgages have increased 3/4 of a point. The 1.8 Trillion dollar budget deficit this year is 4 times larger than the previous record high deficit under Bush. And what about higher taxes? They are coming. Fed chief Ben Bernanke testified to congress last week:

BERNANKE: Relative to that CBO baseline, I mean, it's evident that either cuts in spending or increases in taxes, will be necessary to stabilize the fiscal condition.

QUESTION: Recently, as I believe you know, S&P downgraded U.K.'s debt on May 21st from stable to negative. So what's going to happen if the U.S. loses its AAA rating? Or what happens if we have a 60 percent tax increase over the next 10 years to deal with this massive infusion of debt?

BERNANKE: at some point, you'll hit a point where you'll have to have both very draconian cuts and very large tax increases, which is not something we want. So in order to avoid that outcome down the road, we need to begin now to plan how we're going to get the fiscal situation into a better balance in the medium term.

QUESTION: If I look at the bills we've had here on the floor the last couple of weeks we were in session and this week, virtually everything we're doing either authorizes or appropriates more money -- spending -- even, in many cases, than what is anticipated in the charts that we have talked about today. What are the economic consequences of continuing that sort of trend?

BERNANKE: we need to make a plan, some decisions, about how we're going to bring the budget closer to balance over the medium term. And that means that as you discuss various programs that include spending, you need to think about the revenue sources that would be related to that. If you don't do that, then, again, you'll see interest rates rise and you'll see reluctance of lenders to provide credit to the U.S. government. That would be a very bad outcome.
Does anyone think the government is going to drastically cut spending?! Ha… excuse me while I stop laughing. Tax increases are on the way. But I know, I know… I am not being fair. Only a small percent of the stimulus money has been spent (printed). So we just need to give it more time. Eventually, the economy will rebound on its own, like in every other recession, at that point we can say it was because of the stimulus bill.

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