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Re: The stimulus package
No matter how it was spent, and no matter the short term consequences, I think it'll turn out as a mistake.
I used to complain when I heard G.W. Bush was spending 1.5 billion on Aids in Africa. It would be wonderful to help all of the poor and the under-privileged in all of the world, but when your budget is upside down you can't just take out loans on the future. Now, I hear that Obama has sent $60-some billion for the same purpose. I believe that the Bush administration did not make fiscally sound decisions. And the Obama administration has proven to be an order of magnitude worse.
Sometimes, the best medicine for an illness is to hunker down and let your system get better. Applying leeches might make you feel like you are doing something, but it can make you sicker in the end.
In regard to the stimulus package, I do expect that it has/will improve the economy. Money spent is money in use and the trickle down/up/sideways impact will magnify the results. But where does the money come from?
How do we absorb debt-payments in the future without stifling our economy in the future? At one point, the fed was actually buying up treasury securities in order to prop up demand for them. This would be like using your credit cards to pay your mortgage.
My forecast is for a near term blip as the stimulus and time create a mini-recovery. Long term, I expect the dollar to sink, especially against China and the Asian economies. Inflation will rise sharply and our buying power will sink.
To me this is the 'government bubble'.
During the Internet bubble we saw crazy behavior as so-called investors chased stock prices up when the companies had no hope of profitability. Experts called this the new economy until it came back to earth.
During the real estate bubble, we had some of the lowest loan rates in history, yet 1/3 to 1/2 of buyers were buying on variable rate loans. Anyone could see the consequences. There was no way that those variable late loans were ever going to get cheaper. In fact, the history of interest rates would tell you they were going to go up. Of course, those who could afford the stuff they were buying would never choose a variable rate loan. This meant that there was a guarantee that defaults would be huge once the loans reset to normal interest rates, and/or the rates rose.
The government bubble assumes that money is limitless. To a large extent this view is a problem we have had for many years. The problem has cut across political parties. If we need more money we can just 'create' it with a budget and borrow it from the Chinese and the Saudi's. Obama's folks have taken this to an unbelievable extreme -- at least to me. I thought the spending of past administrations, such as Bush's was short-sighted and possibly negligent. I literally can not believe the level of deficit spending in the Obama administration.
And a few years from now, it will be obvious how bad these decisions were. The bottom line is that sound financial practices always seem to rise to the top. Whether it is tulip bulbs, the internet, real estate or government spending don't bet against common sense. You really can't spend more than you make on an ongoing basis.
MLH
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