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2010 Stimulus Moving Forward, All But Guaranteed

10 December 2009 No Comment

The President announced this week a new proposal for job creation.  Not wanting to call it a stimulus (focus groups don’t like this word anymore), we’re now labeling this a jobs package.  Infrastructure spending is the focus it looks like.  Can we get a refund on the first $800 billion stimulus package?  How’d that work out.

I have the following points to make:

#1 – The Debacle of the First Stimulus

If you criticize the first stimulus as ineffective, you are typically told that the stimulus was designed to make an impact over time and we should just wait it out.  Ok fine, then why a second stimulus?

If you criticize the the concept of a 2nd stimulus, you are told that the 1st stimulus only brought us back from the brink, now we need more targeted job creation spending.

What a load of crap.  Neither stimulus is the solution.  At best, they provide a short term boost to economic activity, no long term benefits are created.  At worst, it will continue to bankrupt the Treasury and debase our currency.

#2 – It’s All About Resource Allocation

The reason a market based economy works, and works amazingly well, is because the market allocates resources (talent & capital) to where resources should go in a very efficient manner.  If banks loan too much money to real estate, they are punished and forced to deleverage.  If a new technology is created, billions of private capital will flow into the concept bringing it to market.  Government and politicians allocate capital towards politically advantageous areas not economically advantageous areas.

The more money that the government allocates in this economy whether it is for green cars that somebody in DC thinks is a good idea, for extended unemployment benefits (you can now receive unemployment for close to 2 years), and for “jobs projects”, this is money that is not allocated by the market towards economically advantageous areas.  This means putting off into the future the time when this resource allocation will be unwound and allocated to the areas where it should be allocated.  The market forces never go away, they can just be put off.

To sum up, the market would restructure our economy and provide a basis for a real recovery.  Government action (stimulus) is actually delaying this process and preventing it from occuring.

#3 – This Isn’t About Obama

The worst thing you can take from this blog article is that this is me ranting about Obama.  I am, but its much more than that.  I’m convinced that John McCain would be taking a similar course of action, and I would be ranting about him if he were President.  This is more about our system and our people.  Our people expect government to “fix” the economy when in fact, they cannot fix the economy.  If people were more educated and understood real economics more clearly, understood monetary policy and inflation, understood real capitalism, they would never look to the government for a fix.  They would look at themselves as the fix.

So, yes, the Republicans will positions themselves against this 2nd stimulus (and I think they should), but I’m not convinced that its because they’re truly against the stimulus.  Many are most likely simply positioning themselves against the current party in power.  What a circus.

#4 – The Guarantee Of More Government Action

As the months go by and it becomes more clear that the recovery isn’t much of a recovery at all, there will 100% be more government stimulus and programs like Cash for Clunkers.  The politicians would much rather destroy our future than let our present get any uglier.  And that they will do.

We will destroy our dollar in the name of preventing this recession by inflating our currency and funding our government stimulus.  Are you convinced yet that this isn’t the normal recession caused by a cyclical business cycle?  This is bigger.  If I’m wrong, I’ll be the first to admit it.  The problem is that it will become increasingly clear that we’re hanging out just by government stimulus and as a result, the future stimulus will have a diminishing return in my opinion.

Economically, we’re a disaster.  The stock market says different.  Either the economy will catch up to the stock market or the stock market will come back to reality.  As you probably know, I believe the latter will happen.  We’ll continue to monitor the situation.

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