Wednesday, March 04, 2009

That "O"? It is the giant hole in the Federal Budget

OK...I wanna talk politics today. I threatened to do this several weeks ago, but never got around to it. And since I have little that I feel comfortable writing about today, you get my thoughts on what has happened since the election.

First of all...quick note, but I am pretty sure that the President violated some securities laws yesterday with his "Stocks are a great investment" speech. There are all sorts of rules about who can say things like that, and who you can say them to and how. Needless to say...unlicensed, unregistered advisers are generally not allowed to make blanket investment recommendations. Actually, no one is allowed to make that kind of recommendation...

Anyway...the "stimulus package". As you likely recall, I was sort of on the fence about Obama at election time. I voted for the other guy, but didn't feel real strongly about one over the other. By inauguration day, I was pretty excited for the new voice, the new ideas, and the new was pretty hard to avoid all of the warm and fuzzy feelings floating around.

But it didn't take very long to remind me that, while I very much like Obama, I just don't like his policy ideas very much. And boy, is this one a doozy!!!

Let's recap: in addition to the $350 billion that George Bush had authorized but not spent yet, Obama had Congress approve an additional $787 billion stimulus, plus a growing number of other outlays that are growing towards another trillion dollars or so (his mortgage plan comes out today with more money in it). In total, by the time he is done, he will have spent about $2 trillion in "stimulus" money.

That is $2 trillion that we don't have, by the way...

My problems with this:
1) It won't work. The whole thing seems to be based on The New Deal, which was a wonderful means of restoring faith in government, and worked very well as a long-term investment in infrastructure, but was a complete failure as an economic "stimulus". Is Obama's next plan going to be war with Germany? Because that worked really well. Anyway, since he has established no means of measuring success or progress, we wouldn't know anyway.

2) It will actually make things worse. Obama is right about what got us into this problem: living above our means at the personal, business, municipal, state and federal level for way too long. So, his solution is to do the same thing for a while longer. He is simply shifting the burden from lower levels up to the federal level...but guess what? We have to pay for that, too!!! If you pay down one credit card by transferring the balance to another, you haven't improved your overall financial position!

3) Building on #2, it will slow the recovery. We have now established the precedent that bad companies and bad industries can line up at the government trough to get survival money. What does that accomplish? It perpetuates bad companies and bad industries. I understand that we need to save the banking industry to prevent complete societal meltdown. But that doesn't mean that we need to save management at Citibank and Bank of America. It doesn't even mean that we need to save those institutions...and it certainly doesn't mean that we need to save their shareholders! Why do Citi and B of A (among others) still have any shareholders equity? Since the government now holds all the risk and all of the responsibility for additional capital, why don't they own the whole thing? Or at least the market value of what they have put in.

And the auto there anyone...ANYONE...who sees any hope of saving the three US automakers in anything close to their current state? And further, why should we? Whether or not those three companies exist next year will have no bearing on the number of cars manufactured in America, sold in America or driven in America. They will just be made in Mississippi and Tennessee instead of Michigan.

4) Inflation...yay! You can not add $2 trillion dollars to the money supply and expect the currency to remain stable. In other words...take out 30 year mortgages while the money is still cheap; in four years when inflation is 7-10% annually, you will thank yourself.

5) Deficits. Obama is now projecting that, at no point during his first four years in office, will the deficit be as small as it was in any year of George Bush's administration. I think that W has a really good claim as the most fiscally irresponsible President that we have ever had, and Obama has basically announced that he plans to shatter that record. And, just for the record, you do not "inherit" a make your own budget, big guy. The Buck Stops Here.

Anyway, that is me ranting...I have more, but that is enough for today.


SoMi's Nilsa said...

Hey, I'm all for criticizing stuff that you don't think will work. And you seem to have some sound reasoning here. But, what solutions will work? I guess I was taught not to complain about what's wrong unless you can suggest what's right.

Katie said...

Big O has a hell of a job to do. While this economic crisis cannot be blamed on him, he will likely be responsible for making it worse by his irresponsible spending.

I understand the bailouts, to a certain degree. What I don't understand is why he's signing these bills loaded with earmarks. Did he not say that he wouldn't sign a bill with earmarks once he was President?

Fortunately, a second term for him looks more and more unlikely.

Ally said...

And this is why I've watched the news 0 times since January. I can't handle it because it makes me so mad. But I feel like Obama is pretty much doing what he said he would...spending, spending, and more spending.

just me said...

i agree with you. i'm not anti-obama, but i think we are all f-ing hosed.

Accidentally Me said...

Nilsa - a very fair question that I will delve into tomorrow. Basically, the economy has to fix itself, the government can't fix it. The government should focus on its long-term finances and the framework in which the economy functions, and work from there.

Katie - Kinda like how he was going to crack down on lobbyists. Except for the ones he hires.

Ally - Oh, he has taken it into a whole new realm that we couldn't have imagined!

Just Me - Very succinct!

Becky said...

Well put. Be careful though b/c if you keep this free speach thing up, Republicans like me will have to defend you along with Rush.

Princess Extraordinaire said...

I'm so beyond being irked about the stimulus package, it's direct effect on the market and President O's rhetoric. I need results people!!

Trigger said...

You are certainly entitled to your opinion here. I am curious though, to read your suggestions about how to fix it. My impression (from the economists I have spoken with) is that this black hole of a market we've gotten ourselves into is not a situation that will "just right itself," nor will tax cuts be enough to fix this. Many (shall I venture to say most?) economics buffs think that spending is the way to go - so why do you disagree with them?

I'd love to hear your train of thought, especially given that you come from humble roots (as do I). Certainly you have picked yourself up from your bootstraps, and in a very commendable way. But while you didn't necessarily get government help (or maybe you did?) you did get help from people of some kind (Papa Bear, SHR, etc). The reason I bring that up is because I believe some of the spending going on truly is to provide a sort of "helping hand" - and just because it's a government based one, doesn't mean it is wasteful or doomed to fail. Some people are truly without options, and I fear that those are the ones who will suffer greatly if we choose to just "let the economy right itself." That's what's concerning me most - I don't love the idea of trillion dollar deficits, but I also don't really know what else should be pursued...

Still just me said...

I am going to drive my 1997 Nissan Pathfinder to the Whitehouse and ask for a bailout.

Why not? Everyone else is getting them.

Scotty said...

Completely agree :)

Let the market be free.

Aaron said...

I'm wondering why, if the economy is as bad as everyone knows it to be, why aren't people demanding the government (all governments!) be more responsible with our money?

All I hear on the news is about this "stimulus" package. I've heard NOTHING about how the government is cutting back on it's own spending by reducing or removing many government spending programs.

Ys said...

I love how quickly the I Heart Obama feeling in America has ended. It's sort of like when Tony Blair handed over to Gordan Brown, only backwards. Cos everyone hated Tony (not me ;D) and then as soon as he was gone they suddenly loved him and wanted him back. Ah politics is a funny game ;)

I love reading your views on politics. You come at it from a completely different place than I do. I think cos of the industry you work in. It's very interesting to hear :) I love a good politics rant. It's the one thing you can very rarely agree with anyone on hehe.