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 people...it 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 industry...is 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 deficit...you make your own budget, big guy. The Buck Stops Here.

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