Feb
13
Stimulus Alternative
Filed Under Economics
To get the US moving in the right direction, we first need to understand that the last four years of growth were due to an easy-credit monetary policy. As such, many loans never should have been made in the first place. Consequently, the more Washington tries to keep these loans from default, the longer it will be until the right types of loans are made. Loans to good credit risks and solid businesses cannot happen in a murky environment of bailouts, temporary guarantees and other federal promises.
A legitimate recovery will require prices bottoming and assets moving from weak hands (those incapable of paying debts) to strong hands (those that are). The notion that we need to “stabilize housing” is at the root of this crisis.
Recoveries cannot happen until losses are realized.
Since politicians are supposed to “do something” they will naturally do everything they can to fight economic reality and avoid this natural, painful part of the business cycle.
Five Things The Government Can Do Right Now to Help
Defeat the Stimulus Bill – The last thing we need to do is to get further into debt.
Eliminate the Commercial Paper Funding Facility, TARP, and all other financial acronyms that mask true transparency and price discovery – If you cannot succeed without the government backing your commercial paper, find a more viable source of funding, or start liquidating assets to raise capital. The taxpayer should not be on the hook for these losses. Instead of this corporate handout, eliminating payroll taxes and social security taxes is much more helpful solution for struggling families.
End the Wars in Iraq and Afghanistan and close non-essential bases around the world – There is no ROI for this spending, other than for the defense contractors and war-profiteers. Keeping America safe starts with a policy of common-sense national defense (easily cutting ¼ of our military budget) and avoiding involvement in foreign conflicts.
Eliminate bogus foreign aid – Giving billions after a natural disaster is one thing, but giving financial aid and weapons to warring countries has negative implications. Those actions come back to haunt us via blowback.
Most importantly, reset expectations – We have come to become dependent on cheap energy and resources, cheap sources of credit and government promises. These all need to be reset from “American” to “Reality”.
- Cheap energy and resources – China, India and all parts of the world are now competing over fewer and fewer resources. Prices will rise for water, oil and arable land. The President should communicate this since these higher prices are unavoidable.
- Cheap credit – A monetary system where bubbles continue to happen, banks with outrageous leverage can borrow from the government at below market rates and major distortions in the economy appear (growth of FIRE economy) are all signs of a broken system. Our fiat monetary system needs to be overhauled completely into something legitimate and stable (a whole topic for another day).
- Government promises – The entitlement mentality in America is alarming given what has occurred over the last few months. How can we borrow $900bn, pay it back with interest and still pay for all Social Security and medical entitlements? At the state level, the market has declined by 30%, yet serious pension renegotiation talks are not yet on the table for teachers, police, fire and other government “heroes”. If we want people to start saving money, living within their means, and not rely on taxpayers to raise their children for them, then we need to change our attitudes about what the role of government ought to be. Government cannot create wealth other than by redistributing it or printing up the money (devaluing the currency). This needs to sink in with citizens. It should start at the top.
Take power away from the federal government and give states, businesses, and individuals their power, money and responsibility back.
Takeaway: The government will pass the stimulus, but reality will continue. Continuing to try and force consumption and production when there is no demand for either will only delay the inevitable. It would be wise to start mentally accepting the fact that this recession will be long and drawn-out.
Thanks for reading.
To read about more harmful intervention, read here.
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