Feb
13
Stimulus Alternative
Filed Under Economics | Leave a Comment
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.
Feb
13
Why the Stimulus Package Will Not Work
Filed Under Economics | Leave a Comment
The proposed stimulus package Washington is working on will not revive our economy as we are being promised. The stimulus might provide a temporary boost to certain beneficiaries, but this will only worsen our existing problems and push the inevitable difficulties further down the road.
The main reason the stimulus is a poor idea is simply because the United States does not have the money. The actual “stimulation” will be done by Japanese and Chinese central banks lending our government the money. If you or I borrow money when we’re deep in debt, it is a miserable idea unless the money borrowed can miraculously pay off the debt one is currently in. By focusing on projects which do not yield positive returns, the existing bills guarantee the money spent will not be worth it.
Large portions of the proposed bills revolve around improving infrastructure. Pouring tax dollars into repairing bridges will not provide a positive return for the taxpayer since the money we are borrowing will never be paid back, it is simply maintenance. This plan might temporarily decrease unemployment, but that does not constitute a long term economic solution.
Companies overexpanded during the easy credit period from 2003-2006. As a result, we are left with huge overcapacities in factories, stores, and residential and commercial real estate. This easy credit-induced expansion was never sustainable and to try and prop up failing businesses and homeowners with a stimulus bill is a bad idea. The market does not need a kick-start, it needs a self-correction, where businesses close and orderly defaults take place since only a true correction can lead to normalcy and, then, legitimate expansion.
Future growth will also be far less than projected by this bill. If a corporation or “green company” needs to get federal assistance from the government to pay the bills and hire employees, is it really a solvent company? Also, why is government taking the risk with our money instead of entrepreneurs and venture capitalists? Why is the taxpayer put on the hook?
Lastly, the bill is chock full of good ol’ pork barrel spending and constituent handouts. Any politician that thinks spending $20bn on food stamps and $1bn on airport screening equipment will lead to future economic growth is delusional.
Once the stimulus has been spent, what are we left with? Bigger bills to pay. The almost trillion dollars we will have borrowed and spent will need to be paid back, with interest. Will new roads, green buildings and Head Start funding create a boom that will create enough economic growth to pay off over a trillion dollars? Obviously not.
We as a nation have grown accustomed to a lifestyle based on a continuous stream of credit from which to draw upon. The notion that the State will always be there to lend everyone money and make economic reality go away is ridiculous. The stimulus package is the last thing our country needs and will only worsen our existing problems.
To read how “right” the experts have been, read here.
Feb
4
Who Built the Middle Class?
Filed Under Politics | Leave a Comment
We often hear the phrase “(constituency being courted) built the middle class!”
To me, the “middle class” to me is a fancy politician’s word used to build up support from voting blocs.
Who really built the “middle class”, or more importantly, who has built the source of increasing, compounding wealth in America? Entrepreneurs.
Those color-blind, money-hungry, “greedy”, consumer-pleasing entrepreneurs… They are the providers of jobs and the source of constant, incremental improvement in all areas of our lives from customer service to technology. The motivation of profits and freedom has motivated thousands across the world to flock to our country and engage in mutually beneficial transactions.
Blue collar workers who punch a clock in a factory did not build a middle class, anymore than the teenager at McDonald’s built the corporation it is today. It is the owner, with his ass/reputation/money/credit/pride on the line that deserves the credit.
The collectivist mindset of saving the “middle class” espoused by both Democrats/Republicans or anyone running for office is a lame attempt to curry favor with those groups of people giving them credit for accomplishments they are not directly responsible for.
As always, better to focus on providing value, in any capacity, for friends, family, employers and customers rather than relying on a politician to get elected and give your voting bloc the goodies it was promised.
Thank you for reading.
To clarify: Banks/oil companies/auto companies and any other big businesses that lobby for benefits or get bailouts do not qualify; I will make sure to clear up this distinction in a future post.
To read more about the US financial situation, click here.
Feb
4
Housing Crisis and the Memory Hole
Filed Under Politics | Leave a Comment
After years of following politics and being open-minded to all points of view, it seems the most popular positions are rarely the most accurate.
A politician can be right about consequences of policies and “predict the future” and it won’t make a difference. Even in the age of information overload, YouTube, internet accessible voting records, no one seems interested in accuracy. The proof I offer is this forgotten 2 minute speech by a politician who in September 2003 predicted:
1. Taxpayer bailout of Fannie Mae and Freddie Mac
2. Overinvestment in the housing market as a result of government artificially stimulating demand for housing
3. “Painful” crash in housing
This speech was literally five years ahead of its time.
There is short-term bias in the newsmedia. It is not the media’s fault; it is the natural, predictable consequence of individuals choosing to accept this medium of news rather than discovering truths on their own.
Take a look at Huffington Post; their front page is screams like a tabloid. Since our national attention span is microscopic, we miss the fact that there are some that warned of dire economic consequences years ago which have come true. They are hardly mentioned or interviewed since the media and the public has moved on to newer stories.
The lesson that I have learned from seeing this cycle play out over and over again is: Who do you choose to connect with and learn from? Whoever’s popular in the polls? Whoever your friends follow? The most popular/influential person? Or thoughtful, reasoned thinkers? Seek out these sources and take action to benefit from them. By reading intelligent and openly opinionated thinkers on all sides of an argument it is easy to distill what facts are relevant to certain arguments and which facts aren’t. This is essential to getting a clearer picture of reality.
Thanks for reading.
To read more about our economic issues, read here.
Feb
3
Reading for Value
Filed Under Intellectual Honesty | 1 Comment
Rather than simply reading for pleasure anymore, I am trying to read from a “value” perspective. Simply stated, I am trying to do something with the information once it has been read.
Examples include:
- Recommending it to a friend with a useful, actionable summary
- Implementing a specific tactic from the book
- Document my impressions and save the file in Google Docs for future reference
As I’ve tried to become more aligned with providing value, I am no longer reading from the mindset of:
“I’m reading, therefore getting smarter…”
rather, I’m reading from the mindset of:
“I’m reading, how can I apply this information to help myself or others?”
I used to care about “body count” or the number of books I could go through in a month. Thankfully, I am getting over the juvenile notion that exposure to books equals knowledge.
Sharing your knowledge with others +
Application of knowledge +
Learning from inevitable errors = Results
Thank you for reading.
To read more about a man who shared his gift with the world, read here.
