Confused About The Economy?

We're confused too! Maybe we can put your confusion into perspective!

Our topic at hand today deals with the American Recovery and Reinvestment Act of 2009. The government calls it as an act including federal tax relief, expansion of unemployment benefits and other social welfare provisions, and domestic spending in education, health care, and infrastructure. I call it the Help the Majority, Steal from the Minority, Pile on Debt Act of the Obama administration. While I am not completely against a stimulus package, and am mildly happy with the bailout of major financial institutions, I think that the size of this package and unfair redistribution of wealth away from the upper 5% of the country, which many of us are housed in, is out of control. While I do believe in Keynes’s Paradox of Thrift, and somewhat in his belief in government spending to raise aggregate demand, I can’t seem to agree with a tax the wealthy and deficit spend means of operation on such a large scale.

In addition to Obama’s deficit spending agenda, the Federal Reserve is printing money. With a federal funds rate near 0, it seems as if they will keep printing until they realize inflation. While their efforts to counteract deflation may be working in the short term, Socialistworld.net harps, “printing money today raises the specter of inflation tomorrow.” Hundreds of millions of dollars are being poured into unemployment checks, rebates for individuals unable to pay their mortgage (let me note that this is the ONLY time that the government would ever hand you money to pay your bills), frivolous enterprises, bank bailouts, where half of the time the banks don’t even know where all the money is going, etc. I praise Obama on stepping in and trying to fix the mess that was left to him, but why so much money? $787 Billion is just too much.

The Guardian references billionaire investor George Soros stating, “…bailing out banks could turn them into "zombies" that suck the lifeblood of the American economy, which he predicted is in for a ‘lasting slowdown’”. While we have seen a great rally of the markets in the past 6 weeks, we must be careful in gauging the success of our economy. Citigroup posted stellar earnings, and Bank of America posted $.44 a share, 10x the predictions of most analysts, but both companies’ stocks were still down in the dumps on Monday afternoon. Cramer says there is a bull market in every bear market, while Fast Money has a segment called “Bull Market or BS?” We can’t be fooled by fake bull markets in bear markets, while at the same time we can’t panic after one bad day in a six week good day span.

Lastly, I am a bit annoyed (and by a bit I mean healthily enraged) with the Democratic House and Senate for passing $3.5 Trillion budgets with no Republican support. Yes, 0 Republican votes. I don’t care what bill is being passed, whether it is Democratic or Republican; a polarizing house or senate without some bipartisanship is a violation of the underlying democratic system. Senator Harry Reid, Democrat of Nevada and majority leader, remarked, “This responsible budget will start cleaning up the mistakes of the past and make critical investments in our future.” Oh yeah, I thought Bush’s mistake was draining our surplus. I think firing you would be our first critical investment in our future. The brilliant Nancy Pelosi wants to find consensus with the Grand Old Party, but not at the expense of the infusion of federal money that the majority calls crucial in a time of economic distress. “[The American people] want real change, and we have come here to make a difference.” They only want change because Obama’s beautiful smile, charisma, and eloquence told them they want it. House Republicans offered budget alternatives featuring a domestic spending freeze and broad tax cuts, and were quite unhappy with the runaway spending of the Democrats that would bloat the government, and worsen the economy and debt on future generations. “Let’s not do this to our kids. Let’s not borrow from the next generation of Americans,” Rep Mike Pence of Indiana preached. We owe it to them and ourselves to stop this nonsense.

As you can tell, I am no fan of Obamanomics. I am a fan of modified Reaganomics. Quite simply: Reduce frivolous government spending, cut tax rates, and control the money supply to reduce inflation. In these rough times however, it seems inevitable that we must increase government regulation on the economy a tiny bit. Obama, I implore you! Please only spend on what’s necessary, bailout who we need to, and fix what needs to be fixed. Give money back to every single American; please don’t leech from those who you claim are able to afford it. Where do you get off making those judgment calls? If we cut taxes for everyone, increased consumption will come. Investors will be more confident, and the markets will rally. Everyone will be happy. According to John B. Taylor’s article in the Wall Street Journal from November 25, 2008, “The permanent-income theory of Milton Friedman, or the life-cycle theory of Franco Modigliani, shows that temporary increases in income will not lead to significant increases in consumption. However, if increases are longer-term, as in the case of permanent tax cut, then consumption is increased, and by a significant amount. Permanent Tax Cuts Are The Best Stimulus.”

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