More Stimulus Updates

I read this article in the Economist today and it is very interesting. I was talking to a friend at hockey last night about the new proposed stimulus by Tim Geithner and we hit some of these points. However, I think that this article does a great job of taking this complex proposition and explaining it in layman's terms. 

Upon first glance, I actually thought that the proposal was much more interesting and in a sense appropriate than all the actions thus far. I must say that my knowledge of the plan is somewhat limited, but I liked that the government was almost incentivizing private investors to stimulate the economy instead of spending mindlessly and egregiously on what they deemed was stimulus ($1.7M for pig odor research in Iowa?). There are large potential gains to be had and the acknowledgement that the government is not the end all be all answer to fixing our economic crisis was refreshing to say the least.

With all that said, the parts of the article I found most interesting were the critical questions it raised. Firstly the article brings up the paradox that in a time when most most private firms are shoring up their balance sheets and paying down debt, it seems ironic that getting them to take on massive debt and leverage would be the answer to our crisis. Actions are being taken, through co-investment, cheap loans, and guaranteed debt but who is willing to put themselves out there like that in our trying times. 

I also really like the point that taking advantage of these government stimulus tactics is too politically dangerous for any firm that is seeking the potential profits that are being predicted. After the AIG bonus skewering, who wants to risk all the government intervention into how they do business? I am in no way saying that AIG bonuses were justified. However I think it is a complete joke that the very same Government holier than thou pukes who enabled AIG to take the bonuses are up front and center screaming taxpayer blasphemy. Not to mention many of these bureaucrats accepted campaign contributions from the likes of AIG (and probably worse) while these companies were receiving government bailout funds. It's strange that I haven't heard of too many politicians trying to pass laws taxing campaign contributions at 90% that were a result of bailout funds.

Maybe I am being to simplistic, or maybe I am just playing the I told you so game, but I have warned of the numerous slippery slope scenarios that unfold when the government decides who "needs" to be bailed out. I am interested to see how this new plan plays out and would love to hear another point of view on the topic so post away in the comments section if you so desire.

Interesting Stimulus Article

I found this article today and I think it is pretty interesting. Discern what you will from the facts. For me this is just another reason that I not too thrilled about the prospects of "stimulus." Especially since no one in our government can agree on what stimulus spending actually is. Another thing I found interesting is how our country as a whole is viewing the crisis as a domestic issue. I must say that when I read this article I feel that I have fallen into that trap a bit as well. I am sure part of it is the media coverage, but I think the other part is that our government is tackling this as a domestic issue. I think it is much more appropriate to view the current economic crisis through a global lens. When you think of the globe as one interconnected marketplace, it makes the prospects for success surrounding the stimulus much more grim in my view. I could be wrong but it's a new and an ever increasingly interconnected world out there, yet we are still viewing the issues of today as though it were the market crash of 1929.

Stimulus or stimuless?

I came across an interesting article this morning. http://money.cnn.com/galleries/2009/news/0901/gallery.money_summit/index.html
The article answers some of the questions that many of us have regarding the stimulus that congress and our president are pushing to pass. Some of the answers are very interesting, but take them for what they are worth. We are wading into uncharted territory and the truth is that no one knows what will work and what will not. Politicians and economists alike can make educated guesses on what will or will not work based on past experiences but as Dr. Ian Malcom illustrated in his beautiful Jurassic Park crash course of chaos theory no two experiences are ever truly the same.

Those who know me know where I sit on this issue. My stance is that the whole stimulus is bogus. When the government is involved the name of the game is incentives. What is the incentive to pass a stimulus? If you are really crass you could say that government officials are throwing our tax dollars around like candy at a parade to any corporation or special interest group that has sufficient lobbyist influence. Is this happening? I think the character revelations of our recent crop of politicians confirm that this is most definitely happening. Is it the largest incentive to pass the stimulus? The optimist in me says probably not. I think it is way less JFK conspiracy theory than that. I call it the chicken little syndrome. From a political standpoint, when something is going wrong or poorly it is much better to have done something than to have done nothing, even when history and common sense reveal that it only added to the mess. I think this is clearly evident by the way the politicians are pushing action. Hence the term chicken little..."the sky is falling the sky is falling". All we have heard throughout the passing of the first stimulus and the multiple bailouts is that we need to act quickly, something must be done now, the consequences of failure will be dire, etc. etc. But what has happened. Nothing. The economy still sucks and we have bolstered our ever growing national debt in the process. One could argue that we don't know where we would be had action not been taken. OK point taken. But this assumes that implementation of our government policy worked and I would ask when has the government truly been effective at implementing any decision of this scale throughout history. Is that a cricket I hear?

I think the first few questions and responses in the article are also interesting about savings and spending and how much direct impact the stimulus would really have. Now I was actually opposed to the stimulus the first time around even when I knew I was going to get a $1200 check. A lot of it was based on arguments that those stimuli in the past have yielded luke warm results at best, but most was due to the fact that it is a huge assumption of debt that is a temporary band aid. I am a free markets guy that thinks that eventually rates and home values or what have you eventually reach a point where those with cash or access to it can't resist sitting on the sidelines any longer. This assumes they have jobs. Which is why the new buzzword or catchphrase is job creation. But look at the package and a lot of the spending has nothing to do with creating jobs or getting money into the hands of consumers. The money that does likely will not make its way into the system so to speak for a matter of years in some cases. Are we willing to take on the, by some estimates, trillion dollar debt to carry out this stimulus? I am not. I think the luke warm taxpayer disbursement would be a better play especially since it would amount to $9,000 (I know if I instantly pocketed 9k that not all of it would be saved and I am probably more financially disciplined than most. Imagine all the new Iphones out there.).

None of this discussion even addresses the biggest problem I have with bailouts and stimulus.....the principle of the whole thing. Who is the government to decide who deserves to get a piece of the action? If you analyze this scenario it is a very slippery slope. Those who have read the greatest book of all time Atlas Shrugged can find themselves about to vomit at the prospect of this stimulus. An example would be, we NEED to bail out the banks because they are essential to working markets, but now the auto's are in trouble and they are essential to jobs in America. Well lets say that chicken farmer's are hurting as well. Well they NEED assistance as well. Are they as essential as the previous two? Lets say we decide not to help them out. Why? They NEEDED it just as much as the last two. You get the point. In an effort to cut this post off before it becomes a novel I am going to get back to work. But I would love to hear some counter arguments and views on this. Control what you can control and get your own finances in order because you never know what your elected officials might be planning with your money!