Another Gigantic Stimulus Being Pushed Already

November 19, 2008

http://www.usatoday.com/money/economy/2008-11-18-ceos-urge-stimulus-package_N.htm

The ink is barely dry on Bush’s signature on the $700 billion “TARP” legislation bill and already there is talk of another nearly as large.  CEOs are already urging the Obama administration to implement another quickly:

A group of business executives on Tuesday urged President-elect Barack Obama to “quickly implement” a large stimulus package soon after taking office.

The stimulus should be in the range of $500 billion, said Roger Ferguson, chief executive of asset management company TIAA-CREF, an amount much larger than has been mentioned by Democrats in Congress.

The recommendation on the stimulus echoes comments made by a top Obama adviser late Monday. In a speech to the conference, Larry Summers cited a report by Goldman Sachs that suggested the stimulus should be in the range of $500 billion to $700 billion.

Earlier this month I made the following prediction for 2009 (see 2009 Predictions):

10.  The federal government will find another huge bail-out necessary as the economy teeters on the brink of recession.  This time the package will top a trillion dollars.  Much will be devoted to infrastructure and renewable energy projects.

Predicting that another stimulus package would be coming isn’t that much of a stretch, but I doubt that many would have predicted a trillion dollars.  OK, so what’s being asked for here approaches $700 billion, but that will come early in the year.  If that’s all it is, I look for more down the road.

It’s easy to make these calls when you understand the following:

  1. The U.S. is completely bankrupt.
  2. The trade deficit continues to drain $700 billion per year from our economy.
  3. The only way to keep the economy afloat is for the government to print at least that much money to make up the difference. 

Restoring a balance of trade is the only action that can break this cycle. 


Middle Class Can’t Afford Homes

January 31, 2008

http://money.cnn.com/2008/01/29/real_estate/Housing_unaffordability_persists/index.htm?section=money_mostpopular

This article is proof of what I’ve been saying about our current recession.  You have to look past the most obvious symptoms – like the burst of the housing bubble – to find what’s really going on if we want to take meaningful action. 

Even in spite of the decline in housing prices, the middle class still isn’t even close to being able to afford an average home.  Why?  Because incomes haven’t kept pace with inflation?  Why?  Because we’ve carved out much of the entire manufacturing sector of our economy and given it away to foreign countries for nothing in return. 

Labor obeys the law of supply and demand as much as any other commodity.  Take away a big piece of the labor demand and the price will drop.  Wages will go down.  Balance our trade equation with a tariff structure (one indexed to population density), and that demand for labor will come back home and restore wage growth. 

We can cut interest rates and pass stimulus packages until the cows come home; in the long run it won’t make a bit of difference in stemming our economic decline.  We have to take meaningful action to address real problems instead of treating only the symptoms.  You can’t cure the flu by wiping your runny nose.  Neither can we fix our economy with actions that don’t address the real problem.

Pete