So Congress is set to throw another $900 billion into the crapper on a stimulus package.
I'd like to spend the next few paragraphs explaining how this stimulus, designed to help Americans, is actually going to have a negative impact.
The stimulus, while containing some details, has one really significant piece of data that shows up - any company taking funds from the stimulus and/or tarp will be required to utilize products and services from American companies. This is being done as a way to create jobs.
Here's where I'm going to get in trouble, especially living in the rust belt.
It's going to KILL the economy rather than stimulate the economy. Here's why.
If a company, let's say Caterpillar, decides to take stimulus funds they are now immediately handcuffed to American suppliers, regardless of price. As a result, and through a really miserable few quarters, the American suppliers will not be required to go through competitive bidding to ensure they are a low-cost provider and high quality provider. This will result in higher priced materials going to Caterpillar.
Now Caterpillar, while certainly concerned about consumers, has also suffered in the past few quarters. Do you think that they will actually swallow the added costs associated with dealing with only a few suppliers? Yeah right. That cost will be passed on to the consumer through higher prices. (this is what we economists and finance folks call "Inflation.")
Given our current unemployment levels of about 7.5%, most real folks would have a hard time swallowing higher prices; especially since they, or someone they know, are probably unemployed.
Now, let's bring in the REALLY big issue with this stimulus. How would you feel if America did this and you were, oh, I don't know, China? Remember that little country that is home to nearly a third of the world's population? Oh yeah. By the way. The own a lot of our debt.
The Chinese Government probably wouldn't take too kindly to not being able to bid on American projects. And while I'm sure they'd like to play nicely together, maybe they'd decide that they would stop accepting bids from American companies. This is not a good scenario, but it is highly likely.
Also likely is the fact that they could literally deflate our currency by 25-40% overnight by simply selling the debt we owe them back into the market. This would create "hyper inflation," which is as scary as it sounds. Think "inflation on steroids" and you'll see my point.
Imagine walking into your grocery store today and paying $1 for a loaf of bread. Three days from now that same bread might cost $1.35. Next week it could be $1.60.
Finally, a good rule of thumb with regard to printing money and giving it away (that's what we're doing) is this: $1 trillion of new debt equals about $3000 per person additionally owed to pay back the national debt. We're currently paying over $1 billion per day in interest on this debt. Guess who gets to pay that? My kids. The cost to a family of four is about $126,000
Leave them alone. They are currently on the hook for about $33,000 (each) toward the debt.
Can't we show SOME responsibility and begin taking control of our financial lives? You CANNOT create consumer demand and solve financial issues by creating additional debt. For crying out loud, that's what got us into this mess in the first place!!!
If this makes you as angry as it makes me, check out the Adam Smith Institute blogsite to learn more about taking control of government finances.
And call your congressional representatives. Don't write them. Call them and wait to talk to a live voice. Tell them enough is enough and to stop spending your kids money.
Friday, January 30, 2009
Thursday, January 15, 2009
Chain of Blame
Well it's been some time since I've posted, and please let me apologize in advance for the content below; but I need to vent.
Over the past two months we've witnessed some of the most ridiculous, political grandstanding since...well, the last Senate ethics committee hearing.
What I'm talking about is the continuous volley between Wall Street, Detroit and Washington. And while I'm certainly a novice when it comes to playing games of "cut throat" in racquetball, these guys aren't even on the same court and they're throwing each other softballs to knock out of the park instead of kill shots in the corner!
How DARE anyone who is a member of the Senate or the House of Representatives chastize someone for mismanaging money! The folks responsible for spending $11 trillion more than they have are being critical of a publicly traded company overspending by a billion? Are you kidding me? This is the equivalent of Kojak criticizing George from Seinfeld for his receeding hairline!
And for Detroit to 1.) Criticize Wall Street for not supplying "liquidity and 2.) ask Washington to fund an obviously tired, non-productive, unprofitable business model to "save the American worker" does a total disservice to those of us who actually DO care about creating sustainable businesses that make products we want.
Finally, shame on Wall Street for allowing $50 billion or more to be pilfered from investors courtesy of an unchecked, unpunished maverick, slick talking money manager in Madoff. The rules were in place, but no one really cared to see if they were being followed, and those that suspected something was "too good to be true" were correct.
This is almost like watching the Three Stooges, only it's not funny.
Now, however, there is a fourth, very ugly element that has fully entered the picture - the media. I can't tell you the number of stories I've read in the past six weeks about workers losing their jobs, retirees losing their pensions, newly married couples losing their houses, etc. I'm willing to bet that you know someone that has lost their job as well. It's easy to blame the new "BIG THREE," as I call them (Detroit, Washington and Wall Street.)
I think that I actually have a solution or two if you care to read on.
It's apparent that the American worker really is the one who is paying for this, both through TARP funds to banks that lent money faster than Britney Spears can get married and divorced, as well as through job losses, cutbacks, unfunded pensions/retirements, cutback in benefits, etc. from outdated business models from GM and Chrysler. Incidentally, Ford has stayed out of the muddy mess so far.
The problem is simple; Wall Street and Detroit have NO vested interest in the communities they reside in. Therefore, they don't really care if workers lose jobs or houses. It's about the bottom line, and (gulp) I can't believe a free market capitalist like myself is saying this - it's not always about the bottom line.
Even Adam Smith would agree that the invisible hand has been severed from the entire arm at this point and something needs to be done to make sure the other hand doesn't get cut off. As a result, I am proposing that the first 1% of every dollar of gross profits earned by any company goes directly to the community that has a branch, factory, office of a company receiving TARP money. For instance, if GM has gross sales of $100 million, a total of $1 million would be dispersed to the communities that have GM plants in their town. Additionally, I am suggesting that half a percent goes directly to a fund that would assist workers that lose their job during the next three years in order to help them continue paying their mortgage. That means another $500,000 would be dispersed to those same towns.
The half a percent never gets used and in fact, would be refunded, if a company doesn't use it because they don't lay anyone off. They'd get the funds back in partial payments after three years if they A.) had net profits, not losses B.) paid all TARP funds back and C.) continued to stop laying off workers.
The dispersion would go directly to a LOCAL bank that avoided the mortgage debacle, and the funds would be split based upon the total number of employees as a percentage on payroll or contracted. Since the funds go to a local bank, their ability to lend grows as well due to FDIC reserve requirements, thus spurring local businesses and new ventures.
If you're wondering, in 2007 GM had about $180 million in gross revenue. That would equal about $22 million divvied up among communities; towns that really could use those funds to stay alive right now.
Now before anyone goes crazy on me and calls this idea "socialism," hear me out. I don't like mandating where a company has to put its money from profits, but this is after the fact folks. We've already shelled out $700 billion. It's gone and can't come back.
As a result, I believe that the taxpayer (this includes workers in Detroit and Wall Street) have a right to say "keep some of that money in my hometown."
This also creates an incentive to NOT layoff workers. Imagine the incentive, approximately $4 million per year, to keep an eye on the bottom line.
The way to the bottom line, of course, is by creating products that people want and need. This goes for mortgages, too.
Create something of value to the consumer, not just hedge funds, traders and speculators - but bona fide consumers that want to drive a fuel efficient, sophisticated model car while making payments on a fixed rate mortgage loan in an area of the country that won't be prone to speculative, shoddy, lending practices geared to investors that couldn't find the location of the property own on a map.
Again, I am a free market capitalist and I think that it's time we asked for some direct results from our money. I won't call it my money, but some of it is my money, and damnit, I want to see my money being spent wisely to ensure that by the time my children become tax payers, we aren't in debt up to $25 Trillion. We currently pay $1 billion PER DAY in interest... how do you like them apples?
Call your representative and tell them to put serious constraints on this money.
Runaway inflation is next folks. Too much money is going to hit the system too quickly, and while many economists are preaching about deflation, I am going to suggest the exact opposit. If you need proof, look at gas prices. They are going up even though the cost per barrel is going down. Speculators know that $700 billion is about to hit the proverbial fan. I'd prepare to be out of the firing line.
Over the past two months we've witnessed some of the most ridiculous, political grandstanding since...well, the last Senate ethics committee hearing.
What I'm talking about is the continuous volley between Wall Street, Detroit and Washington. And while I'm certainly a novice when it comes to playing games of "cut throat" in racquetball, these guys aren't even on the same court and they're throwing each other softballs to knock out of the park instead of kill shots in the corner!
How DARE anyone who is a member of the Senate or the House of Representatives chastize someone for mismanaging money! The folks responsible for spending $11 trillion more than they have are being critical of a publicly traded company overspending by a billion? Are you kidding me? This is the equivalent of Kojak criticizing George from Seinfeld for his receeding hairline!
And for Detroit to 1.) Criticize Wall Street for not supplying "liquidity and 2.) ask Washington to fund an obviously tired, non-productive, unprofitable business model to "save the American worker" does a total disservice to those of us who actually DO care about creating sustainable businesses that make products we want.
Finally, shame on Wall Street for allowing $50 billion or more to be pilfered from investors courtesy of an unchecked, unpunished maverick, slick talking money manager in Madoff. The rules were in place, but no one really cared to see if they were being followed, and those that suspected something was "too good to be true" were correct.
This is almost like watching the Three Stooges, only it's not funny.
Now, however, there is a fourth, very ugly element that has fully entered the picture - the media. I can't tell you the number of stories I've read in the past six weeks about workers losing their jobs, retirees losing their pensions, newly married couples losing their houses, etc. I'm willing to bet that you know someone that has lost their job as well. It's easy to blame the new "BIG THREE," as I call them (Detroit, Washington and Wall Street.)
I think that I actually have a solution or two if you care to read on.
It's apparent that the American worker really is the one who is paying for this, both through TARP funds to banks that lent money faster than Britney Spears can get married and divorced, as well as through job losses, cutbacks, unfunded pensions/retirements, cutback in benefits, etc. from outdated business models from GM and Chrysler. Incidentally, Ford has stayed out of the muddy mess so far.
The problem is simple; Wall Street and Detroit have NO vested interest in the communities they reside in. Therefore, they don't really care if workers lose jobs or houses. It's about the bottom line, and (gulp) I can't believe a free market capitalist like myself is saying this - it's not always about the bottom line.
Even Adam Smith would agree that the invisible hand has been severed from the entire arm at this point and something needs to be done to make sure the other hand doesn't get cut off. As a result, I am proposing that the first 1% of every dollar of gross profits earned by any company goes directly to the community that has a branch, factory, office of a company receiving TARP money. For instance, if GM has gross sales of $100 million, a total of $1 million would be dispersed to the communities that have GM plants in their town. Additionally, I am suggesting that half a percent goes directly to a fund that would assist workers that lose their job during the next three years in order to help them continue paying their mortgage. That means another $500,000 would be dispersed to those same towns.
The half a percent never gets used and in fact, would be refunded, if a company doesn't use it because they don't lay anyone off. They'd get the funds back in partial payments after three years if they A.) had net profits, not losses B.) paid all TARP funds back and C.) continued to stop laying off workers.
The dispersion would go directly to a LOCAL bank that avoided the mortgage debacle, and the funds would be split based upon the total number of employees as a percentage on payroll or contracted. Since the funds go to a local bank, their ability to lend grows as well due to FDIC reserve requirements, thus spurring local businesses and new ventures.
If you're wondering, in 2007 GM had about $180 million in gross revenue. That would equal about $22 million divvied up among communities; towns that really could use those funds to stay alive right now.
Now before anyone goes crazy on me and calls this idea "socialism," hear me out. I don't like mandating where a company has to put its money from profits, but this is after the fact folks. We've already shelled out $700 billion. It's gone and can't come back.
As a result, I believe that the taxpayer (this includes workers in Detroit and Wall Street) have a right to say "keep some of that money in my hometown."
This also creates an incentive to NOT layoff workers. Imagine the incentive, approximately $4 million per year, to keep an eye on the bottom line.
The way to the bottom line, of course, is by creating products that people want and need. This goes for mortgages, too.
Create something of value to the consumer, not just hedge funds, traders and speculators - but bona fide consumers that want to drive a fuel efficient, sophisticated model car while making payments on a fixed rate mortgage loan in an area of the country that won't be prone to speculative, shoddy, lending practices geared to investors that couldn't find the location of the property own on a map.
Again, I am a free market capitalist and I think that it's time we asked for some direct results from our money. I won't call it my money, but some of it is my money, and damnit, I want to see my money being spent wisely to ensure that by the time my children become tax payers, we aren't in debt up to $25 Trillion. We currently pay $1 billion PER DAY in interest... how do you like them apples?
Call your representative and tell them to put serious constraints on this money.
Runaway inflation is next folks. Too much money is going to hit the system too quickly, and while many economists are preaching about deflation, I am going to suggest the exact opposit. If you need proof, look at gas prices. They are going up even though the cost per barrel is going down. Speculators know that $700 billion is about to hit the proverbial fan. I'd prepare to be out of the firing line.
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