Request For A Thoughtful Response

[Guest]

Several politicians and others are currently being quoted that spending the better part of a trillion dollars in an attempt to stimulate a disastrously damaged economy is not the correct thing to do.

Unfortunately, the critics never seem to offer an alternative. Do they propose that the amount should be smaller? Larger? Should the government stay out of the business of trying to stimulate the economy and permit the free market to make the corrections? Usually after the criticism of the plans being put forth by the new administration, no other alternative plans are proposed. Criticisms are limited to a dislike for what's being proposed, but with no "better idea" offered.

So a question for this forum might be...

Should the huge economic stimulus package being designed by President-elect Obama and his financial advisors be enacted into law? Should the amount be increased? Decreased? Or should the government simply do nothing, let the free market make whatever corrections it can, and tend to other issues of national governance?

I would suggest that as participants respond to these questions that they incorporate some sort of economic argument on why the alternative ideas they suggest might work better. It would add to an interesting discussion of respondents opined on how their alternative suggestions would improve the economy, whether there's a chance their ideas might actually worsen the situation, and what effect alternative suggestions would have on the duration of the current economic cycle. If references to other alternatives or other expert opinion can be cited in replies, they might add to everyone's understanding of the economic theory underlying the alternatives being considered or suggested by both the new administration as well as their critics.

[Guest]

I am not sure that you are listening to the critics. They are offering alternatives. The biggest one is to make the Reagan tax cuts permanent and to eliminate the capital gains tax altogether for five years. This would serve to take a lot of uncertainty out of the future direction of the Obama administration.

Taking billions upon billions of dollars to make government jobs would be foolish. The government has never been known to do anything efficiently.

You can have a very large stimulus program but if the people do not spend the stimulus money it will do no good. Likewise if the government spends a stimulus money it will do no good. I think as far as a stimulus goes whatl we needs to do is to devise a method of getting money into the hands of the people conditionally that they spend it. For the government to put billions of dollars out there on WPA projects in which they are actually bailing out cities and states for not having taken care of the infrastructure as they have been paid to do would be counterproductive in my opinion.

We need to create demand for products through consumption. This is done by the consumer doing what he does best, Consume. That will decrease the inventories of goods on hand requiring manufacturers to produce more which will require that they increased their resources such as employees thereby creating jobs.

Basic economics is the best route. The reason that we are in this situation is because factions in our government tried social engineering. Tried to give the illusion of redistributed wealth by helping people to consume what they could not pay for. The bill came due. Let's not go down that road again. Consumption produces a demand for goods. Demand produces production. Production produces jobs. An oversimplification but those are the rules as I understand them.

Taxes, take spendable cash out of the hansd of the people.

[Guest]

Thanks, Yoda. If many of us exchange ideas like yours, we'll all be better prepared to understand what's happening.

Your proposal for permanent tax cuts caused me to head off to do a little research. I found an article by Diana Furchtgott-Roth on a website called The Great Debate that was entitled "The $300 billion tax cut: Let’s do it right." http://blogs.reuters.com/great-debate/2009/01/08/the-300-billion-tax-cut-lets-do-it-right/

The Obama plan has $300 billion in tax cuts built-in, but they are not permanent as both you and Ms. Furchtgott-Roth observed. I found what she said in the article interesting because it relates to some important economic theory which originally won Milton Freidman a Nobel Prize. In her article Furchtgott-Roth explained that while the Obama proposal does have $300 billion in tax cuts included, they are temporary, applying only to the first two years. Further, those cuts would not be sent out in lump-sum checks, but would be largely reduced payroll deductions, which would be expected to encourage increased consumer spending.

But as you suggested, Furchtgott-Roth also points out that the problem is that tax cuts that are temporary and will have limited effects on spending behavior. Friedman won a Nobel Prize for his permanent income hypothesis, which showed that spending decisions are made not by the amount of money in consumers’ pockets, but by their expectations of future income. (I guess that's why the index of Consumer Confidence prepared by the University of Michigan is so widely reported each time it is issued.)

At least we understand a little more about the positions being taken by the "dueling economists", with a little politics mixed in I'm sure. I can only think that Obama wants to make the tax cuts temporary, knowing that if and when the economy recovers, that the increased tax revenues resulting from the "sunsetting" of his proposed cuts along with dramatic reductions in government spending, will be necessary to begin to whittle away at deficit spending and the humongous national debt. But that's just my opinion...or my hope anyway.

Maybe others might have enlightening alternatives and citations, as well. The more we share, the more we'll all understand about this situation. One thing is for sure...there is no totally "right" or totally "wrong" solution to this financial crisis. Hopefully, as the result of discussions like this, we'll all be better prepared to understand how the mixture of alternatives might work.

By the way, I agree that you hit Econ 101 right on the head...Consumption produces a demand for goods. Demand produces production. Production produces jobs. If we all remember that objective as we assess the plans being put forth, we'll be a lot better off in understanding them. I guess I might add one other element to your economic formula. That would be that any plan should drive the consumption-demand-jobs engine as quickly as possible.

[Guest]

The problem is everyone is looking for a solution without ever dissecting the problem to its root causes, and then attacking the causes en masse. This "singular path" type of fix presupposes there is a "silver bullet" cure.

We're in this mess because of a combination of root causes: 1) lousy balance of payments: 2) Ponzi-syle banking practices with the hopes that the acme will never be found; 3) illegal immigration which floods the labor force with cheap labor, reducing the value of these jobs and taking those wages via remittances ($40Billion worth) shipped out of the US each year; 4) foreign policy which is based on "rewarding" via most-favored-trading-partner status, which subsequently destroys the domestic manufacturing base and impacts negatively the balance of payments problem; 5)........ this could go on for pages!

Just throwing money into the air and seeing whether it solves anything is like farming where one throws seed on the ground without tilling, sowing and erecting scarecrows.

If there is ever going to be a "fix," we must first make a bunch of mini-fixes on each of the root causes. Otherwise, we're just trying to patch a sinking ship from the outside of the hull, without ever looking at why there's water in the hold to start with.

[Guest]

:shrug:
I thought that maybe instead of giving the car companies all that money, that an individual be given $5000 to $10000 toward the purchase of a new car depending on the amount of the new car. Could that have made a difference?

[Guest]

Thanks, Yoda. If many of us exchange ideas like yours, we'll all be better prepared to understand what's happening.

Your proposal for permanent tax cuts caused me to head off to do a little research. I found an article by Diana Furchtgott-Roth on a website called The Great Debate that was entitled "The $300 billion tax cut: Let’s do it right." http://blogs.reuters.com/great-debate/2009/01/08/the-300-billion-tax-cut-lets-do-it-right/

The Obama plan has $300 billion in tax cuts built-in, but they are not permanent as both you and Ms. Furchtgott-Roth observed. I found what she said in the article interesting because it relates to some important economic theory which originally won Milton Freidman a Nobel Prize. In her article Furchtgott-Roth explained that while the Obama proposal does have $300 billion in tax cuts included, they are temporary, applying only to the first two years. Further, those cuts would not be sent out in lump-sum checks, but would be largely reduced payroll deductions, which would be expected to encourage increased consumer spending.

But as you suggested, Furchtgott-Roth also points out that the problem is that tax cuts that are temporary and will have limited effects on spending behavior. Friedman won a Nobel Prize for his permanent income hypothesis, which showed that spending decisions are made not by the amount of money in consumers’ pockets, but by their expectations of future income. (I guess that's why the index of Consumer Confidence prepared by the University of Michigan is so widely reported each time it is issued.)

At least we understand a little more about the positions being taken by the "dueling economists", with a little politics mixed in I'm sure. I can only think that Obama wants to make the tax cuts temporary, knowing that if and when the economy recovers, that the increased tax revenues resulting from the "sunsetting" of his proposed cuts along with dramatic reductions in government spending, will be necessary to begin to whittle away at deficit spending and the humongous national debt. But that's just my opinion...or my hope anyway.

Maybe others might have enlightening alternatives and citations, as well. The more we share, the more we'll all understand about this situation. One thing is for sure...there is no totally "right" or totally "wrong" solution to this financial crisis. Hopefully, as the result of discussions like this, we'll all be better prepared to understand how the mixture of alternatives might work.

By the way, I agree that you hit Econ 101 right on the head...Consumption produces a demand for goods. Demand produces production. Production produces jobs. If we all remember that objective as we assess the plans being put forth, we'll be a lot better off in understanding them. I guess I might add one other element to your economic formula. That would be that any plan should drive the consumption-demand-jobs engine as quickly as possible.:agree::agree:

I have mentioned Milton Friedman many times in my posts and would recommend watching his television series or reading his books. He has a unique way of cutting through the "econobabble" that most people just get confused by and regurgitate in mass.

Milton Friedman uses economics basics and simple cause and effect facts, to point out why and how the decisions that we and the government make affect our lives. One of his examples explains how the governments desire to assist low income tenants recover from apartment fires, cause the very people that were suppose to be grateful for the help, burn themselves out of their units to get the free money!

I think that Milton's works explains how I feel better than I could ever put into words myself.

[Guest]

:shrug: I was feeling the same way.

I am sure there is a solution, but not to sure that anyone has a good idea of what it is and where it is and how to fix it. But Yoda and VK are on right course.

SteveZ as always has very good input. ALso all the money we spend on IRAQ and rebuild their schools and country. Add all that up since it has started and tell me what you come up with. As far as the auto industry. They need to change and have needed to change for a long time. Got to move ahead with cars that do more than 0-60 in a blink of the eye. I dont care who says what, i believe it is a waste of more money to bail out the auto companies. as with the stimulus money, just because you bail out the auto big guys, dont mean we are buying them. The last thing I want to do right now is buy another vehicle. The way things are going, most people are just like me and dont want to take money out of their pocket so fast for expensive car that cost as much to operate as it does to pay each month in most cases.

The answer lies with in. sit back and think of what the problems are. I believe SteveZ gave us a few of them. Now what would you do to fix them. Take Illegal Immigration. Lets fix that issue now. Easily said then done. We got to have so many meetings in so many places with so many people just to schedule a real meeting. Then you got to have the right venue, then you got to schedule a report on the meeting you just held. Oh did i forget about the budgets for all the meetings? Then when you get all this information all input to program and do you spreadsheets, then you realize, is this an election year or is this going to **** some poeple off? Then it gets put on the back burner. That is how it is done in DC? Come on, even Fred Thompson noted that in a speech he gave years back. He said nothing gets done in congress. To many meetings just to put something on the calendar. Then if it is going to be unpopular with the people you reperesent, you axe the deal.

That is the problem, if you know what the root cause is, no one wants to chop that root off. THE DAY YOU GET SOMEONE TO PULL OUT A BIG AXE AND HAVE THE *&$%)* TO SWING THE AXE, YOU WILL SEE PROGRESS.. excuse my little additives there....

[Guest]

I don't disagree with either SteveZ or GMoney on the need to fix some of the problems that underly our economic difficulties. But if we go back to the Econ 101 sequence that was discussed earlier, fixing those problems before injecting the stimulus to start the consumption-demand-jobs sequence seems like it will take too long. How long will it take to fix our immigration problem? Could we quickly agree upon and implement a new trade policy? How long will it take to re-form banking regulations to prevent future recurrences of what we've experienced recently?

All of those issues are important, but they will take years to change. What happens to our economy in the meantime? Economists are saying that unemployment will reach well into two digits by the middle of 2009. Even now, we have enough people unemployed to populate a city the size of metropolitan Chicago. Regardless of the risks of inefficiency, doesn't it appear that the large economic stimulus is needed in the next few months, not several years from now? Even without the stimulus, economists are describing our current situation as the worst recession since WWII. Isn't the stimulus to re-start our economic engine needed now?

If there was anything encouraging coming from President-elect Obama today it was his statement that he didn't presume that his ideas or those of his economic team were the only ways to stimulate the economy. He openly invited those that thought they had better ideas to bring them forth, and if they were better than what was being planned they'd be adopted.

The Obama first term hasn't even begun yet, but he seems to be conducting himself in a way to achieve true consensus--to level far beyond just the simple majority needed to win a Congressional vote. I still have enough cynicism left over from the last 10-15 years of polarized politics not to get my expectations too high in this regard. I sure hope I'm not wrong in feeling just the beginnings of enthusiasm for what appears to be a new style of political leadership. Now if the rest of the old-style gang in the Congress will change their ways, maybe we can not only solve our economic problems, but some of our other domestic and foreign policy problems that have been growing in recent years.

[Guest]

the government has shown time and again it is not adept at making things happen.....or happen effectively. As long as the government continues to pursue solutions without a PLAN, there will be no success.
It is the fundamental requirement of effective management.....to know what, where, when, how much...is it on track? No? How far off track and in which direction? What does it take to recover? How long? How much?
Etc....etc....etc....
Accountability 101!!!!! Totally absent.
What is being done now is throwing money in every direction with the hope some hits the target....any target...even the suggestion of the word "target" implies a plan. It has a specific goal toward which to aim and if one misses they know it.....
Lawyers and politicians have no concept of planning or accountability.....therefore why is there any expectation they will solve anything?

Only the free enterprise system can do that.

BTK

[Guest]

I'm not an economist, but as a student of history I notice that whenever there has not been government intervention, economic downturns become crippling for the average American.

Before the federal income tax, a 19th century society of haves and have nots was becoming the norm. And the haves were a tiny number of aristocrats who controlled a huge segment of the nation's wealth. The have nots were living in essentially deplorable conditions. We romanticize about the pioneers, immigrants and workingmen now, but they lived at the mercy of the wealthy. Until the trauma of the Civil War had finally subsided and the excesses of the rich convinced the nation that we were not living in a democracy, the government finally became strong and united enough to begin acting to protect the rights of individuals and provide pathways of opportunity for the average American, despite the opposition efforts of the wealthy. Teddy Roosevelt seemed a decent candidate for President but became a turncoat to most of his aristocrat peers because of his fascination with the common man, including those who didn't bathe often and those who recently came from Europe pleading for refuge.

Post-war euphoria, lack of regulation, and unbridled greed created the Great Depression. Federal spending and regulation not only produced a dramatic improvement in economic conditions but it laid the groundwork for growth which wiped out the debt incurred in Roosevelt's work programs. The incredible infrastructure built by depression era workers provided the groundwork and tools for such productivity that we were able to change the outcome of a catastrophic world conflict and prosper to an unprecedented degree in post-war years.

Instead of signaling the decline of America, maybe the outrageous greed and mismanagement and the consequent deep recession is our opportunity to rebuild. If the government closes the loopholes which allowed financiers to steal billions and then puts millions to work rebuilding our infrastructure, I see the possibility of future prosperity. Spending billions on domestic projects using domestic materials and labor puts money in the pockets of millions of Americans who will then spend virtually all of it, thus further stimulating the economy. If the new administration makes reasonably sensible decisions in how to spend stimulus money, this huge investment in America could be the way we position our nation to a leading position in research and development of the world's future.

The bailout money already spent has gone directly to corporations. Why are we surprised that unemployment has risen sharply since those handouts. The answer is not to give money or tax cuts directly to corporations or the rich. They have never used it to directly create an economic surge. When the rich do spend they are strictly motivated by self interest. Often their investments are made outside the country and become detrimental to our national interests.

I only hope the Republicans in the next Congress are smart enough to add some good ideas and loyal enough to their constituents and their country to do what's right. I hope they will not simply be opponents.

[Guest]

Just a few thoughts:

1. If we haven't identified what has caused the economic problem(s), what makes us think that flooding the economy with what is more-devalued currency will solve the problems? That's like saying "take 2 aspirin and call me in the morning" to someone with a broken foot and cancer. Econ 101/201/301/401 doesn't prescribe a flood of additional currency as the cure-all/end-all. It make actually do more harm than any good, especially in the willy-nilly way it's being handled and dispensed.

2. "Government" seeking funding sources via creative taxation to have the revenue to fulfill lawful programs is one thing, but "government" acting dictatorially with an "I know better than you dumb folk" is another. We have quite a series of checks-and-balances so that dumb acts don't happen, yet there always is rush to bypass these controls because someone does a "Chicken-Little" act, claiming life as we know it will cease unless we hurry. Point in case - where HAS the first of the bailout funds gone, to whom, how much, why, and what did it do?

In short, we have common sense and a modicum of wisdom. Yet, we seem to toss both into the dustbin because some unknown and unnamed staffers (who are the only ones really writing the documents) for a few congresspersons put together a plan which promotes the congressperson as the guru of life.

Again, where did the money go? When that question is answered - in substance - will I have any faith in those who claim to be my protectors.

[Guest]

Federal spending and regulation not only produced a dramatic improvement in economic conditions but it laid the groundwork for growth which wiped out the debt incurred in Roosevelt's work programs.

By what measure do we say that the policy that was put in place during the 30s which resulted in unemployment to be above 14 percent throughout the entire decade was a "success"? I would think that we would look at the policies put in place during that time period and do the opposite because they clearly didn't work in restoring our economic ship to any level that we would find to be acceptable.

[Guest]

I'm not an economist, but as a student of history I notice that whenever there has not been government intervention, economic downturns become crippling for the average American.

Before the federal income tax, a 19th century society of haves and have nots was becoming the norm. And the haves were a tiny number of aristocrats who controlled a huge segment of the nation's wealth. The have nots were living in essentially deplorable conditions. We romanticize about the pioneers, immigrants and workingmen now, but they lived at the mercy of the wealthy. Until the trauma of the Civil War had finally subsided and the excesses of the rich convinced the nation that we were not living in a democracy, the government finally became strong and united enough to begin acting to protect the rights of individuals and provide pathways of opportunity for the average American, despite the opposition efforts of the wealthy. Teddy Roosevelt seemed a decent candidate for President but became a turncoat to most of his aristocrat peers because of his fascination with the common man, including those who didn't bathe often and those who recently came from Europe pleading for refuge.

Post-war euphoria, lack of regulation, and unbridled greed created the Great Depression. Federal spending and regulation not only produced a dramatic improvement in economic conditions but it laid the groundwork for growth which wiped out the debt incurred in Roosevelt's work programs. The incredible infrastructure built by depression era workers provided the groundwork and tools for such productivity that we were able to change the outcome of a catastrophic world conflict and prosper to an unprecedented degree in post-war years.

Instead of signaling the decline of America, maybe the outrageous greed and mismanagement and the consequent deep recession is our opportunity to rebuild. If the government closes the loopholes which allowed financiers to steal billions and then puts millions to work rebuilding our infrastructure, I see the possibility of future prosperity. Spending billions on domestic projects using domestic materials and labor puts money in the pockets of millions of Americans who will then spend virtually all of it, thus further stimulating the economy. If the new administration makes reasonably sensible decisions in how to spend stimulus money, this huge investment in America could be the way we position our nation to a leading position in research and development of the world's future.

The bailout money already spent has gone directly to corporations. Why are we surprised that unemployment has risen sharply since those handouts. The answer is not to give money or tax cuts directly to corporations or the rich. They have never used it to directly create an economic surge. When the rich do spend they are strictly motivated by self interest. Often their investments are made outside the country and become detrimental to our national interests.

I only hope the Republicans in the next Congress are smart enough to add some good ideas and loyal enough to their constituents and their country to do what's right. I hope they will not simply be opponents.

There is much evidence that the Governments intervention prolonged the Great Depression. Here is the first link that I came to explaining how. I have also read and seen "Milton Friedmans Free to Choose" and he also explains how the government intervention prolonged the Depression.

You mentioned "unbridled greed" and I believe that same greed, coming from the general population living beyond their means, caused the current financial problems. Government intervention in infrastructure improvements, while beneficial to construction companies and workers, does nothing for the ignorant masses deep in debt. Where are the Billions that you suggest spending come from?:shrug:

http://www.businessandmedia.org/articles/2008/20081027150030.aspx - 17k -

[Guest]

The news I heard from the Treasury Department this week was they have no idea where the first chunk of bail out money has been going. They simply can't track it and said so. Now they want another 800 billion. What a mess. I simply don't trust the government with one single dime of it.

Private sector and small business stimulate the economy pure and simple. It always has. Want to put people back to work? Free up capitol. How do you do that? Capitol gains cuts. It works every time it's tried.

Instead of the government spending our money (which by the way they think is theirs) they need to give deep tax holidays to everyone. Give people more of their own money to spend and free up capitol for business and you will see the economy come back very quickly. Obamas plan if implemented will put us in the ditch for years to come.

Tax cuts work. Government spending does not.

I've asked this a dozen times and no one can give me an answer. When in history has government ever spent our economy back into prosperity?

Then answer is NEVER. Why so many people think it's the answer now I'll never know.

Did we not learn anything?

"The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes," Cole said. "Ironically, our work shows that the recovery would have been very rapid had the government not intervened."

http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx?RelNum=5409

[Guest]

Some have opined that getting money into the hands of consumers in the form of tax cuts would be a more effective way of stimulating the economy than the government spending on things like roads, bridges, schools, the power grid, etc.

Let's look at the numbers. If the Congress approved a stimulus package of, say, $1 trillion, and that amount was simply divided up and given to tax payers in the form of either a tax rebate or a temporarily reduced tax rate for a couple of years, that means each of 300 million Americans would get about $3,300. A family of four would get $13,200. Spread over two years, that would be $6,600 per year.

Now the question would be, how would Americans spend that money? Would they spend it on things that would increase consumption of items that would result in increased production, thereby producing new jobs, and begin to re-start the U.S. economy? Or would they use the money in ways that does not increase demand, production and jobs?

If the pubic spent that additional money on things like new houses, new cars, new appliances for their homes, additions to their homes, new furniture, etc., there's a chance that the economy would be re-started. Those types of expenditures have a multiplying effect, increasing the business of all the suppliers of goods and services needed to produce and deliver those types of items. That type of increased demand would require increased production, creating new jobs, and producing more income--thereby re-starting the economy.

But if the public used the money to pay down existing credit card balances, buy lottery tickets, buy and consume groceries, take vacations, or even deposit the money in their savings accounts, the money would have little effect on increasing demand, production and the creation of new jobs. That type of use of the money would have little effect on demand, production and jobs.

So how would American families spend the additional $13,200 they'd be given over a two-year period? Would it be on things that would have the effect of stimulating the economy? Or would they spend the money on more frivolous things, or use it to pay off debt or save it?

Remember, it isn't likely that they'd be sent a check for that amount. That was tried last year and didn't work. Statistics show that most of the 2008 rebates were either saved or used to pay down existing debt, not to purchase new "things" to get the economy re-started. Should the Congress roll the dice another time with a trillion dollars? What if the public repeats what they did last year and the economy remains in the doldrums? Our national debt is approaching the same level as a percentage of GDP as it was during WWII, about 15% of GDP. Most economists believe that this trillion dollars is probably the last large amount that will be affordable for use as an economic stimulus.

So again, think about how the trillion dollars should be used. Is government at all efficient in spending money? No. But if they fund things like roads, bridges, schools, a power grid, etc., it's pretty certain that the money will be spent to hire the workers, buy and transport the materials to build those items, etc. There almost certainly would be a multiplier effect to those types of expenditures. And at least we would wind up with improvements to our infrastructure that will be needed in the future anyway.

So again, if the Congress approved a $1 trillion stimulus program and appointed you to spend it in a way that will have the highest probability of stimulating the country's economic engine, how would you spend it?

Remember, this is quite likely the last trillion dollars that will be available and affordable for such fiscal experimentation.

No more talking about who caused the current problem, how government has performed in the past, who's in the Congress that we like or don't like, which political party would do better than the other, or what the social policies of the parties are. There's no more time to talk about that stuff. We are facing a life-changing economic crisis which if not reversed will effect the lives of our children and grandchildren and largely dictate the role that the U.S. will play in the world. We're in a position right now where we have to play the cards that we've been dealt. We've been "called" and there aren't any more cards to be dealt. Are we all-in, do we fold, or is there something in-between?

What would you do?

P.S. Steve, I too want to know what happened to the initial $350 billion. But I also think there is a high degree of urgency to make decisions on what to do to stimulate our economy. For those who think we're being rushed to judgement, doing nothing until more hearings are held and facts become known might be appropriate. But for those who believe there's a degree of urgency, then the question I posed above is one that requires some thought.

[Guest]

I would spend every dime replacing the military equipment either damaged or destroyed in the past 6 years. That would be the biggest stimulus to the American economy.

Why? All of the money would be spent within the US, to US businesses, on goods manufactured in the US, all going to legal US workers, and thus the money would have the best chance of actually cycling within the US a few times.

People can complain about defense spending, but it always has been the best stimulus to local economies ever - and we get something for it. More taxes are generated through defense spendiing, so that other social programs can get funded without pain.

Sure, it sounds simple and many peacenik types will wring their hands and say making swords instead of plowshares is "not nice." However, we will need to replenish our defense systems, and it's a better deal than seeing all the money end up in China or elsewhere immediately on goods made elsewhere.

[Guest]

I like the defense spending idea. Even if the entire amout of the stimulus wasn't spent on military equipment, that tyoe of expenditure has exactly the effect that I think is needed to re-start the economy.

The only problem is one of scale. Last year the Defense Department spent only a little more than $100 billion buying military equipment. Even if that amount were doubled or tripled, it still amounts to only about 1/3 of the amount of the total stimulus that the economists think is needed. Beyond that is the probable inability of the defense industry to produce substantially more than it has in recent years. If defense spending were suddenly multiplied, it is doubtful that the industry would have the capacity to ramp up production to actually spend the money to create jobs. In fact it's doubtful that they would make the investment in additional productive capacity, knowing that the order thruput resulting from the new stimulus money is only temporary.

But I think that a slug of money for increased defense spending should definitely be a part of whatever package is finally approved.

[Guest]

"I've asked this a dozen times and no one can give me an answer. When in history has government ever spent an economy back into prosperity?" History has already proven it simply doesn't work. But I do agree on defense spending, that's one area where the government does belong and I happily pay my taxes for. I'm not picking on the Republications or Democrats. They are ALL at fault.

It's not about getting a check from the government it's about keeping more of what we earn. Most of us pay out close to 50% in total taxes to local, state and federal governments. How much more do they need to confiscate in the name of a bail out? How much more can we afford?

BTW, it's not our job or right to speculate on how people would or should spend their money. They earned it and they have a right to spend it any way they wish. More and more seem to believe that everything we earn belongs to the government and they let use keep a certain percentage of it and then spend the rest how they see fit.

Call me crazy but I don't believe the founding fathers had that in mind when they created the Constitution or the concept of limited government.

In my view we’ve for the most part turned away from the Constitution, limited government and most of the core values such as personal responsibly and work ethic that made our county great. Until we get back to the basics, the government can print money until there’s not enough trees left for paper and it’s not going to fix a thing. We are going the wrong way and another trillion in pork barrel spending isn’t going to fix it. The government doesn’t create prosperity, private citizens do.

[Guest]

"I've asked this a dozen times and no one can give me an answer. When in history has government ever spent an economy back into prosperity?" History has already proven it simply doesn't work. But I do agree on defense spending, that's one area where the government does belong and I happily pay my taxes for. I'm not picking on the Republications or Democrats. They are ALL at fault.

It's not about getting a check from the government it's about keeping more of what we earn. Most of us pay out close to 50% in total taxes to local, state and federal governments. How much more do they need to confiscate in the name of a bail out? How much more can we afford?

BTW, it's not our job or right to speculate on how people would or should spend their money. They earned it and they have a right to spend it any way they wish. More and more seem to believe that everything we earn belongs to the government and they let use keep a certain percentage of it and then spend the rest how they see fit.

Call me crazy but I don't believe the founding fathers had that in mind when they created the Constitution or the concept of limited government.

In my view we’ve for the most part turned away from the Constitution, limited government and most of the core values such as personal responsibly and work ethic that made our county great. Until we get back to the basics, the government can print money until there’s not enough trees left for paper and it’s not going to fix a thing. We are going the wrong way and another trillion in pork barrel spending isn’t going to fix it. The government doesn’t create prosperity, private citizens do.

Amen

[Guest]

Several politicians and others are currently being quoted that spending the better part of a trillion dollars in an attempt to stimulate a disastrously damaged economy is not the correct thing to do.

Unfortunately, the critics never seem to offer an alternative. Do they propose that the amount should be smaller? Larger? Should the government stay out of the business of trying to stimulate the economy and permit the free market to make the corrections? Usually after the criticism of the plans being put forth by the new administration, no other alternative plans are proposed. Criticisms are limited to a dislike for what's being proposed, but with no "better idea" offered.

So a question for this forum might be...

Should the huge economic stimulus package being designed by President-elect Obama and his financial advisors be enacted into law? Should the amount be increased? Decreased? Or should the government simply do nothing, let the free market make whatever corrections it can, and tend to other issues of national governance?

I would suggest that as participants respond to these questions that they incorporate some sort of economic argument on why the alternative ideas they suggest might work better. It would add to an interesting discussion of respondents opined on how their alternative suggestions would improve the economy, whether there's a chance their ideas might actually worsen the situation, and what effect alternative suggestions would have on the duration of the current economic cycle. If references to other alternatives or other expert opinion can be cited in replies, they might add to everyone's understanding of the economic theory underlying the alternatives being considered or suggested by both the new administration as well as their critics.

OK, Steve and DKL, am I interpreting your replies to mean that no action should be taken by the Congress or the administration to address the current financial crisis? While I would disagree with that recommendation, I would like to learn more about why you think a "limited government-free market" approach would reverse the current economic decline and begin to strengthen the U.S. economy in some reasonable time frame.

Remember, there's little more the Fed can do with monetary policy to help the situation. Interest rates are already close to zero and they're printing money as fast as they can without cratering the value of existing treasury bonds held by foreign investors. Whatever government response is chosen, it will certainly have to be in the area of fiscal policy rather than monetary policy.

[Guest]

I think I answered your question and did some basic history analysis to back it up. The housing crash was as easy to predict as the sun coming up in the morning. It just so happens that the rest all happened at once. The down turn in the economy was also easy to predict, it's been coming for a long time and it will stabilize just like all the other times. The difference is we have a new president that doesn't study economic history and thinks throwing trillions away will fix it when it never does. A government balanced budget and tax cuts especially for capitol will promptly turn it around. It always does.

Remember the big dotcom bust in the early nineties. I lost my job and it took almost 18 months for the technology sector to come back. IT folks were loosing their jobs left and right. You know what? The technology sector came back to life all by itself and unbelievably it did it with no government help.

The solution is for the government to get out of the way and let the folks who really make the economy go do their thing. Once this turns around we'll hum along for another 15 or 20 years and then it will happen again, just like clock work.

I would like to learn more about why you think a "limited government-free market" approach would reverse the current economic decline and begin to strengthen the U.S. economy in some reasonable time frame.

Because it works every time it's tried. That's how this county became the most powerful and prosperous in the world. Socialism didn't build this nation, free market, entrepreneurs, limited government did. That's just the plain truth.

Government is not the solution. More often than not they are the problem.

Ok, here's my prediction. Seven years ago I told everyone that would listen to me the housing market would crash within 10 years. I was off by three years. If the government does nothing we'll come out of this in about two years maybe a bit longer. If Obama gets his way it will take 7 - 10 years. If they get busy and cut spending, balance the budget and cut taxes especially cap gains we'll come out of this in a year and a half. If they would just do that, consumer confidence would zoom and business would start hiring again with more freed up capitol. Business are laying off more these days because they see the writing on the wall if Obama gets his way. They are preparing for a long haul.

[Guest]

The solution is for the government to get out of the way and let the folks who really make the economy go do their thing. Once this turns around we'll hum along for another 15 or 20 years and then it will happen again, just like clock work.


I certainly respect your opinion. I disagree that the government should stay completely out of it, but I really haven't concluded exactly what the Congress should do or how much they should spend to do it.

I would only point out that all economists that I've read recently--those of all flavors, most conservative to most liberal--have uniformly said that the economic crisis that we're facing is unprecedented in economic history and will take huge government intervention to correct. I may have missed some, but I'm not aware of any notable economist who purports that the free market can correct the current financial crisis.

One of the problems that absolutely needs some intervention to correct is the current "frozen" status of the credit markets. Even if the Congress were to pour money into the economy, it will do little good unless the banks begin to lend, providing the multiplying leverage to increase the impact of the government stimulus contributions. The initial $350 billion was not enough to increase the bank's capital ratios to levels sufficient to meet regulatory standards. And with the weak economy, the creditworthiness of almost all borrowers has been compromised to the point that the banks cannot safely lend to them and expect to be repaid in full. It doesn't take the 25 years of experience I have in banking for almost anyone to understand that banks cannot safely lend to auto companies, auto suppliers, most retailers, other banks or insurance companies, etc. All of those companies have been severely weakened by the financial crisis and would almost certainly not pass the credit screens that banks use to approve loans. Until companies such as those begin to increase production, buy supplies and materials and hire more people, the economy cannot begin to re-build itself. Without loans from the banks, they simply don't have the money to do those things. The frozen status of the banks is absolutely something that has to be corrected, regardless of what other actions--or no actions--that Congress comes up with to reverse the economy.

[Guest]

I added some comments to my last post.

The credit market will free up when people start going back to work and the housing market stabilizes which it will all on it's own. It always has. People will go back to work when business has more capitol and aren't running scared with the prospect of higher taxes which of course Obama promised them. Maybe they wouldn't need so many loans if the government wasn't taxing them and regulating them to death?

You keep going full circle that the government is the only solution to this.

[Guest]

I added some comments to my last post.
You keep going full circle that the government is the only solution to this.

You're right. In the last couple of years there ws no one more critical of the profligate spending by Congress, the increasing defits and the ballooning national debt than me. During the campaign, I criticized both candidates for their repeated claims that they would lower taxes. I couldn't see how that could happen while at the same time beginning to balance the budget and begin to whittle away at the national debt. The numbers had reached the point that the tried-and-true tax-cutting approach to stimulating the economy and "growing out of the problem" simply couldn't work any more (in my opinion).

The main difference between your beliefs and mine are of scale. The free-market-limited government approaches that worked in the past are simply not powerful enough to deal with a crisis of this magnitude. The financial crisis that occurred in the few weeks before the election and since, which seems to becoming more critical every day, has "flipped" me into the camp that if we are to avoid permanent damage to our economy and a change in our way of life, we will have to sacrifice whatever desires we might have for fiscal balance. To avoid a complete economic disaster, we'll need to sacrifice the financial future of several future generations of Americans. Our free-market capitalistic system will also likely change. It will almost have to become a "European-type" capitalism, with government heavily involved in the financial system and most of the national social programs. In time that must mean increased taxes and much slower economic growth than we've become accustomed to as Americans.

It's already happened with the government owning most of the large banks and financial companies as well as the three auto companies. The money already injected into those companies already exceeds their market capitalization. The free market has not been able to resolve the healthcare problems of the country, nor has any action been taken to adequately strengthen Social Security or Medicare. Once the government takes those actions, we're there--we will have become Europe. The government will control the banking system, healthcare and will support all those retired people. The rest of the economy can remain capitalistic, but taxes will have to increase to pay for the aforementioned functions that will have fallen under government control.

I really hate to say what I did above, but I believe that to be the facts. Free market capitalism worked extremely well for the U.S. for 50-75 years. But either it's failure or some other perfect storm of conditions has resulted in our economy becoming so weakened and further threatened that there is no alternative except substantial government intervention.

President Bush said it today during his press conference. He said that supporting the $700 billion bailout ran completely contrary to his personal economic beliefs. He said, "...what else could I do when my economic team came to me and told me that unless we injected that huge amount of money into the banks, we'd be facing a depression even worse than in 1929".

I too have finally concluded that substantial government intervention is the only answer. I haven't arrived at any total amount or combination of uses that I feel comfortable with. But huge intervention seems to be the only economic tool left that holds a chance of reversing the economic slide and beginning the re-build of our economy. The scary thing to me is that I'm not even certain of that.

The longer term risk that we face is that Americans forget how well free-market capitalism worked for so long and become accepting of some form of quasi capitalistic-socialistic economic model, similar to what exists in Europe. If they don't forget, we can get back to the system we all know worked in 10-15 years. But if Americans forget and become comfortable and reliant on government's involvement in their lives, we can look at Europe and see what type of economy we will be living with.

[Guest]

You're right. In the last couple of years there ws no one more critical of the profligate spending by Congress, the increasing defits and the ballooning national debt than me. During the campaign, I criticized both candidates for their repeated claims that they would lower taxes. I couldn't see how that could happen while at the same time beginning to balance the budget and begin to whittle away at the national debt. The numbers had reached the point that the tried-and-true tax-cutting approach to stimulating the economy and "growing out of the problem" simply couldn't work any more (in my opinion).

The main difference between your beliefs and mine are of scale. The free-market-limited government approaches that worked in the past are simply not powerful enough to deal with a crisis of this magnitude. The financial crisis that occurred in the few weeks before the election and since, which seems to becoming more critical every day, has "flipped" me into the camp that if we are to avoid permanent damage to our economy and a change in our way of life, we will have to sacrifice whatever desires we might have for fiscal balance. To avoid a complete economic disaster, we'll need to sacrifice the financial future of several future generations of Americans. Our free-market capitalistic system will also likely change. It will almost have to become a "European-type" capitalism, with government heavily involved in the financial system and most of the national social programs. In time that must mean increased taxes and much slower economic growth than we've become accustomed to as Americans.

It's already happened with the government owning most of the large banks and financial companies as well as the three auto companies. The money already injected into those companies already exceeds their market capitalization. The free market has not been able to resolve the healthcare problems of the country, nor has any action been taken to adequately strengthen Social Security or Medicare. Once the government takes those actions, we're there--we will have become Europe. The government will control the banking system, healthcare and will support all those retired people. The rest of the economy can remain capitalistic, but taxes will have to increase to pay for the aforementioned functions that will have fallen under government control.

I really hate to say what I did above, but I believe that to be the facts. Free market capitalism worked extremely well for the U.S. for 50-75 years. But either it's failure or some other perfect storm of conditions has resulted in our economy becoming so weakened and further threatened that there is no alternative except substantial government intervention.

President Bush said it today during his press conference. He said that supporting the $700 billion bailout ran completely contrary to his personal economic beliefs. He said, "...what else could I do when my economic team came to me and told me that unless we injected that huge amount of money into the banks, we'd be facing a depression even worse than in 1929".

I too have finally concluded that substantial government intervention is the only answer. I haven't arrived at any total amount or combination of uses that I feel comfortable with. But huge intervention seems to be the only economic tool left that holds a chance of reversing the economic slide and beginning the re-build of our economy. The scary thing to me is that I'm not even certain of that.

The longer term risk that we face is that Americans forget how well free-market capitalism worked for so long and become accepting of some form of quasi capitalistic-socialistic economic model, similar to what exists in Europe. If they don't forget, we can get back to the system we all know worked in 10-15 years. But if Americans forget and become comfortable and reliant on government's involvement in their lives, we can look at Europe and see what type of economy we will be living with.



Let us assume that you are correct in government spending (help us all if the govenment ever invades our life to the extent you have imagined in this post)...but for now please those of you who are knowledgeable about this, talk to the subject of accountability.

I simply see the government thus far spending money and throwing it into a deep pit. If the spending is correct, how do we INSURE we get what we pay for...recovery ?

[Guest]

They spent the first 350 billion and it did nothing. Now they want the second 350 billion and it will do nothing. Then they will grab the big enchilada to the tune of 1 trillion. When that does nothing what then? The treasury already said they have no idea where the first 350 billion went. Does that not disturb anyone here?

The economy is no worse now than it has been in the past and we always recovered rather quickly except when government got involved.

When you or I run into financial difficulties, we cut our budget, stop spending and try to earn more money. What does the congress do? They vote themselves a pay rise and start spending money like a drunken sailor on liberty. Does that sound like a good solution to you?

You all are treating this as though it’s never happened before. Go look our are history. This recession is NOTHING new. ALL economies go through recessions some worse than others and then recover. You are buying into their scare tactics lock stock and barrel.

I don’t have much more to say about this but mark my words. If congress gets their way, they will run our economy so far in the ditch it will be decades before we recover if ever and the blood will be on their hands and our grandchildren will pay the bill... trillions of it.

Here’s my message to congress. Balance your budget, stop spending money like crazed maniacs, cut a bit off income and cap gain taxes. You will see credit, consumer and business confidence and our economy come roaring back to life. Sure, it’s a conservative approach but it works every time.

[Guest]

I shared my thoughts with a couple of my old banking buddies. Here's the response I got from one of them. Actually, other than the timeline, it's pretty close to DK's response. To be honest, as scary as his scenario is, I find it hard to debate.

My short answer.

The core of your argument is...

"if we are to avoid permanent damage to our economy and a change in our way of life massive government intervention is needed."

I believe pretty much everyone now understands that "our way of life" over the past twenty years has been to maximize consumption through borrowing.

Everyone won under that scenario: lenders made fat profits; producers produced goods that consumers consumed; politicians collected taxes on the transactions, and consumers got a boost in their quality of life. But only for the short run.

Unfortunately, the underlying economic props of value creation did not exist. Eventually, the lenders balked and the bubble popped.

The carnage is visceral:

-Most lenders are bankrupt.
-Most borrowers have loans they cannot possibly repay.
-Producers of goods that consumers purchase are facing huge drops in their sales and have to lay off workers, making the problem even worse.
-Taxing entities are facing large declines in tax revenues and budget shortfalls and are forced to do the same things that businesses are doing--lay off workers and reduce services.

Overall, the consumer, who has been spending 105% of his income, has now throttled back to where it is estimated that he/she will be spending only 95% of his income and saving 5% or paying down debt. Their cutback in spending has resulted in a huge decline in GDP. But in time, maybe a long, long time, an economically healthy and ultimately desirable outcome might result. There will be huge amounts of pain in the interim. Our way of life will change. But hopefully only temporarily.

The Current Planned Response and The Expected Result

To have the government fill the gap with additional spending - trillions of $$.

In the short run, that's a practical solution. But it's nothing more than an extension of the circumstances that caused the problem in the first place.

The government is not spending the cash flow it is currently generating--it is borrowing it. That's been the case for almost a decade. Enough time to create a chokingly large national debt.

The trillions of dollars bailout would merely push the cycle out a couple of years "to preserve our way of life."

As the first borrowing balloon popped, so will the government borrowing bubble end. Lenders will balk. We'll be repeating all this again in a few years. Long before the economy has recovered and re-built itself. Americans do not have the self-discipline to change their way of life themselves. It will take the harsh discipline of economic forces to accomplish that.

At that point, with the economy, heavily dependent on government spending, the government will have three options, or a combination of the three:

-Let the value of the dollar sink to unprecedented levels and permit the resultant inflation to run its course.
-Default on it's debt.
-Cut spending in massive amounts.

So my feeling is--let's get on with it. We'll have a depression. Huge numbers of people will be out of work. Consumption will drop even further. Our way of life--the unsustainable way that we have become so accustomed to--will change decidedly. The economy will recover, but very, very slowly--taking a decade or more. But when we come out the other end, the country's "way of life" may be more sustainable. Our country's position in the world will change as the result. But that's simply the result of the mistakes we've made in the past. Sad, but unavoidable.

Some of us may see all this happen; others will be watching from another place. It'll take a long time, more than some of us have left.

[Guest]

I balk at any solution sponsored by Special Interest Groups (SIGs) when such solution seems to benefit only the SIG and not John Q. Public. The banking SIG has now run off with a large chunk of change. The Auto SIG is still circling around the money beast. Others are pummelling Congressfolk and their staffers - who are no smarter about what to do than anyone else - with: 1) we can make you look good to your constituents; and 2) don't forget who really butters your personal bread.

K, you made a highly astute comment with "Overall, the consumer, who has been spending 105% of his income, has now throttled back to where it is estimated that he/she will be spending only 95% of his income and saving 5% or paying down debt. Their cutback in spending has resulted in a huge decline in GDP. But in time, maybe a long, long time, an economically healthy and ultimately desirable outcome might result. There will be huge amounts of pain in the interim. Our way of life will change. But hopefully only temporarily."

Personal financial risk management has been sorely lacking, and that is one of many root causes to this economic dilemma. For some reason, people have lulled themselves into believing: 1) jobs last forever; 2) pay raises always occur; 3) there's always a new credit card which will let me flip the balance from my old card; 4) if I don't look, it will go away; 5) I am never responsible - it's always some other guy's fault; and 6) the government is mother, the government is father and these "parents" will always bail me out from my own stupidity, naievete and greed.

Government, through several decades of bowing to different SIGs at different times, has interfered with the economy so badly it's shameful. Government's manipulation of international trade policies (especially in giving most favored trade status to countries which routinely exploit labor) has ruined the domestic manufacturing base, especially at the small business level. Government's foreign aid policies, which in essence are government-to-government briberty to obtain allies, is appalling, especially when these foreign governments have SIGs of their own which lobby Congress. Again, more root causes which are not being corrected.

So, how will throwing another $350-900Billion on the short-term make anything better? The first $350Billion went away fast, and with almost no traceablilty.

We need to face the fact that stupid financial actions cause people to get hurt, that pain is part of the healing process (unfortunately), and that there will be more pain before we "get better." Government's sales pitch that it can just print and distribute more money to SIGs, and that will make the pain go away, is folly. It WILL make selected SIGs able to salvage some short-term protection, but that's all. You can't cure the illness by feeding the patient $1Trillion worth of placebos or economic morphine - the illness simply remains and will continue to consume the patient.

In spite of all of this, our Congress and the outgoing/incoming President is determined to "look powerful" to fearful voters despite itself. While I don't expect any guarantees, I do expects plans, accountability, public scrutiny via "Sunshine" and "Freedom of Information" laws, and protection from scurrilous folk. So far, we have had none, and none is in the pipeline. We have not gotten a "helping hand" from Government, but instead have only gotten "the finger!"

Where's our SIG?

[Guest]

K, you made a highly astute comment...

First, the statement you credited me with really wasn't mine. It was in a reply that I received from an old banking buddy of mine with whom I shared the question from this thread.

I'm getting what I intended in starting this thread...some thoughtful viewpoints from a few people. I intended the thread to be a non-political examination of the situation, the causes and the possible solutions. For the most part, that's how people responded and that's the way the dialog progressed. I think that's great.

Without any attempt to introduce politics into this thread, I suppose it needs to be noted at least that whatever economic solution is enacted by Congress, there's no doubt that there will be a political component or motivations that will underly their decisions. Further, I suppose that the SIG's you refer to will have some influence. There are simply too many of them represented on K Street to expect that not to happen.

I only hope that whatever happens remains close to the economic theory that holds the greatest chance of success--even if that means doing nothing. But I'm not holding my breath.

[Guest]

So the news starting to trickle in today is the credit crises (so called) may not be quite as bad as the government has been telling us all along and I’m starting to believe that the economy is not as bad as the media and government is leading us to believe.

Sure we have problems… some of them are big. But we’ve been through recessions before an NEVER did we need trillions of dollars for bail outs.

Unemployment is at 7.2% at the moment. They say it could go as high as 10% later this year. It’s been at 10% twice in the last 60 years and has never been lower than 3% in the last 60 years.

The average over the last 60 years hovers around 5 to 6%. That means 98% of workers today are still employed. We also know there will always be a certain % that is unemployed. As I stated, it’s never been lower than 3%.

The artificial bubble has burst in more areas than one. Now the economy is vetting and it needs to stabilize on its own without Washington creating another artificial bubble and putting or kids in debt to the tune of multi-trillions of dollars.

Freddie and Fannie were the ones that started most of this housing mess (that would be the government) and now we’re being told by the government they are the only way we will get out of this mess. I smell a huge rat.

Are we in a recession? Sure we are. Have we been there before? Sure we have. Have we recovered every time? Yes indeed.

I say no to the second 350 billion and even a bigger no to the next 1 trillion.

Our biggest problem is that consumers and employers have completely lost confidence. They haven’t lost confidence in America or themselves; they’ve lost confidence in our government and are scared to death what they are going to do next. That translates into stagnation which translates into a deeper recession. Everyone is holding back and rightly so.

The government is failing us miserably and we should not trust them with another dollar until they put themselves in check.

My question is who in government is going to step up and stop this madness? Is there not one left in Washington that has the brass to speak out, get angry and tell us the truth?

Another interesting read is the Declaration of Independence.

[Guest]

I say no to the second 350 billion and even a bigger no to the next 1 trillion.


I don't know how it gets fixed without more money, but an important key to getting the economy moving again is to get the banks lending. It's those loans that provide the leverage for significant growth to occur.

Basically, what we have now are banks that are undercapitalized, even with the $350 billion already pumped into the system. Because they are on the regulatory edge of required capital ratios, they cannot afford to make anything except the most "sure thing" (lowest risk) loans. Clearly, with these economic conditions there are virtually no corporate borrowers who represent no risk--I can't think of even one corporation who might want to borrow that we could call AAA right now.

In the end, what has to be done is that are large chunk of the "toxic assests" have to be somehow taken off the books of the banks. That would immediately improve their capital ratios immensely and almost certainly result in their accelerated lending. The profit motive would kick in and get them lending again. That might be a less expensive "stimulus" alternative than others being discussed. Those loans are already trading at pennies on the dollar--the banks have already written off a lot of the principal amount due--so the government could buy them really, really cheap. The government wouldn't even have to hire any people to manage the loans. Just pay the banks a modest fee for continuing to service the loans until they are collected or foreclosed on and liquidated.

Getting the banks lending again might be the first thing to do before anything else. That might be the cheapest lubricant to get the economy turning again. That won't make the public happy when they donlt get a tax reduction (that would be the second thing I'd do) or all the states and cities who are lining up at the trough to get government-funding for infrastructure projects. But all that may not be necessary until it's determined that just getting the banks lending isn't working.

The only problem with this idea is that banks don't vote in elections, so other than the American Banking Association's political contributions they aren't all that popular with the elected legislators..

[Guest]

On this point I may be a little naive but who is it the banks aren't lending to? I can get a home loan, second mortgage, car loan and all the credit cards I want. In fact I get more offers now. I know several small and medium business owners who's numbers are suffering as well but they aren't having any trouble with business loans, flooring, etc. Our company with 200 employees is doing great and is even hiring some folks. No credit problems there either.

Maybe the one's having trouble with financing are the ones that shouldn't be getting financing in the first place. Anyone I've talked to in recent months that has a decent credit rating can get loans including businesses. It's bad but I don't think its panic time. Like I said, we've been through this before and the market will work itself out. When has it ever not? The only time was the great depression and like now the government starting throwing money at the problem and it only prolonged it.

Funny how during the Reagan years the left was throwing a conniption over his 200 billion deficit. Now they want to lump trillions on it and they don’t even bat an eyelash. What’s wrong with this picture?

I still say a big fat no to any more bail outs.

[Guest]

Have a question for all you financial gurus...this is an area where I get lost...EXCEPT...my big concern is WHERE the money goes and how it is used.

I read today that President elect Obama wants a great deal of the new money to be used to bail out folks facing forclosures. Has anyone heard or what is opinions on WHO these folks are and how they are chosen ????

I know I sound very unsympathetic but I dont just want some line of folks waiting for a handout to save their home with no conditions whatsoever. If you feel that sounds harsh, I am sorry, but we have been regaled with stories of NO INCOME, NO ASSET mortgages....and the such. I frankly dont want those folks "saved" ! I type that and it looks harsh but that is how I feel !

[Guest]

Nothing occurs in DC that Special Interest Groups (SIGs), Political Action Committees (ACs) and industry lobbyists don't influence if not downright manage. That's the way of things, pure and simple. Congressfolk do not maintain cadres of subject matter experts, and so they tend to rely upon the "assistance" that SIGs, PACs and lobbyists provide in interpreting complex data. Ironically, the interpretations also tend to be slanted towards a position/solution which just happens to match the goals of the SIG, PAC or lobbyist preparing it.

While there may be no such thing as a fully-funded problem, throwing money onto a fire only results in a bigger glow from the flames, and nothing but ash and smoke afterwards. In my past businesses and my current endeavor, money wasn't committed without a demonstration of need which included at minimum: 1) a cost/benefit analysis, 2) specific targets and goals, 3) a profit potential including a cost curve, and 4) an independent review (sanity check) to insure we weren't snowing ourselves or missed something important. So far, ABSOLUTELY NONE of these things have come forward - just "gimmee gimmee gimmee." And Congress and the President gave - big time.

If many banks can't lend money because they don't have it to lend, that's probably a good thing. If certain bankers can't run their businesses under the existing laws, the choices are simple for them: 1) change careers, 2) get smarter, or 3) seek changes in the laws. The FDIC already "owns" a lot of banks because banks fail - just like other businesses. So far I haven't seen any bank executives liquidate any of their personal holdings (all made during the boom-town times, including some remarkable bonuses) to bolster their businesses.

Personally, I'd just as soon see these banks which gambled - yes, gambled - their assets without adequate protection close their doors. FDIC has sufficient authority to fix this situation, and that only makes the survivors stronger - just like other industries.

Yes, those with decent credit ratings can still get loans. Banks sell money today for more money tomorrow - that's what they do. If banks sell money today for little potential of getting more money tomorrow - that's their fault. Dumping $350-900Billion more cash into the "system" does not make the bankers any smarter in running their businesses, but provides them with the resources to cover their stupid decisions - and no protection to the country that they won't make the same dumb mistakes again.

Will any of the money buy smarter future decisions or just cover the losses of a SIG so that its members can breathe a sigh of relief? So far, we've been given no proof that this isn't just a hurry-hurry shell game to protect a select few at the expense of the many.

No money without a plan! I thought Banking 101 taught not to loan a dime without a comprehensive business plan. Where's this one? Shoudn't "We, the People" see one before opening the vault?

[Guest]

No money without a plan! I thought Banking 101 taught not to loan a dime without a comprehensive business plan.

I don't disagree with anything you've said. with one exception. It's impossible to create a business plan for an entire market. If additional funds were investd in banks, the government along with the bank could determine the effect on it's capital ratio. The margin over that minimum required to meet regulatory and soundness requirements could be measured. The amount of that margin could easily be calculated to determine how much in additional credit exposure each bank could take if creditworthy borrowers asked for credit.

It's that last part that's impossible to model. Some assumptions could be made--which as you and I both know are the basis for any business plan anyway--to assess how much additional bank credit capacity would be created by new government investments. But that's all any such plan would be--assumptions. Only reality would determine whether creditworthy borrowers would show up on the bank's doorsteps.

One thing I'm pretty sure of--prospective retail borrowers who want to borrow 110% of the value of their home, or who don't have an employment history showing that they can repay their loans, will not likely get beyond the bank guard at the front door. It won't be all that different with corporate borrowers. The little guy who needs a loan for his hardware store "just to make it until sales increase" can probably have coffee with the underfunded mortgage borrower.

You would have an argument that it's that type of corporate loan that has already been made to the auto companies and you'd be right. That could produce an argument that the next traunch of government stimulus money should go to all the little hardware store and botique owners across America with possibly better results on economic activity. But those folks wouldn't know a business plan if one jumped up and hit them in the face.

[Guest]

I don't disagree with anything you've said. with one exception. It's impossible to create a business plan for an entire market. If additional funds were investd in banks, the government along with the bank could determine the effect on it's capital ratio. The margin over that minimum required to meet regulatory and soundness requirements could be measured. The amount of that margin could easily be calculated to determine how much in additional credit exposure each bank could take if creditworthy borrowers asked for credit.

It's that last part that's impossible to model. Some assumptions could be made--which as you and I both know are the basis for any business plan anyway--to assess how much additional bank credit capacity would be created by new government investments. But that's all any such plan would be--assumptions. Only reality would determine whether creditworthy borrowers would show up on the bank's doorsteps.

One thing I'm pretty sure of--prospective retail borrowers who want to borrow 110% of the value of their home, or who don't have an employment history showing that they can repay their loans, will not likely get beyond the bank guard at the front door. It won't be all that different with corporate borrowers. The little guy who needs a loan for his hardware store "just to make it until sales increase" can probably have coffee with the underfunded mortgage borrower.

You would have an argument that it's that type of corporate loan that has already been made to the auto companies and you'd be right. That could produce an argument that the next traunch of government stimulus money should go to all the little hardware store and botique owners across America with possibly better results on economic activity. But those folks wouldn't know a business plan if one jumped up and hit them in the face.

The situations you describe are visible within The Villages. Case in point - the restaurants and other businesses that fold during the summer due to lack of proper capitalization to cover the slack periods.

As far as a business plan for an entire industry, I agree, since no one can identify who would act as the coordinator for it. However, those banks/companies,etc who are looking for funding should be able to individually prepare comprensive business plans which include as a minimum: 1) why the money is needed; 2) downstream distribution schedule; 3) repayment schedule; and 4) protection to the provider. if they can't do that, they should not "feed from the trough" because they are too flaky.

I would like to think that the experiences which spawned this mess have resulted in sufficient data to prepare financial actuarial tables which can serve as the basis for loan origination decision algorithms that can keep banks "in the black." Without decent tools for decision-making, we're destined to never get off this merry-go-round. And one would hope that all future loans which involve bailout moneys are contingent upon positive algorithm scores. If that's not the case, then it is all just a crap game.

[Guest]

Fox and Friends had a pundit on this am who had this idea to "stimulate" the economy.... eliminate all Federal personal income tax for 6 months... his assumption was that people would use that money to "buy things" which would start the wheels turning to stimulate recovery. The cost would be roughly equal to the 3-4 hundred billion blank check Obama went pleading for on The Hill. At least it eliminates the "special interests" from getting the $$$.

[Guest]

... eliminate all Federal personal income tax for 6 months... his assumption was that people would use that money to "buy things" which would start the wheels turning to stimulate recovery.

Only two problems with that idea...

--There's no assurance that the public would actually buy things that would create demand, production and more jobs. They didn't with the 2008 tax rebate money, they saved most of it. If they used a lot of it to save or pay down debt, no stimulus would occur. Basically, too much risk that the public wouldn't do what would actually stimulate the economy--spend on goods.

--The second reason is actually the basis for why the public may not spend on the right things discussed above. A temporary tax reduction violates a tried-and-true economic theory for which Milton Friedman won a Nobel Prize. Friedman, who was a reknown expert in consumption theory, proved that consumption patterns would not change substantially unless consumers had the confidence that their income levels would be relatively permanent. From a theoretical perspective--well proven but yet theoretical--a six month vacation from income taxes would not be expected to result in consumption changes that would be beneficial in stimulating the economy in the long term.

[Guest]

Even though there are fewer participants in this thread than I had hoped for, I think we can see that this isn't an easy choice.

--No stimulus probably means a prolonged and deepened recession or even a depression.

--A short term tax reduction aren't likely to produce the desired results.

--There will be huge debates over who should get the tax breaks. Extension of the "Bush tax reductions" would place more money in the hands of the wealthiest Americans, who probably couldn't or wouldn't use the money for consumption. The argument has always been that the wealthy would "invest". But the amount they could invest in this economic scenario would be like peeing into a hurricane. Consumption is what's needed, not investment. The best place to "spend" the tax reductions would be on the middle class, who likely will increase their consumption. Those with low incomes aren't really a big problem in the debate because they pay little if any taxes anyway. But it will be a battle in Congress because they will want to "fund" part of the middle class tax reduction with increased taxes from the wealthy when the Bush tax cuts are eliminated.

--They talk about "shovel ready" public works projects. There is nowhere near enough stimulus money being discussed to even begin to fund the projects that the cities and states want. This will be a huge political dogfight.

--Then in only a couple of months the auto industry bailout will rear it's ugly head again.That's almost a certainty.

--And as was discussed above, the banks still aren't lending. That's not going to happen without some sort of stimulus.

--Any combination of stimulus plans are certain to saddle our children, grandchildren and probably great-grandchildren with enough debt that even that many generations might not be able to pay it down.

This battle is going to be more interesting to watch than a weekend of non-stop WWE wrestling. The only problem is that we all have a dog in the fight. A couple of dogs maybe. And certainly many of the younger generations in our families.

[Guest]

There are so many problem with our economy that it is difficult to say where to start. It took a long time getting here and it will take a long time to fix. There are several problems that have to be solved to get this country back on track. I would suggest this priority, but would accept them fixing any one to start. And I would force as much as possible into the private sector and limit government involvement as much as humanly possible.

Energy. We can't keep sending 100's of billions to the mid east and maintain the life style we have. We need to stimulate that sector of our economy by providing many more options. And ALL types of energy need to enhanced. That mean more domestic oil, more nuclear plants, wind, solar, tides, coal, oil shale, hydrogen, bio-fuels, and any other that gets identified. Set a goal of 10% reduction of current imports every year, tax any beyond that heavily, use the income to in-cent domestic production, and be completely energy independent in 10 years. Difficult? Yes, Possible, also yes.

Housing. This was the largest contributor that got us into the financial mess we are in and must now resolve. Keep interest rates low for the next 36 months and then let the free market take over. Set a cap on all existing home loans of 5% for the next 60 months. Provide an incentive, probably no tax on the interest for a period of 10 years, for those home owners willing to provide seller financing on the sale of their primary residence. This could apply to the down payment or some % of it. Let the government buy mortgage back securities, only those currently out there, no new loans, and set interest rates on those loans at a prime plus 2% until all are cleared. Once a property is sold or defaults, goes out of the program.

Immigration. Step one, secure the boarders. It does no good to implement any fix in this area until we stop the problem from growing. Then give everyone here a fixed amount of time, maybe 3 years, to become a tax paying citizen, or they will be deported. Allow guest workers with a time frame and tracking method, maybe ankle bracelets, as required to solve seasonal labor requirements. BUT this program is only allowed when unemployment is below 5%. Any time it goes above that level it stops.

Taxes. Lower taxes cause tax revenues to increase. Proved many times over. However there are better tax systems then what we currently have in place. A flat tax, or a national sales tax, some way to collect revenue on all money spent. Even if it has higher % for different income levels as long as it's fixed and defined and any % increase only applies to the higher amounts. Some will suggest that's what we have today, but we really don't. Lower to no capital gains tax on domestic companies for the next 5 years. See how fast people invest in the US then.

There are many more problems that need action, but focus all resources on fixing these 4 and most everything else will fall into place. If you notice a common theme to these, good observation. Defined goals, limited government, sunset time frames. And all of these will cost far less then the current suggested spending plans. Delay all other government spending except for security related items. Nothing works and our economy will implode if we have another major terrorist hit. Imagine a large US city being hit with a nuclear bomb. 9/11 cost 100's of billions, a city eliminated would bankrupt this country overnight.

[Guest]

There are so many problem with our economy that it is difficult to say where to start. It took a long time getting here and it will take a long time to fix. There are several problems that have to be solved to get this country back on track. I would suggest this priority, but would accept them fixing any one to start. And I would force as much as possible into the private sector and limit government involvement as much as humanly possible.

Energy. We can't keep sending 100's of billions to the mid east and maintain the life style we have. We need to stimulate that sector of our economy by providing many more options. And ALL types of energy need to enhanced. That mean more domestic oil, more nuclear plants, wind, solar, tides, coal, oil shale, hydrogen, bio-fuels, and any other that gets identified. Set a goal of 10% reduction of current imports every year, tax any beyond that heavily, use the income to in-cent domestic production, and be completely energy independent in 10 years. Difficult? Yes, Possible, also yes.

Housing. This was the largest contributor that got us into the financial mess we are in and must now resolve. Keep interest rates low for the next 36 months and then let the free market take over. Set a cap on all existing home loans of 5% for the next 60 months. Provide an incentive, probably no tax on the interest for a period of 10 years, for those home owners willing to provide seller financing on the sale of their primary residence. This could apply to the down payment or some % of it. Let the government buy mortgage back securities, only those currently out there, no new loans, and set interest rates on those loans at a prime plus 2% until all are cleared. Once a property is sold or defaults, goes out of the program.

Immigration. Step one, secure the boarders. It does no good to implement any fix in this area until we stop the problem from growing. Then give everyone here a fixed amount of time, maybe 3 years, to become a tax paying citizen, or they will be deported. Allow guest workers with a time frame and tracking method, maybe ankle bracelets, as required to solve seasonal labor requirements. BUT this program is only allowed when unemployment is below 5%. Any time it goes above that level it stops.

Taxes. Lower taxes cause tax revenues to increase. Proved many times over. However there are better tax systems then what we currently have in place. A flat tax, or a national sales tax, some way to collect revenue on all money spent. Even if it has higher % for different income levels as long as it's fixed and defined and any % increase only applies to the higher amounts. Some will suggest that's what we have today, but we really don't. Lower to no capital gains tax on domestic companies for the next 5 years. See how fast people invest in the US then.

There are many more problems that need action, but focus all resources on fixing these 4 and most everything else will fall into place. If you notice a common theme to these, good observation. Defined goals, limited government, sunset time frames. And all of these will cost far less then the current suggested spending plans. Delay all other government spending except for security related items. Nothing works and our economy will implode if we have another major terrorist hit. Imagine a large US city being hit with a nuclear bomb. 9/11 cost 100's of billions, a city eliminated would bankrupt this country overnight.You forgot health care. Not surprisingly it has slipped to the back burner. Our current system is too expensive, inefficient, profit driven and horribly fragmented.