Understanding the Economy

We are in a recession. The housing market has faltered. The banking system is hoarding funds. Jobs are being lost.

 

What can be done?

 

Right now, it appears there are two choices: lower taxes or the government steps-in and spends money. Which is it? Let's explore... Ahhh... wait a minute... before we begin... whenever given any task, it is important to define the goal or objective: to understand how we define success.

I suggest everyone go here:

www.dictionary.comhttp://dictionary.reference.com/browse/economy

Did you READ the definitions? Let me share some of them:

1. Economy: the prosperity or earnings of a place: Further inflation would endanger the national economy seriously.
2. Economy: the efficient, sparing, or concise use of something: an economy of effort; an economy of movement.
3. Economy: the management of the resources of a community, country, etc., esp. with a view to its productivity.
4. Economy: thrifty management; frugality in the expenditure or consumption of money, materials, etc.

What I don't see listed in the dictionary reference to the term economy is what I believe most people mean: the complex relationships intertwined in business and government interaction that either results in overall prosperity or overall depression. Let's be clear. Don't we all want the "economy" to mean that - overall - people are most able to be prosperous?

I listened to President Obama as he he urged the Senate to pass the Stimulus Bill. Here are some of his comments:

• 

• "If nothing is done, this recession might linger for years."
• "Our economy will lose 5 million more jobs."
• "Unemployment will approach double digits."
• "Our nation will sink deeper into a crisis that, at some point, we may not able to reverse."
• "That's why I feel such a sense of urgency about the recovery plan before Congress, the Action Americans Need."

I ask you (the reader) to consider, "How many decisions are 'good' decisions, the 'right' decisions, when people are urged not to think, not to take time to give any issue proper considerations, and are asked simply to support the decision?"

I have learned two very important rules over time and they apply everywhere:

1. Anyone who tries to solve a problem by simply "writing a check" is simply funding an idea with no direction. There is no guarantee of results, but there are very high odds that the money is NOT well spent. So, the rule is: Beware of anyone, anywhere, at anytime, who claims any problem will be resolved simply by "writing a check."
2. Panic is bad. Whether you arrive at an accident scene and lives are in danger, or whether you manage a business in a seemingly perilous position, or whether you are a government official facing a crisis... no matter what scenario, a poor approach involves panic. It is always better to be calm, collective, reserved, and to take the time to assess and evaluate in order to form a prudent and wise decision.

So before going deep into analysis, I have to say that I am disturbed. I am disturbed that we are "urged" to stop thinking and support a $900+ billion dollar bill (simply writing a check does not work). I am disturbed that nearly every definition of an economy involves frugality and the "wise" or efficient use of resources. Where did anyone get the idea that confiscating tomorrow's money today (from taxpayers) and spending it willy-nilly will result in a prosperous economy?

Now, it is time to explain, to define why Obama's plan is destined to fail (it has zero chance to boost the economy).

First, when Obama suggests that he is only spending $800 billion, he is understating the amount. The government is already spending more than they receive; they are in deficit spending now. In order to spend more money, they must borrow the money. It is like a consumer buying a car via a loan and telling you that it only costs $10,000. They neglect to include the interest. In the end, the car may cost $15,000+ after interest. $800 billion in spending today is simply going to cost much more... more like $1.2+ trillion!

This is important. The government "spending" option immediately involves added cost.

If the government were operating at a surplus (they took in more than they spent), then there would not be added cost and they would be freeing capital. If businesses and individuals were hoarding money, if savings accounts were building, if - essentially - people were holding their money back in fear of a bad economy, then government spending might change the "psychology" of the market and induce people to free their capital to better the economy. However, this is not the case.

Obama has repeatedly bashed former President Bush and has let everyone know, in no uncertain terms, that the economy faltered under Bush; therefore, all his policies were bad for the economy. In particular, Obama highlights George Bush's tax cuts. I ask, this:

If you have a business and the government cuts your taxes, how does that cause your business to decline?

How does any single person buy that argument? It is complete nonsense! While it is true that the economy faltered under Bush, it is not due to tax cuts. So, what did happen? Perhaps, it is because government grew massively under Bush? How about the idea that tax rates mean nothing if government spends the money anyway? The only difference is that government essentially issued credit cards in the name of taxpayers to compensate for the lower tax rates.  How about the idea that government is supposed to ensure that business transactions and the overall business environment is safe, secure, and managed well. Instead, government actually ordered Fanny-Mae  and Freddie-Mac to give loans to those who could not afford loans. How about government getting rid of usury laws allowing credit cards companies to gouge consumers? How about "mandatory arbitration" clauses in contracts so consumers get screwed. How about government allowing executives to run banks to the ground and they fix the problem by handing them billions of our money?

We are being taught that businesses are "evil". We are taught to hate the "rich". Let me ask this to test your business acumen, "If a corporation earns a profit, what does that mean to the owners or stockholders, or better yet what can the corporation do with the money?"

The answer:

A corporation can only do this with profits:

1. Buy property, plant, equipment or other items; they can "buy stuff"
2. Give employees raises
3. Hire new employees
4. Invest the money (which just goes to another business)
5. Pay dividends

That is it, but why is this important? Well, I ask people if Microsoft earned $100 million dollars, how much can Bill Gates spend for his personal use? The answer is ZERO!

Microsoft would have to issue a dividend (a payment to stockholders)  or Bill Gates would have to sell shares of his stock. Dividends are TAXED! Wages are TAXED! Selling stock is TAXED!

So, why is there a "corporate tax"? Think about it. A corporation can only buy stuff which drives the economy and adds jobs, or they can pay employees more, or they can hire employees, or they can invest which provides to other businesses and individuals. In other words, lowering the corporate tax (what Bush failed to do) can only drive the economy. If corporate taxes were lowered, it could have no other effect than boost the economy.

So, why is Obama so against lowering corporate taxes? Why? Why? Why?

It is simple. You KNOW the answer. It means the money goes STRAIGHT to businesses. It avoids government involvement. Obama wants POWER! If, instead of lowering corporate tax, they "spend" the money, what happens?

The money goes to Obama, not business. Businesses then must line-up outside the White house door to beg for their share. Look at the Bank Bailout. What happened? Bank executives lined up and streamed inside to "beg" for some money. This is the real goal. It is not to feed the hungry, boost the economy, save the nation, or any other line that will convince you of his deepest support for your needs. Look at the Stimulus Bill. Read it!

It pays off his political supporters. It does not get spent anytime soon. In other words, it is NOT a stimulus bill. It spends some now and most later. More importantly, it is simply PORK! LOTS OF PORK! Nearly ALL PORK! It is a PONZI scheme! In fact, what is the difference between Bernard Madoff and Barack Obama?

Bernard Madoff convinced people to give him money with the promise to make them money. He knew better. He knew he was scheming. He knew that what he really wanted was their money!

Barack Obama is either a complete idiot, a moron, the dumbest individual on the planet, OR...

Barack Obama knows he is feeding you rhetoric. He knows that he could "do the right thing" (I.e. lower corporate taxes and not spend unwisely), but that doesn't divert the money into his arena, his world... the world of forming special relationships and living the good life off of our tax payer money. 

Bernard Madoff only ripped-off investors for $50 billion... if you support Obama and his Ponzi scheme, he is just beginning with $900+ billion.

When is our country going to wake up? If you are a Barack supporter, when will you look at what he does and not what he says? If anything like the current bill passes, our economy will decline, we will have the Jimmy Carter era all over again, and, God Help Us, we may actually experience another depression. The only good from this may be that Americans wake up and stop accepting phony speeches and start demanding results, common sense, and someone with a history of success before voting them in as President.

Are you still possibly a Barack supporter? Didn't you hear him during his election campaign? Didn't he say he would go "line-by-line" through the government budget to keep what is good and eliminate the bad? Are you one of those who watched the movie Dave and thought Barack would be the real-life equivalent? Do you still believe that?

Hmmm?

Answer this: Why is it that the "line-by-line" items in the "stimulus bill" are, hands down, the most egregious, offensive, and disgusting pile of stinking pork in the history of the United States that totals more than all stimulus bills ever signed combined? Add up all the stimulus bills from the depression, to the sixties, the seventies, and onwards. This single bill (adjusted for inflations) is MORE than all of them combined! It is not the dollar amount that is so bad, it is where they actually plan to spend the money. Hello? Is anybody awake out there?

 

References:

http://news.xinhuanet.com/english/2009-02/06/content_10770840.htm