Saturday, January 26, 2008

This is Their Best Economic Stimulus Package?

So the president, congress, and the senate are all close to agreeing on an economic stimulus package. There is one thing you can know for certain. If they all agree, we all are about to get screwed. The idea they have concocted makes no sense of course.

If I got the basic outline of what is being proposed it is this. They are going to send everybody in the middle class to poor income brackets. As I understand it, there are figures being thrown around of anywhere between $300 and $600 per working family member, and maybe a little more if you have a kid or two. They are also going to make available a bunch of money for business. The idea is they will put money into the hands of people who will spend it right away. When they spend it, it will create economic flow and get the system started again. Business will see an increased need to expand, and they will hire more people. This in turn will generate more cash for people to put back into the system.

Great!! The concept seems right on paper. Here is the problem. The reason for the economic woes of today is that Americans are in debt over their heads. Thus the sub-prime loans catastrophe, bankruptcy and foreclosure problems, and credit card debt situations. economically stated 80% of America's individual families have a net worth ratio of less then 1. Simply stated, the average family owes more money then they have guaranteed. If the bank they owe loans to, credit card companies, and mortgage companies all called in their debts today, 80% of Americans couldn't meet their obligations.

So, if they are given $1200 extra dollars back in taxes, the smart ones will pay down their credit cards, car loans, or apply and/or save it for their mortgage. The not as economically aware will spend it on A) actually keeping up with their monthly obligations and B) on one big purchase that they will probably put half of it on credit. Two months after the refund the problem will still exist. It is the system that is broke, not the contents that flows through it. This is kind of like adding transmission fluid to your leaky car. In the end there will still be a pooling of money in the wealthiest pockets.

The problem with giving money to business is that congress has had a problem with controlling that money in a way that is healthy for the economy. As an example I offer the SUV loophole. For years a tax exemption called “rapid deduction” existed in the business tax laws. This allowed business who bought a vehicle weighing more then 80,000 pounds to rapidly deduct up to $10,000 a year. The idea was to spur business growth by allowing companies to buy dump trucks, semis, and other work type trucks. However with the introduction of the SUV and the Heavy duty personal pick-up trucks made vehicles that fit that bill. Under the republican legislators and the current administration that loophole was increased to $100,000. That made it possible for a person who owns a small plumbing company to buy a SUV like a Hummer and claim it was for business use. They would effectively get a free Hummer. Another control gap also exists. Those that start business often get product from overseas or employ illegal immigrants. This stipends the impact of money injected through trickle down economics.

So I will gladly cash my extra $1200, but it will go to pay for outstanding medicals bills from my daughters birth, pay some credit debt, and save for the future shortcomings. No new money will enter the system from me. So what are our brilliant leaders going to do to fix the system? By the way, does anybody know where this extra money is going to come from?




“The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.” - Thomas Sowell

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