Obama's Stimulus: in the end, a disappointment that will make matters worse.

(Actual picture of a woman heating her home with a wheelbarrow of Deutschmarks. The German financial collapse that precipitated WW2)

When the new White House first let glimpses of the Stimulus Plan out to the media, I was cautiously optimistic: the cornerstone appeared to be tax cuts and spending on infrastructure. Tax cuts always help (if they are across the board and accompanied by spending cuts); investing in infrastructure is a tool that has long-term benefits and payoffs in terms of more efficient movement of goods and services throughout the economy.

My hopes have faded into nothing. Less than 5% of the bill is for highways and bridges

What has emerged is a free-spending "give-away" that will cause more harm than good. The $800-$900 billion spending pacakge will actually cost an additional 347 billion in interest alone according to the Congressional Budget Office.

The largest single chunk of these funds - $252 billion - is for "transfer payments" - $81 billion for Medicaid, $36 billion for expanded unemployment benefits, $20 billion for food stamps, and $83 billion for the earned income credit for people who don't pay income tax. While this may sound "good" because it helps poor people who are struggling, it is still a one-time dumping of money that is not going to create jobs, increase employment, or ramp up our GDP. Bush tried thsi twice with no effect.

You may argue that in this economy, helping those in need is a worthy end in itself: but at what cost? Obama claims that 95% of Americans will get a tax cut as a result of this Stimulus Package. But the reality is that we are not getting free money from the government: we will be getting money that the US Government is going to borrow, and then we will have to pay it back with interest. In other words, Uncle Sam is forcing us to take out a loan, and forcing us to repay it, whether we like it or not. It is not a give-away, although it will appear that way.

We are not in a Liquidity (credit) Crisis. We are in an Over-Indebtedness Crisis, which has resulted in a liquidity problems, and this will exacerbate the problem. How many times can you shore up a collapsing dock with duct tape and baling wire before the entire structure collapses?

When inflation hits - and it will - we will be in worse shape than ever. If losing 40% of your 401K is bad (which is what happened to many of us in the last year), think how bad it will be when those funds can't even cover the cost of a used car.

Spending vs. Saving: Washington's attempt to cure a Hangover with more Booze

The current economic recovery proposal before Congress is a mixed bag, and attempts to use Reagan's formula: marry Supply-Side tools (which appeals to Republicans) with Fiscal Policy Tools (appealing to Democrats) in order to forge a grand coalition to pass the legislation.

Fiscal Policy liberals have traditionally relied on spending borrowed government money like a drunken sailor. The idea is that if the government spends money on projects, it will employ people, putting money into their hands, and enabling them to purchase goods...which in turns increases factory orders, and increases employment. The problem with this, of course, is that when government borrows money, it borrows from HUGE institutions that have HUGE amounts of dollars to lend: Credit Suisse, Lloyds of London, China, the House of Saud, and other wealty entities. As American citizens pay the interest on these borrowed funds (now amounting to 20 to 25 cents per tax dollar paid), we transfer our wealth from the American citizens to these huge institutions.

Supply Siders have traditionally felt that the way to stimulate the economy is to help businesses directly, the notion being that these businesses can then afford to hire people, pay them, and kick-start the economy from the business side.

Thus, investing in infrastructure improvements appeals to both sides: Fiscal Dems love spending money on projects, and Supply Side Reps like making the transportation of goods and services less expensive for business. Hence, Obama's initiative in investing in Infrastructure.

Meanwhile, both sides are negotiating tax cuts, tax rebates, and money giveaways for consumers and small businesses.

Now...I am 100% in favor of tax cuts, too. But the problem here is that Washington is favoring tax cuts for all the wrong reasons.

Current thought is that if "the people" have more of their own money, they will spend it freely, thus stimulating the economy. But this is like attempting to cure a hangover by encouraging the drunk to drink more alcohol: yes, it may deaden the pain, but it doesnt cure the problem, and in fact, only makes it worse.

For years, "savings" has been a dirty word to Fiscal Keynesians. In fact, in economic jargon, they call savings "leakage," because it represents buying power that 'leaks' from the economy.

Let me suggest that one of the root causes of our current problems is the attitude that consumers must buy more, more, more and not save.

Consumers, with the encouragement of Washington politicians and the Federal Reserve, have purchased homes and cars on credit, with reckless disregard to their ability to repay. During the recent credit crunch, a spokesman for Detroit actually cried, "People can't get loans to finance cars!"

And just when did the ability to get a loan become an inalienable right?!

People have bought beyond their means, used credit unwisely, and bought into the 'buy-buy-buy' notion. The average American now spends more than they earn each year.

Yes, we are in a recession. Yes, it is deep, and will get deeper still. Yes, it's going to hurt. But it's not unprecedented: we have had 26 recessions in the last 150years. It is a naural downturn in the business cycle. Rather than insisting that Americans continue to drink at the well of non-stop consumption, it is time for us to bear the hangover and come out stronger.

It is time to begin saving again for our futures.
Time to increase pre-tax 401 K contribution limits.
Time to make Pre-Tax Medical Savings Accounts available to ALL Americans, not just the self-employed and government workers;
Time to value savings and individual nest-eggs over constantly spending and then asking the government for help when the funds run out.

"Bad Bank?" Bad Idea.

SCENARIO 1: I tell my son that if he washes the car, he can use it on the weekend. Will he be more or less likely to wash the car?

SCENARIO 2: I tell my son that he can NOT use the car unless he washes it first. He never washes it because he gets wrapped up in video games. So, I wash it for him, and then hand him the keys and tell him he can use it since it's clean. What lesson is learned there?

People respond to incentives, and people generally prefer to pass burdens on to others if they can get away with it. Why are these simple economic lessons so difficult for our thick-skulled politicians to understand?

On Wednesday, U.S. Treasury Secretary-designate Timothy Geithner suggested creating a so-called "bad bank" which would buy nonperforming loans. This bank would buy the worst loans that banks made, infusing cash into those banks (thus rewarding the financially wicked) and taking ownership of non- and under-performing real estate loans. Most estimates are certain that this will be a net cost to the taxpayers, with some estimates to the tune of $3 trillion to $4 trillion.

So, if I get this right, Banks made insane loans to non-credit-worthy people, lied about asssessed valuations, and engaged infraud; and then, sold them to other reckless banks in a grand game of hot potato. Speculators in the financial industry played the game, and many got caught with an awful lot of bad loans.

Geithner's proposed response? Let taxpayers absorb that loss, and give the banks a 'free ride.'

How is this different than Scenario 2 above?

This proposal permits banks and financial institutions to walk away from their own misdeeds, and pass the full burden on to innocent taxpayers. Instead, we should consider the OPPOSITE approach: Require banks to hold the loans that they make.

Suddenly, it will become very apparent who the prudent investors and lenders are, and who is out to play Roulette with taxpayer money. If Banks are forced to bear the burden - and enjoy the success - of their own practices, it will be a long time before we see a repeat of the current debacle.

San Francisco Wrong to Tax Roman Catholic Church

In San Francisco, Tax Assessor Phil Ting has decided that the Roman Catholic Church owes over 15 Million dollars in taxes because the Archdiocese was restructured and consolidated a number of properties seven months ago. Each of the properties was technically incorporated seperately, as would be expected when a Church operates schools, family centers, day cares, hospitals, monestaries, church buildings, etc. Since, claims Ting, this consolidation involved the transfer of "separate legal entities," a real estate transfer tax applies.
Nonsense.

There are those, of course, who are cheering: anyone who has an axe to grind with the Roman Catholic Church is applauding the fact that San Francisco is going to 'take the churches money:' many gay activists mad at the Church's support of Proposition 8, those who have left the RC Church because the Church did not bend their theology to their own ideas, those who dislike "organized" religion, those with an imaginary view of history and RC atrocities somewhere in the past, those burned by the clergy sex abuse scandals. But disliking an institution is not an appopriate basis for deciding to use the coercive force of government to confiscate its assets via taxation.

Ironically, this flies in the face of a recent court decison in the same state.

On January 5, the California Supreme Court ruled that breakaway Episcopal parishes do not have the right to keep church property if they secede from the national denomination; they held, quite strongly, that all the various properties of the Episcopal Church belong to the national Episcopal Church, not the local congregation.

This was an appropriate ruling, as the Episcopal Church - like the Methodist, Orthodox, and Roman Catholic Churches - is, in fact, "Episcopal" in government, meaning that the local congregation is really an administrative unit of the National Church. If a local congregation secedes, they can not take the church building or property with them. (This is the opposite of "baptist" and "Bible" Churches, which hold that the ultimate authority resides in local congregations.)

So here is the incredible - and disingenuous - contradiction:

On the one hand, the California Court has stated that all Church Property belongs to the Larger Church when that Church has an episcopal governing structure.

On the other hand, the City of San Francisco (or at least Assessor Ting) has stated that all of the units under the administration of an episcopal-governed Church are independent, so any 'consolidation' is a transfer of real estate from one entity to another, and, therefore, taxable.

These positions are mutually exclusive. It's one or the other, and the California Supreme Court has spoken.

As usual, Liberals are being inconsistent: they are cheering the decision in the Episcopal Church case, because it helps liberals within the Episcopal Church structure. But they are also cheering the San Francisco action, because it gets the 'big bad ctaholic church' (Isn't that the church that operates more hospitals, orphanages, and aid services than any other in the world? Oh, yeah...)

In other words, the sides being chosen in the battles are based on who people want to win, rather than what is good law.

The Episcopal Church case is correct, and good solid law with much precedent behind it. The San Francisco action is a raw abuse of government power.

Perhaps thats why non-profit organizations - such as churches - are not normally taxed in the first place: the power to tax is the power to destroy, and once government has 'authority,' it uses it UNEQUALLY to punish those it dislikes and favor those who are its friends.

There are those who support taxing the Roman Catholic Church because of its supposed 'political involvement' in conservative ballot issues. I wonder if these same persons would support revoking non-profit tax status for all of the churches that ran the civil rights marches in the 1960s....or revoking the tax status of HIV Service agencies who reguarly lobby for an increase in federal funding?

Best to keep the arms of government taxation far away, and not let them near non-profits of *any* kind.