(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.
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