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Thursday, February 19, 2009

Stupid Mismanagement I, Terrible Asset Reallocation Program, Porkulus II, Bailout for Buttheads (aka the 275B Housing Bailout), Porkulus III, etc.

As we approach the next set of attempts made by the federal government to "fix" the economy, I have a little food for thought.

Before I go on:
1) No, I'm not heartless.
2) I grasp the concept that there may be many things in the economy I have not been told or do not understand.

Before you go on:
1) I am very concerned about the amount of taxes we will have to pay to get out from the pile of debt we're accumulating.
2) The "rich" cannot possibly be expected to pay for all this. If we try to make them pay for all these problems, they will leave. Where will they go? When you have a lot of money and have a history of creating a lot of jobs, there are many countries that like you and would love to find a way to make you happy.
3) This is nothing more than simple math.

On to the list (I left the zeros to emphasize how big these numbers are).
Population of the US: 299,398,485 (as of 2006 estimates), but since most under 18 depend on their parents, we'll use the number 225,746,457, which represents those who are 18 years or older. All figures are based on the 18+ number.
Bush's Stimulus - 168,000,000,000.00 - 561.13 per person
TARP - 700,000,000,000.00 - 2,338.02 per person
Obama's Stimulus - 787,000,000,000.00 - 2,628.60 per person
Housing Bailout (coming soon) - 275,000,000,000.00 - 918.51 per person.

Just talking about those four big bailouts, we're already at 6,446.26 per person. If you are married, those four bailouts could have been sent to you in check form for almost 13,000 instead of the 1,200 you did receive.

Now I'd like to take you on another journey. But this journey is much longer than the last one. In the interest of time and boredom, I'm going to give you the Cliffs Notes version. If you add in all the other amounts that the Federal Government has given out in the last year, each person could have received a check for 33,919.01. A household with two people who are 18+ would have received 67,838.02. Instead of giving money to failing businesses and pet projects, each person in the United States (18+) could have received 33,919.01.

First, let's temporarily ignore the obvious issue of inflation. Based on anecdotal evidence, I don't believe I'm the only one that is.

Let's say you give everyone the 33,000 listed above:

How many people would go out and pay off their credit card debt? Those that do, decrease the amount of money that has to be retired by credit card companies because it is uncollectible. This raises earnings and makes credit card companies more profitable. Individuals' credit ratings improve.

How many people increase their savings? By increasing the amount of money in savings, banks have more money to loan. By deciding to loan more money, small, medium, and large businesses are able to borrow money and expand, creating jobs. Individuals are able to borrow money, increasing the demand for housing.

How many people will catch up on their mortgage? By becoming current on their mortgage, banks will not have to take write-offs on their loans because they are uncollectible. This increases the profitability of the banks.

How many people buy a new car? GM, Chrysler, Ford, Toyota, Honda, etc. all have great years.

How many people buy stock?

How quickly does the economy recover?

Of course, this brings back to the question of inflation, which I will no longer ignore even if everyone else does. After you give everybody this money, many will spend it. Increased demand for manufactured goods increases costs. After a long economic story (which many would find boring so I'm skipping it), you have a bottle of Mt. Dew that costs $2 instead of $1. Your new car costs $40,000 instead of $25,000. You have to pay taxes to make up for the deficit that was caused by the check you received.

Of course, we've already given this money out. The remaining question is are you ready?

Are you ready for your $2 bottles of Coke ($12 at a ballgame)?
Will $8 for a gallon of gas (or $14 in California) be outrageous?
Will you mind having a tax rate of 98% like Great Britain had in 1974 (yes - this was the marginal rate for 750,000 Britons) to make up for the 'disastrous economy'?

Whether this is as bad as 1930 is debatable. All those trying to sell something will tell you how awful it is today. Those who are just looking at the numbers will tell you it's more comparable to the 1970's and 1980's - bad, just not that bad.

But at this point that doesn't matter. Our current spending has been astounding. Unless the economy recovers quickly, we will continue to spend preposterous sums of money. Soon, the only question that will remain is how much will I have to "pay back" in taxes for all the "gifts" my government gives to others? How much will my children have to pay? Will there even be a country left for my great grandchildren, or will China purchase enough of our debt that we'll be the People's Republic of America?

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