Welcome to my blog where I discuss money, investing, politics, and anything else import in the world. I find it surprising that most people in their 30s have very little knowledge or interest in these areas. Of course everyone is interested in money, but very few take the time or have the discipline to properly save and invest it for the future or short term. For those who at least have the interest, I'll write about my experiences and methods of investing, and hopefully give you a head start in investing.

Wednesday, March 4, 2009

Government Stimulus Package #2

This is not an efficient stimulus package. Obama and the rest of the democrats have already demonstrated to not know what they are doing with his recent comments saying something like “I don’t understand all these complaints about the spending in the stimulus package. What do you think a stimulus package is?” So he basically admits that he believes stimulus = government spending. Stimulus will cost the Government money, but it should not be in the form of welfare. Most of the spending is welfare one way or the other to specific industries and the problem is that is only a short term fix. The stimulus package should be incentivising people and companies to create jobs and invest. It should be cleaning up the financial issues weighing down companies, banks, and individuals, which would allow them to invest in new ideas, start companies, and buy houses.

There should be no spending on education, defense, and agriculture in a stimulus plan. These are all examples where congress is trying to funnel money to their constituents. These areas might need funding, but not as part of this bill. It should come out of the normal operating budget.

In addition, all stimulus should be effective in 2009, not 2010-2012, as much of it is. Giving everyone tax breaks that amounts up to $800 is another band aid that was tried last year with no long term success. Instead, cut taxes on companies and small businesses. Allow them to depreciate all equipment purchases in 2009. Provide tax relief on purchases of foreclosures and all house purchases, not just for first time home buyers. Develop a comprehensive energy plan that is more than just light bulbs. One idea I’ve heard mentioned is converting the government fleet of vehicles to natural gas. This would include mandating new purchases, and possibly retrofitting current ones. This would benefit car companies and local small businesses, clean up the emissions (60% less emissions), and lessen our dependence of oil. This would also fund infrastructure upgrades and eventually allow consumers to begin transitioning to this technology.

Those are just some ideas, but unfortunately with this many people working on the bill we can never get a efficient stimulus plan. Designing anything by committee just leads to too many compromises and a bloated price tag, as each side will concede on something to get their piece of the pie.

I contend that the stimulus package should not be aimed directly at providing people currently struggling with their bills, whether due to loss of their job or lower incomes. The reason being that the government cannot possibly provide those people with enough money to live on. Just look at how much it will cost to give those making under $70k, $800. Instead it has to be focused at the root causes of the current markets, namely the credit markets and housing, both of which are interconnected. Unfortunately, much of the blame for the problems in each are self-inflicted by the industries and the government. However, if we are to get better, we need to stop the finger pointing and worry about what can be done going forward. The financial market is so interconnected that it is not possible to be vengeful and only help out those companies that are deemed to be innocent in all this. There is also a lot of self-correcting that has to occur. The fact is that the previous strength of the economy was propped up by easy lending practices, low rates, and legislation and policies. This created a runaway industry, too much building, too much buying, too much wealth by homeowners, that used their new found equity to fund many other purchases. There is no doubt that if left up to free market forces the housing market will self correct, but the mechanism is painful. One major point of new regulation and stimulus is to prevent these huge swings of boom and bust, since the free market is just too volatile. However, the credit/banking markets can literally collapse if not backstopped by the government. All the efforts so far have been in form of loans or investments by the government and provided this helps, should be repaid. The country’s economy cannot survive without a viable banking system. If there is no reasonable credit available, there is no business or industry that can operate and be as prosperous as we have been over the last 50+ years. Small businesses need lines of credit to make payroll. All businesses use loans for major investments in equipment, other companies, and growth. This industry is so critical to our way of life that it needs to be the top priority and revived first and the rest will follow.

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