Posted 4/16/2009

OBAMA'S THREE TRILLION DOLLAR SEDATIVE

President Obama and the Congress are pumping over $3 trillion worth of stimulus packages, hoping that the economy will get into high gear again.

Obama's expectation is that the stimulus will start stimulating.

He has high hopes...

...That the banks will start lending and stop foreclosing.

...That consumers will start spending and borrowing.

...That business will start hiring and stop exporting jobs.

...That home prices will stabilize and stimulate building once more.

How is it working so far?

Well, not so good.

It appears that Obama has come up with a $3 trillion sedative.

Today banks are not lending. They continue to hoard money. Obama's claim that "each dollar given to banks can result in $7 or $8 dollars" is not coming true. The reason: the big banks don't trust each other, and as a result are not lending to brother bankers as they should.

Worse yet, the banks are foreclosing more than ever. After going through two foreclosure moratoriums, the big banks are ramping up their foreclosure activity. It is estimated that another two million people will lose their homes this year. Expect to see the rebirth of the Great Depression's "Hoover Hotels." (These were massive homeless camps in every city.)

Consumers are spending less and borrowing less. People with mortgages are refinancing at lower rates, but new buyers are primarily seeking foreclosed homes and those available for 40 percent below their former peaks. Some experts think housing prices must drop another 25 to 30 percent to interest serious buyers. In the meantime, some consumers have resurrected the old Great Depression trick of swapping homes. No cash. No mortgages. No fees. No bankers (which may be the most appealing thing of all).

Business continues to be pessimistic and pursues downsizing with a vengeance. Unemployment is approaching ten percent. If you add in all those working temp jobs because they couldn't find permanent jobs, and factor in those who have simply given up finding a job, the true unemployment figure may reach 17 to 18 percent.

IBM announced a positive outlook one day and then shipped another 5,000 jobs to India the next. How does that help employment? Some companies which took federal funds are dodging the government requirement of hiring American workers by placing the newly hired in foreign offices. How does this help the U.S. economy?

Consumers are being attacked right and left by the big banks, which are drastically increasing credit card interest rates and late fees. While President Obama wants the consumer to start buying and borrowing, the greedy bankers are doing their best to discourage the consumer from doing either.

And then of course there's Congress. Instead of channeling the stimulus into job-creating endeavors, Congress is siphoning off huge chunks for pork projects. Those parts of the stimulus which might be muscular in creating jobs are being rapidly turned into pork fat by Congress's men and women who have become even more greedy and underhanded than the bankers. (Among the bankers, Congressmen and AIG, the used car salesman looks positively angelic.)

The basic trouble with government stimulus is that the concept is all wrong.

History shows that government spending rarely has its intended effects.

In the 1930s, President Roosevelt introduced all kinds of stimulus programs to rescue the economy from the Great Depression. He called them "pump priming." But they all failed. In fact, most hurt the economy more than they helped.

Today, economists and historians largely agree that the potential recovery which should have started in 1936 was squelched by Roosevelt's programs. Ditto for 1938. It wasn't until World War II and its huge spending on armaments and factories that the economy wrenched itself out of the Great Depression.

Huge debts were run up by World War II spending, but rationing was instituted to keep consumer spending in check – which prevented runaway inflation. (Something we may have to consider in two or three years.)

There have been other stimulus efforts in history. None seemed to have their intended effect.

We can't blame the Democrats, because George Bush's stimulus package failed to stimulate anybody at all.

When I was a teenager (and much smarter than I am now), I railed against my parents and their generation for "being too stupid and complacent to stop Hitler when they could have."

I am afraid that, a few years from now when the country is crippled with debt, teens will be railing at their mothers and fathers for being too stupid and too complacent to stop Obama's spending when they could have.

But by then, the USA may have transformed from Superpower to Superbeggar.

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