Saturday Quick Hit

STIMULUS BEST CASE SCENARIO



The stimulus package the House passed without reading and signed into law totaled $787 Billion. The housing bailout plan proposed would add another $275 Billion. That would bring the total stimulus money targeted in the last week to over $1 Trillion, not counting the $150 Billion passed last spring, or the $700 Billion TARP package passed last fall.


Here is the best case scenario for success with the current stimulus:

The $787 Billion is injected into the economy this year, creating 3.5 million new jobs.
The private sector, reacting the the influx of cash, expands, adding additional jobs.
The housing bailout keeps people from foreclosing, slowing the skid in housing prices.
The housing market stabilizes.

Even with the best case scenario, there are glaring problems. First, if 3.5 million new jobs are created, when the stimulus cash runs out in a year or two those people will have to be laid off. If you're working in a job that exists only because of a one time injection of capital, once that money runs out you're out of luck. The private sector could react to the stimulus cash by expanding, but unless it expands at a rate that can absorb the 3.5 million jobs created you're still going to have massive unemployment within two years.

The housing market is currently purging itself of every bad mortgage that shouldn't be there to begin with. Even if you allow people to refinance, some analysts are saying those people just aren't making enough money to justify it. For example, some project that even if you reduce someone's interest rate to 1%, only 5% of the bad mortgages would be able to avoid foreclosure. Even with the lower interest rate, those loans aren't justifiable because the mortgage holder just doesn't make enough money. There won't be any stability in the housing market until we can reduce the amount of bad loans, and the only way to reduce them is to purge them from the system and start over. Any other measure is more like a band-aid than successful healing. We can't get a good idea of what homes are worth if the government is subsidizing the market by artificially funding bad home ownership. That speaks nothing to the political and moral arguments about whether we should be doing that to begin with.

Even if this package manages to create 3.5 million jobs for the long term, the housing market stabilizes, and everything we're hoping for comes to fruition there is still one glaring problem: we've just increased the national debt by over $1 Trillion in less than a month. This is a phenomenal amount of money we're talking about. President Obama will have spent over $1 Billion for every HOUR he has been the President. And his administration isn't ruling out additional stimulus packages. The amount of debt we're adding is at a level previously unheard of. It is more money than the United States spent on the Great Depression and WWII combined. In the future, we're going to have to service that debt, along with crumbling programs like Social Security, Medicare, and Education. Would the success of the stimulus package be enough to offset the negatives with carrying that much debt? Or are we taking two steps back so we can take one step forward?

When it comes to the stimulus, you can hope for the best, but even the best isn't a winning situation.

Hope Gone Stale

COUNT ME SURPRISED

Electing Barack Obama president created an ironic situation. While candidate Barack Obama promised Hope, all President Barack Obama has delivered is Doom and Gloom. I realize that politically he has to lower expectations. Some of his more loyal followers will be very disappointed if he isn't walking on water by the end of February. No politician can survive under those types of expectations, so he has to lower them. But to come out and say things like, "Pass this stimulus or we may never recover"? What's that all about? One of the most important ingerdients in a healthy economy is good news, or even good spin. The President must find a way to temper expectations while not simultaneously dumping cold water on everyone and everything. It's an incredible mood killer, and the markets are showing it.

Interest rates are at all time lows. Housing prices continue to fall, making homes more affordable for everyone. But watching the stock market fall like a rock (an incredible 2,000 points since President Obama's inauguration) you can't help but observe that there is an phenomenal amount of pessimism out there. And who could blame people for being pessimistic? Our media continually claims we're on the brink of a depression, when unemployment numbers aren't even as bad as they were in the 70's. While that isn't a good thing, it certainly isn't as bad as they indicate. And to have our President continually using such heightened rhetoric isn't going to help things. I conceed that he may be receiving information from his advisors that the economy will be getting much worse, but as a leader he needs to say "We will get this ship turned around" instead of "ditch the ship, we're all going to die."

It's called Jawboning. A President publicly states one thing or the other, and based only on his words the markets react. It's the reason the stock market dropped 480 points the day after Obama was elected: investors took his public comments on raising taxes on the rich and business at face value, and reacted with pessimism on future recovery. If you continually lament how bad things are, people can't help but be afraid and react in kind.

You cannot state that recovery will take well into your second term, and then expect businesses to respond positively and hire new people. You can't encourage investment in the stock market while injecting fear into the masses. Secretary of the Treasury Tim Geithner learned this the hard way, as he gave his update on the economy and promised more gloom with no specifics on how to fix it, and the market dropped 200 points before his testimony was finished.

COME TO JESUS MOMENT

This cuts to the core of our problem: we rely on our government too much. Politicians have serpents tongues covered in gold. They promise things they can never deliver. As a country we can mature greatly if we'd just look into our hearts and ask ourselves, "why on earth do I place my hope in government?" What does it say about us as a people when we vote for the politician who promises more government help, even in times of financial instability? Where are our hearts aligned? If we are hoping in the government, who are we NOT hoping in?

So yes, the phrase "come to Jesus moment'' is indeed a common colloquialism used by a great many people for a great many things, but in this case I meant it just as it reads. I would implore everyone to ask themselves why they vote the way they do.

John Adams said that democracy is only temporary, for there has never existed a democracy that did not destroy itself.

There will come a day when the United States no longer exists. Perhaps not in name, but certainly in function. Our Founders started a revolution over being taxed without representation. Currently, our government is spending trillions of our dollars on programs that largely have no public support. What good does our representation do if it will not listen to us?

Our Founder's first attempt at establishing a government resulted in a Federal branch so weak that they had to re-write the Articles of Confederation. Now we have a government that is leveraging trillions of our dollars against our will and our States have abandoned their Constitutionally given prestige for begging at the feet of the Fed for bailout money. Soon, this country will no longer resemble the one it was founded as.

So we should ask ourselves: are we voting for leaders because we are so worried about our temporal surroundings that we can't realize we've given our hearts to a master that cannot deliver?

Jesus once asked "what benefit is it to gain the world but lose your soul?" So I ask: what benefit is it to me to elect a man who may help my wallet, but increases Federal funding for domestic AND foreign abortions? What good is it to vote for hope in government, while fast tracking Embryonic Destruction Research? Why would I hope for mortgage relief and sacrifice State and Local power to the Fed?

Tough times reveal in all of us our true devotions, because when we're squeezed into a tough spot we show the world what we truly believe.

Even if President Obama is successful I am worried what our temporary economic relief might cost us politically, but in a greater sense, spiritually.

PREDICTION

If the Senate votes this stimulus package into law, three months after the unemployment numbers will only continue to go up. The White House will ask us to 'give it time.' In another three months, among more layoffs, the President will remind us that he said this package would "create or save 3.5 million jobs", and while we have indeed seen more layoffs, things would be much worse without his stimulus package.

Politically, the President is playing the game how he needs to. He is simultaneously lowering expectations and setting himself up for 'victory' whether his stimulus package is effective or not.

I said that Obama's election created a sense of irony, and here it is: the President needs to lower expectations so he can better dodge political blame for the economic collapse, so he dogs on the economy and the future prospects of recovery. But the economy can't get better until the President stops dogging the current situtation and future prospects of recovery. Indeed, President Obama is going to have to decide between listening to his political advisors, and trying to reassure the American people.