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Wednesday, October 21, 2009

Don't Refill The Trough

After news media began reporting about a possible "Stimulus II" program being put together by the White House and members of Congress, the word "stimulus" disappeared from the lexicon of Washington Democrats. Instead of talking about another package of stimulus pork spending White House and Treasury Department officials have spoken about "range of suggestions" and "benefits." Smart enough to not put together one big bill with the spending and label, White House officials and Congress are looking to hide the spending in other bills going through the process.

When Congress convened in January it put together with the White House a $787 billion "stimulus" package labelled the American Recovery and Reinvestment Act passed with no Republican votes in the House and it took three Republicans (one now a Democrat) crossing the aisle and holding the vote open for one Senator to return from his mother's wake in Ohio to pass in the Senate. The entire process took two weeks to spend three-quarters of a trillion dollars intended to stimulate the economy by funding "shovel ready" public projects and prevent unemployment from reaching 9%--Obama's stated objectives.

Once the package was passed the details began to come out, and it was discovered that none of the money would hit the economy until September of this year and that by December 2009 only about 10% of the funds would be spent. The bulk of the spending would not occur until 2010, most of it in the Spring and Summer--conveniently before the November mid-term elections. In the meantime the unemployment rate has climbed to 9.8% in September and many areas are seeing job loss continue at a rapid rate. Clicking the play button on this site one sees the expansion of employment and then unemployment across the country from 2004 through mid September 2009.

With virtually no money from Stimulus I having impacted the economy, it is slowly putting the brakes on its slide and trending towards bottoming out. This is being done as the private sector restructures, slowly rebuilds and revamps for the next economy. With banks still not extending credit to small businesses, the backbone of the American economy, cash is amassing and cherry picking investment and lending opportunities. Part of the reason for lack of lending are shifting regulations from the Fed for banks and increased audits and pressure regarding the loans they are making. Many strong banks are withholding loans from applicants who do not have very strong qualifications for fear the Fed will step in and take them over, force a buy out or push more of the TARP regulations on them. Other banks are just sitting back borrowing funds at zero percent interest from the Fed and lending it to customers at 6% and only to those with the strongest qualifications, the old saying if you don't need a loan you qualify.

With that as the backdrop, $700 plus billion in Stimulus I still in the pipeline to hit the economy, banks getting flush with cash, unemployment at 9.8% and rising, American companies beginning to turn the corner and most economists predicting recession ending sometime in the late 1st quarter or early 2nd quarter 2010, Obama and members of Congress are itching to spend more money. I say why?

With a deficit approaching $2 trillion (do we even register trillion any more), a push to pass health care reform that will add another trillion to the budget, the Federal Reserve purchasing Treasury bills and mortgage back securities to the tune of over a trillion dollars by April 2010, the dollar dropping even further, our economy is building for a massive influx of inflation, which will bring higher rates, choke any borrowing that is happening and cut off consumer spending. Adding another $200 billion to this equation is feeding the inflation build up and is not needed economically.

Politically however, with poll numbers dropping and the media finally beginning to ask real questions of Obama and the White House, spending another hundred billion or two in benefits, pork projects in selected Congressional Districts certainly can't hurt as Congress gets ready to adjourn for 2009 and begin their re-election campaigns for the primaries in the Spring and general elections next November. And that is all there is to additional spending: political placement of government funds so incumbents can return to their districts touting how much federal funds they have brought to their districts. Forget the trillion dollar deficits and who will pay the bills, look what I have today!

Instead of trying to buy opinion polls and using federal dollars to save key incumbents to keep a majority in Congress, President Obama should tell a populace concerned about the budget and deficits that patience is needed, the economy is improving and until Stimulus I has had time to reach the economy federal spending on new projects and programs will stop. Instead plan on using a revitalized and reborn economy and the higher revenue that will come from taxes to pay down the deficit that has exploded.

Leave the economy alone, concentrate on the deficit and control the spending in Washington. No Stimulus II, no matter what it is called or where the spending is hidden.

1 comment:

Bob Schilling said...

For once, we may be in agreement. I don't think we need another big spending bill right now. I think the concern is that unemployment is still pretty high, but I'm not sure a big Federal bill will put people back to work quickly -- and if it's not fast, the economy may start absorbing workers before the Federal spending is felt.

We do need to keep an eye on unemployment and Medicaid. They're vital to our national stability and must not be allowed to run completely dry. The states are in dire financial straits, and will likely be so for another year.

If we were going to spend more federal money, I'd rather have it targeted to programs (environment, energy, defense, etc) than at the economy. It's easier to understand and manage that way.