« Srebrenica remains controversial |
Blog Home Page
| Analyst: the US may be the Next Bear Stearns »
August 28, 2010
Long Term Economic Stability: Does the Government Even Get It?
In May of 2009, I took a job as a detailer at a car dealership in Harrisburg, PA. One June 25, President Obama signed the "Cash for Clunkers" bill into law in an attempt to supplement the "Stimulus Bill" that was passed just months earlier. Once "Cash for Clunkers" went into effect at the end of July, business picked up and was relatively stable for the month of August. Then, like every government stimulus, the program ran out of funding and business stagnated through the fall. Once December hit, sales were so low that the dealership closed down.
This is just one of the unintended consequences of the government's attempt at establishing long-term economic stability. By throwing "easy money" at an industry to increase business, demand is artificially increased and not reflective of true market functions. Once the stimulus runs out, so does the demand.
So much for helping the car industry.
And yet these are the type of policies the Obama administration continues to implement to rejuvenate the economy. From providing tax credits to weatherize homes to recently passing the $26 billion "bailout" for state and local governments, all this spending does is create a short-term fix while essentially kicking the can of financial solvency down the road. To pass the additional aid to states, a $10 billion tax had to be placed on multinational corporations.
You have to wonder what new tax Congress will think of in six months when the money runs out.
It's a good thing people instinctively crave instant satisfaction. Without it, the government would never be able to get away with spending billions on these short term solutions. Any economist not fooled by the delusional claims of Paul Krugman knows that stable economic growth comes from investment and saving, not from increased demand. Neo-Keynesians, like Krugman, essentially have the formula backwards; it is not demand that creates investment, but investment that creates demand.
Increased government spending is like putting gum into the crack of a leaking dam. It may stop the leak for a short period of time, but growing pressure is bound to destroy the dam eventually.
To make matters worse, the Federal Reserve hasn't shown any sign of withdrawing its own "stimulus" until the economic recovery becomes a fact and not just politically touted fiction.
According to Peter Schiff, recent contender in the GOP Connecticut primary and star of the Youtube sensation "Peter Schiff was right," the Fed's reluctance "to suffer the short-term shock that would accompany any meaningful exit strategy" is sure to lead inflation as it continues to fight a never-ending recession. With the Fed promoting a weak dollar, interest rates lower, prices rise, and savings lose value.
Bernie Madoff convinces a group of investors to voluntary commit billions to a ponzi scheme modeled after Social Security and is sentenced to 150 years in jail. Meanwhile Ben Bernanke, president of the Fed, can continue to inflate the money supply and be regarded as Time's man of the year in 2009.
It's funny how things work.
The U.S. is about 230 years old but Bernanke has literally "printed" over half of this country's money supply since he became chairman in 2006 according to David Rosenberg of the Canadian wealth-management group Gluskin Sheff. And yet Bernanke has as much of a chance of getting tried for theft as Stephen Slater does at getting his job back at Jet Blue.
The use of economic stimulus by both the Obama and Bush administration, as well as the Federal Reserve, has prolonged this recession which began in 2007. By printing and shoveling dollars into "politically approved" sectors of the economy, any actual economic growth has been short lived. Many political and business commentators have declared that a "double-dip" seems inevitable at this point. Unfortunately, in order for a "double-dip" to even occur, the original recession has to have come to an end.
News flash: the government's stimulus efforts never ended the recession, only prevented the market from correcting itself and setting the foundation for real economic growth.