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New Economic Team, Same Economic Strategy

By: Steve Johnson

11/24/2008 - 13 Comments

President-Elect Obama presented his new economic team on Monday that will help him navigate the US financial crisis.

Obama proposed a two year plan to add 2.5 million jobs to the economy, primarily through infrastructure improvements, like updating our nation’s roads and bridges.  Obama is also considering reversing his campaign promise to raise tax on the wealthy and lower taxes for the rest.  Obama is also considering whether he should allow the 2001 tax cuts to expire after tax year 2010 as scheduled.  It looks like we are getting more of the same, just like I thought.

The Bush economic team gave us the largest taxpayer bailout in history and the Obama economic team is busy planning the next largest taxpayer bailout in history. Some of the Democratic leaders are calling for a $500-$700 billion dollar taxpayer bailout.  It looks like we are getting more of the same, just like I thought. Here is my advice for Obama. 

It is surprising to me that the government doesn't spend more time trying to understand what is really going on before deciding to throw more money at the economy.  To this day, the reasons behind the financial crisis are not clearly understood by even the best economist.  Just yesterday, Ben Bernanke said he was wrong about sub-prime mortgage, after repeatedly saying that the sub-prime crisis was ‘contained’ several months ago.

The second taxpayer bailout package is likely to become $1 trillion dollars and the third taxpayer bailout package will be $10 trillion dollar.  The national debt will grow by $1-2 trillion dollars next year, pushing closer to 100% of our GDP of $14 trillion.  Within a few years, the national debt could be two times our GDP, with an annual interest payment of $2-3 trillion.  Isn’t anyone worried about this trend and the implication of our nation?

Our government thinks that we have an infinite amount of money to work with and therefore bailouts will not harm the economy.  Believing that we have an infinite amount of money gives them the courage to print and borrow money indefinitely without repercussions.  The inflation of the 80’s was brutal and we don’t want re-live a period where the dollar lost 70% of its value.  Before making any more decision, the economic team should do three things. 

  1. Find concrete answers as to why the economy has crashed
  2. Understand that we don’t have an infinite amount of money
  3. Educate and energize the public to cut back on spending

The taxpayer bailouts are directed at getting more money into the hands of the consumers to increase consumer spending and restart the economy.  This kind of thinking is completely none-sense.  The net result of bailouts are less jobs, as credit is taken away from profitable businesses and given to less profitable businesses that are likely to continue losing more money and cutting jobs. 

The nation has been living a dream lifestyle for years, living beyond our means while funding two wars on the national debt.  We need to cut back on spending until we have paid for what we have already consumed and then pay for the wars.  No nation or family or government or business can continue to spend more then they make indefinitely. 

Yet, an economic team will do anything they can to keep the bubble from deflating on their watch, while creating a larger and larger problem for the next economic team.  This time is going to be very hard and I have little faith that they will be able to re-inflation the bubble.  The entire economy is unraveling and there is nothing the government can do to stop it. They are like the rest of us, at the mercy of the rules of economics.

This week I participated in several blog carnivals.

They did an excellent job and as usual, there are tons of great articles. If you have the time, I highly suggest you skim through this week’s carnivals.

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The Case Against the Fed

This book, written by Murray Rothbard, an economist and historian of fairly well known repute, is a scathing attack on not only the Federal Reserve, but the interests that created this institution. Rothbard explains how the Federal Reserve is the true source in the destruction of wealth, which has led to the destruction of the middle class and continues to sift money into the hands of the wealthiest.

Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse

In discussions of today's economic meltdown and what to do about it, the Federal Reserve is a stealth helicopter: it never shows up on the radar. With the exception of a few esoteric specialists and those Ron Paul Revolutionaries who burst into chants of "Abolish the Fed!" Historian Thomas Woods notes in this important book, the Federal Reserve bears a large part of the blame for the mess we're in. In the first part of "Meltdown," Woods shows how both in theory and in practice, Fed policy fueled an artificial boom and is now leading us to a much larger meltdown.

The Hyperinflation Survival Guide: Strategies for American Businesses

The Hyperinflation Survival Guide offers strategies for business managers to keep their enterprise afloat in the midst of runaway inflation. Within this succinct little book are a plethora of sensible business strategies for American businesses. If businesses are to survive they must effectively counter and minimize the ill effects of rampant inflation and/or hyperinflation. The utmost prudence is required in managing accounts receivable, inventory, and production at such a time. A sudden inflationary economic downturn may very well bring a business to its knees leading to insolvency.

How Capitalism Saved America

This book is an excellent presentation on the problems of government 'regulations' into free market mechanisms. This book illustrates simply and clearly how many chaotic economic problems were caused by interference from government regulations and how capitalism has overcome them. Master this book and you have overcome most of the bad economic thinking of our time. Government is the cause of capitalism failure.