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Created on Thursday, 12 February 2009 22:00

 

Why The Stimulus Package MAY NOT Work!

By Dr. Joseph M. Onesimus

I am not an economist, a lobbyist or a Senator in Washington but I know a few things about money and balancing my check book and I also know that the stimulus package under the Obama administration will not work in the time frame that we expect it to make an impact in the U.S. economy.   As I write this article, the Senate is deliberating on whether to approve the stimulus package and President Barack Obama is in Florida trying to persuade the American consumer to buy into his vision of the almost $787 billion loan to America.   On the other hand companies like GM and Chrysler are waiting on the side to once again benefit from another government loan.   To make the matters worse, GM is planning to spend at least $12 billion of the loan in Brazil in an attempt to make the next wonder car for the American public.   God knows how many other companies are out there with open hands and with lobbysts working day and night to get a piece of the pie.   Other CEO's are spending sleepless nights contemplating on how to pay their foreign debt or import the next bunch of toilet papers from China and Malaysia.   America is cruising at a very high speed towards an economic destruction and the beneficiaries of the American dollars are standing on the wayside cheering, "Bring it on!"

Last year the United States Congress had passed a similar stimulus package in the amount of $170 billion under President Bush and that package did the U.S. economy no good.  What these stimulus packages are doing is put the federal government  and the American tax payers in more debt which translates into having you and I on Main Street paying more taxes in order to pay back these huge economic debts.  Pumping out $787 billion without a proper strategy is equivalent to printing more money at the press and releasing the paper to the public.  This mistake will translate in to the real inflation and will impact day to day lifestyle and sky rocket prices of almost everything in America.  Talk about $7.00 per gallon gas prices!  May be we all can learn a few lessons from Tanzania and Zimbabwe even though these nations still stand.  Socialism has never worked and will never work in this economy unless we want to kill capitalism as we know it. 

The beneficiaries of this large stimulus package will be the Chinese, the Japanese, the Korean, some South American countries and Indian governments that make all the junk that the average American consumer buys.   The U.S government should instead focus on funding small business with long term goals in the country, companies which in turn will end up putting more Americans back to the work force.  Internal spending and tax breaks will foster the creation of new jobs and continued spending within the country within the shortest time possible.  Failure to do so will lead into a catastrophe.  The Federal government can continue to cut interest rates as much as they want but unless the existing fear between the lender and the consumer is re-settled the situation will not get better as soon as we want it.  Unless the American consumer and the American banking system can build new trust and begin lending and spending again, the stimulus package is only but a dream that cannot be actualized.

What the government needs to do is to stop giving money to these bankrupt institutions unless there is a hidden agenda from the government, because in doing so, the government is slowly killing the spirit of capitalism.  If these institutions cannot fix their own problems, they will not do so with government loans.  New money has never and will never produce good stewardship.  The solution to this economic problem will take time and we must let the economy fix itself in due time.  Home foreclosures will continue to escalate despite the stimulus package so long as the borrowers are still loosing their jobs.  Has anybody heard of a small business company that has gone into full gear hiring people because of the stimulus package?  That's my point.

On the other hand could it be that the solution for this sluggish economy lies within the real estate sector?  If the investors could stop the greed and agree to modify the existing loans at the original rates and all escrow accounts are re-analyzed for affordable and reasonable payments maybe then, the American people will have faced head on the first economic slow down giant.   

What is evident behind the scenes of day to day markets is that the American consumer and small businesses are not spending enough to keep the economy growing at a steady pace and thus a new period of trust between the American consumer and the banking system must be re-established.  On the other hand tax cuts from the Federal government may end up stimulating this economy in the long run.  The more tax cuts the average consumers gets, the more enticed and the more likely they are to continue spending.  For once the government should allow home owners to tap into their 401K's without penalty even though that decision will create a future generation that will have no retirement money in about thirty years from now.  Federal tax cuts will prompt millions of Americans to be engaged and be enticed to spend and thus guarantee a continued cash flow and renewed spending habits by the average American consumer. 

I remember listening to an interview by Warren Buffet some times back and his take on the economy was that the economy will recover in the long run but I think how we spend the $800 billion must lay a ground foundation for the recovery plan.  Meanwhile, spend your $20 wisely and plan to spend your next $100 dollar bill as if you had the next two years to live on that bill.

What is your opinion?  Do you agree with me or not?