Financing a $447 Billion Stimulus Injection

A recent article phrased the new stimulus plan as “injecting $447 billion into the economy,” which made me stop and think. Where exactly is this money coming from? I doubt the politicians in Washington are going to pay for it out of the vaults at Fort Knox (which would only cover about $278 billion or a little over half the bill anyway). That just leaves us with the three usual suspects; taxes, treasuries and the printing press.

Raiding private investment capital, ie: raising taxes, in order to “create jobs” is absurd. If the money was actually directed towards funding projects, it would simply mean diverting money from privately planned investment into politicians’ pet projects (a time-honored way of ensuring reelection). This plan will also use that money to extend unemployment checks, which is just as foolish. I would rather let someone buy a boat, thereby paying someone for building the boat, then tax the money away and hand it out as an unemployment check. However, this plan also includes tax cuts (without accompanying spending cuts), which leaves us with the other two options.

For the past few decades, we’ve gone to foreign investors to finance our government spending. The problem with this approach is two-fold. First, by competing for foreign investment dollars we crowd out private investment. In other words, businesses that are looking to finance expansion and real job creation are competing with the Federal government for the same scarce resource of investment capital. Secondly, those bonds incur interest payments down the road. That interest will have to be paid in the future from the same three sources (taxes, debt or inflation) which is the sort of kick-the-can politics that Washington D.C. loves.

That leaves the final source of funding; the printing press. The treasury prints the cash to cover the portion of the debt financed by the Federal Reserve. In simple terms, printing new money makes the money in savings and circulation worth less. Some people support this, since it makes our products cheaper for export. However, it makes everything we import (which is quite a lot these days) more expensive. It also hurts people living on fixed incomes and makes a joke out of long-term investment planning. In other words, it contributes to job-killing instability.

“Injecting” $447 billion really means deciding between taking domestic investment capital, competing for foreign investment capital, and pillaging our remaining savings. Instead of reactionary short-term fixes and more government controlled pork-barrel projects, we need to be thinking long-term. Stop spending taxes frivolously. Stop jerking the economic steering wheel by meddling with the currency. Return control (and money) to consumers and small businesses.  Let them drive the economy the way they’ve driven it since our national inception. They don’t need to be “stimulated” to make that work.

Make Mine Freedom

This is a fantastic cartoon.  It was true sixty years ago, just like it was true two hundred years ago and just like it's true today:

http://nationaljuggernaut.blogspot.com/2009/09/this-cartoon-seemed-far-fetched-in-1948.html

Mom & Dad and the Credit Downgrade

The recent credit downgrade shouldn’t come as a surprise to anyone who has ever had to run a household budget. This probably explains why it’s absolutely shocking to politicos in Washington, but I digress. The media claims that the downgrade shouldn’t have happened because Congress ended up increasing the debt limit and that it was really caused by the debate that took place beforehand, shaking investor confidence. It actually happened because raising the debt ceiling did practically nothing to address our fundamental inability to pay for our bloated government.


Imagine Dad (Republicans) and Mom (Democrats) are faced with a dilemma; they’ve maxxed their credit cards. Naturally, a debate ensues (which probably includes some accusations and name calling, ignoring all the times they both agreed to spend more money). Mom tells Dad he needs to get a second job to pay for the credit card bills. Dad tells Mom she needs to start spending less money. Neither suggestion is well received. Finally, with the due date to pay the bills rapidly approaching, they reach a compromise. They agree to call the credit card company and increase their credit limit. In return they agree to consider establishing a balanced budget and they agree to consider maybe possibly spending less money… next year.

After watching this whole episode, the neighbors are well aware that Mom and Dad have made no attempt to live within their means. Furthermore, they’ve done absolutely nothing to reduce the likelihood of having this same argument next year when they max out their cards… again.

Why the downgrade after raising the debt ceiling? Because for once it looked like having a deadline was going to force the politicians to roll up their sleeves and face the grim reality that Uncle Sam spends like a drunken sailor (no offense; sailors are much more responsible even when intoxicated). Instead, they made some vague promises about the future and failed to make any fundamental changes today, kicking the can down the road. S&P downgraded the US of A because Congress just missed a huge opportunity to demonstrate real fiscal discipline.