Overstimulating the Bailing

The headlines are filled everyday with another bailout or stimulus discussion or proposal.  It is really beginning to be hard to keep them straight even for someone like me who does try to stay abreast of these matters.   The array of actions taken or projected to be taken by the Fed, the Treasury and Congress has mushroomed and what is scary is that there seems no end in sight.  I have found when faced with severe time pressures and urgent needs it is all the more important to make sure you formulate a list of priorities and then work out the proposed plan of action for each one with careful thought to the consequences for each.    Hasty and hurried actions rarely result in the desired outcomes.  When they do it is often a matter of luck as much as anything else.  It is not a good idea to trust our economy to luck.   I realize all these people think they are smart and know better than we do; that assumption may even be true.  But very smart people can still make very bad decisions.   Mere motion is not the same thing as progress.  You are also reminded that many times when you are faced with a dilemma the best course of action is to do nothing.   I am obviously not talking about the wreck on the road or hearing the sound of a falling bomb but rather those business and personal decisions that affect your welfare at home or work.   How many times has a difficulty faded away when you did nothing but watch?   It happens all the time.  Things have a way of straightening out if we let “nature take its course”.

Yesterday the Fed announced it was going to invest up to 500 billion in buying mortgage backed securities.  I am confused.  Is this new or is this part of the 600 billion package that was announced by them a few weeks ago to buy mortgage backed securities and the 200 billion for consumer loans like auto and credit card debt?  Unfortunately I fear that it is something brand new and is to be added to the other plans already announced.   This will be even more money that is printed up and created out of whole clothe.   Last night I heard a spokesman for the transition team talking about the need for the new stimulus package being put together and defending the use of the money for what are clearly nothing but “pork” projects.   You know, those swimming pools, tennis courts, snow making machines for Minnesota, and the list goes on and on.   This person had at least the honesty to say it didn’t matter if the projects were needed or not but that it would put people to work temporarily.  The worth or merit of the projects was of no consequence.   What an open invitation to Congress to pour on even more of these useless projects.  Alternatively, if they are important to the local folks then let them pay for them with state or local tax revenues.   Why do I care if they have heated swimming pools in Hawaii?   Part of that stimulus is to give money directly to the states to cover their shortfall.  I have nothing against California, indeed I like it, but what is the justification for my tax dollars bailing them out of their deficit when they have a bloated state payroll that has exploded recently and they will do nothing to rein in their spending.   Will no one take responsibility for  their own actions anymore?   Also New Jersey and New York are beating at the door with their hands out as well as Michigan.    We have a Federal system of government, or at least that is the way it was designed, and those states must see to their own economic well being.    If the Federal government taxed all of us less then the states would have more money to meet their needs.  Why must we first filter the money through Washington then back out to the states.   When it comes back it is always with Federal strings attached–a political agenda that might not be what the folks in a particular state desire.

Now GMAC has become a bank overnight and it too is receiving some of our Federal dollars.   It will be more billions.   The first of the direct loans to GM have also gone out and there is no commitment from the unions that they will do anything to adjust costs.  Indeed they have made it clear they intend to do nothing until the new administration takes office.   The free market would have worked all along if the government had remained on the side line.   It could work again if permitted.   I ask you to think back  over all the laws and regulations that have been imposed on that industry over the years.   Yes, the big three made many mistakes but they also had to work in a very regulated envoirnment.   Was it smart for the government to regulate the mileage of cars?   By doing that the government ignored one of the basic tenets of the free market system.  That system as you know is based on supply and demand but also a vital third element–value.  By that I mean you are making something that people desire and thus it has a value.   You could manufacture a gazillion buggy whips now and have a tremendous supply of them and they might even be very cheap.   But no matter how cheap if no ones wants them you still won’t sell any and your business will fail.   For supply and demand to work properly there has to be that element of value.   It is just like our dollar.  It has to be “valued” to have value.   Simply printing money gives a bold letter announcement to the world that it isn’t really that valuable–look we’ll just print up more!  The government can mandate all it wants but if they make Detroit produce a specific car that is overpriced or has features that the consumers don’t want then the product will not sale and we will have a subsidized industry functioning at a loss.   Those Tata cars are only about $3000 but who would want to buy one of them here?   If there were a million of them here tomorrow how many would sell?

We need to get a grip.   Slow down and  give some grown up thought to what we are doing and not let ideologs take over the direction of our economy.  We have too much at risk.  I always try to be the optimist and am by nature and wish I thought the coming years would show improvement but with the indicated direction I have serious worries.   Not the least of which is the inevitable inflation that can ‘t be gainsayed because of the government’s creation of money without value behind it.

There are 25 time zones in the world, not 24 as we would all assume.  Don’t take my word for it, check it out yourself.   It has to do with not wanting the same time at the International dateline.   It can’t be noon on both Tuesday and Wednesday simultaneously.

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