Friday, January 18, 2008

A Deluge of money

Bernanke and Bush have agreed to back a new stimulus plan intent on saving the economy. Today’s announcement endorses a $145 billion plan that will include possible $600 personal tax rebates, longer unemployment benefits, a targeted housing tax break, tax breaks for business and rebates for research.

Let’s look at this piece by piece , $600 tax rebate = a few weeks of groceries, a weekend away, the minimum monthly payment on a mid tier credit card balance, or 1 months difference on a reset ARM. Big deal! Sure it will make the public all warm and fuzzy but a single shot of heroin is never enough to make a junkie happy and America’s debt junkies will find little relief from this one off fix, which of course will have to be financed through foreign credit. Whooweee what a deal!!!

Longer unemployment benefits. That’s funny because the government has stated for a long time that employment was strong and as such was an indicator that the economy was healthy. Surely that one month blip to 5% was not enough to convince them there was an issue!
Oh, but of course, the Bureau of Labour statistics knows very well that unemployment is much higher than the stats let on, after all it’s their birth/death model and other voodoo accounting that has created the unrealistic low numbers for years.

Targeted house tax breaks, Well, if the targets are stupid people who bought houses they could not afford then this is just wasted money meant to reward fools, and fraudsters. The people who need this the most are those who took the biggest risks and those who should not get bailed out at the expense of the rational members of society.

Tax breaks for business and research credits are both good things but who gets them. I truly believe that this will just be another way of funneling money to big oil and the military industrial complex. Don’t expect to see small manufacturers, solar, wind or geothermal companies get a cent, do however expect to see Exxon and Halliburton at the head of the line. If money has to be spent to stimulate, build clean power plants with domestic technology and begin the process of weaning the U.S. off the greasy teat of Big Oil. After all energy is one of the largest components of the U.S. trade deficit, if stimulus were used to build energy self sufficiency, you create jobs, lower the trade deficit and enhance national security, giving you 3 wins for the debt you will incur. This new package will achieve little but still create debt.

The real significance of this announcement is the validation of Bernanke’s claims that he would drop money from helicopters to thwart any major recession. The copters are on the pads and all fueled up and there is not a hope in hell anyone in Congress would actually ask, “Where will we get the money?”.

This will be the first of many attempts to reinflate and will invariably lead the U.S. into a hyper inflationary episode as the deluge of money falls from the sky.

Try to avoid handling this new money too much, not only is it created with money borrowed from China but I suspect it will be printed there as well, likely with high lead ink.

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