Stimulus as solution?

The more I think about this, the more I have reservations.

The current thinking in Washington seems to be that we need to stimulate individuals, businesses and governments to spend more, thus breaking the recession.

My conclusion is that more spending is not the solution - rather, it's the problem. Due to two decades of cheap money we have spent too much. The result is that many of us live in homes we can't afford, drive cars we can't afford and in general have created lifestyles (including raising children) that we can't afford. By "afford" I mean that we are able to do what we are doing, while at the same time doing all the other things we need to do - without resorting to debt somewhere.

Today, we (individuals, businesses and governments) are so loaded down with debt and debt payments that everything is grinding to a halt (recession at best.) If that's correct, more spending stimulus is not the solution. I view debt as the problem, and the elimination of that debt is the solution.

Meanwhile, it is what it is. And for those of us interested in personal finance, the objective is to survive. My thinking is that we must live within our means, save regularly, avoid debt and make economic choices accordingly.

I don't know of any solution other than to go through a painful process. And the degree to which each of us suffers varies with the degree to which we live within our means, blah, blah, blah.

My conclusion is that we as a country will improve as we as individuals emerge from this process.

Thoughts?

-HW "Skip" Weldon Columbia, SC

Reply to
HW "Skip" Weldon
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Skip, unlike Paul Krugman, you will never get a Nobel Prize in economics, because you have too much common sense. Krugman says we need $600 billion in new economic stimulus

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Reply to
beliavsky

you are absolutely right. We cannot really "change Washington" if we don't "change Main Street", and vice versa. People should live within their means, including paying for their public infrastructure, health care, and retirement.

As it stands, we are just a few breaths away from implementing 5 year plans .. . .

Reply to
Gil Faver

I mostly agree with your analysis of the problem. I?m just not sure that sacrifice and saving is the solution. Wealth is created when people produce goods and services. Society is set up so the consumers do not need to be producers. It is a common notion that there is a right to food, clothing and shelter. There is no corresponding responsibility to produce anything. Social Security was sold as pay for the future. It quickly became pay as you go. It will soon forever be pay as you went. Government can create money through debt and spend it on people who produce little or nothing. It?s very convenient if more than 50% of the people depend on the government. Incumbents can be democratically re-elected by more than 50% of the people forever. Oh, that is already happening. Increasing debt never stops. Debt service only increases over time. It is just as hard for the government to cut back and pay off the credit cards as it is for a consumer. The same hyper inflation that will keep the government going helps out the people with credit card and consumer debt. I apologize for the political rant but there is a point.

Saving is a bad strategy during high inflation. There may be temporary deflation. Houses and pickup trucks are quite a bargain right now. So you want to buy the dip and sell the peak (dip the plate and peak the grid, I love that old time tube radio expression). Inflation means you pay off debt with cheap money. What debt can be (some or all) self financing? Real estate and business come to mind. Anybody got any others? The right kind of debt may actually be the really smart move.

Reply to
camgere

"HW "Skip" Weldon" wrote

I agree. I have thought of it in terms of needing a cultural attitude shift. If it germinates and begins to happen, it will take several years at least. Government and business leadership would be key to making it happen. While I think some politicians and a few in business aim for this shift, most do not.

Reply to
Elle

The definition of "economy" derives from Greek "oikonomia" from "oikonomos" household manager, from "oikos" house + "nemein" to manage (source: Webster's).

Move the gentleman from MIFP's measure to immediate vote. Show of hands. Approved. [Gavel sound.]

I think your statement is eloquently spot-on. Great way of putting it, no apsersions, no whining, and very nice literary style as well.

Now for the next five months ... IMObservation, the short version is that the financial sector borrowed a lot more than the consumer sector. (In a bit more detail, as I see it, the *institutional* (aka "professional money managers") financial crisis brought about by 30- to-1 leverage on $14 trillion in the investment banking sector has put pressure all the way down to cash. If consumers were overly indebted, the financial sector compounded this. This has fed itself with FEAR all across the boards. Hopefully, with the recent drop in LIBOR, this institutional whirlpool is slowing down - or even dissipating. There is still some carryover as equities are sold off.)

It is easier to negotiate problem resolutions from a position of strength, and in that sense, a short term stimulus might be desirable and advisable. But the biggest factor in this at present is restoration of confidence, and that won't be accomplished by a short term stimulus. Confidence will be restored by a return to more conservative traditions and personal values, just as you outline.

But this has to, must, perforce, without qualification, include the financial sector. What we are seeing today is a massive "stimulus package" to the financial professionals, who are at present little more than goons.

Reply to
dapperdobbs

I don't have a firm stance on the topic, so please consider the following nothing more than the off-the-head spoutings of a madman. I invite answers to my questions and even factors that I may not have considered. Perhaps it will help me (and others) better form an opinion.

That said... The government's purpose is to serve the people. I'm pretty confident on that last statement. As such, our government is a reflection of the views of the electing populous. So why do we think that the gov't should change first and the people will follow? It seems to be a contradictory belief. If society elects officials with similar views of the majority, why do we expect anything other than spend-happy officials. It's what their EMPLOYER demands. Taking the podium in front of a hands-out, spend-hungry society and telling them you are going to reduce spending is a recipe for unemployment. Even if penny-pinching officials could wiggle their way into power, they'd likely be replaced with people who's vies more align with the citizens.

I don't see how change can come about unless it comes from the individual first. Only then will those individuals elect officials who share their newly enlightened view. I've never understood the propensity to blame our leaders. We put them there! We chose them because, at least at one time, we backed their beliefs. Barring trickery or deceit how can we not blame ourselves first?

[Side note: I am prediciting that exactly HOW one defines "wasteful spending" will have a large influnece on one's beliefs. Some may consider the war wasteful, while others do not. Some may consider the stimulus package wasteful while, again, others do not. I imagine that very few citizens actually support government over-spending. The problem is they don't agree on what's wasteful and what isn't.]
Reply to
kastnna

All,

I have been reading this group for about 3 years.

The ones of you with unlimited posting priviledges seem to be well educated, knowledgeable and very helpful to those of us that have questions and concerns about the savings/investments that we have been able to put away.

My wife and I are not well educated (high school, trade school and a little college), we have been most fortuante in finding jobs that paid decent wages, we will never be rich nor on easy street, but have managed to be debt free. I have always had family health insurance, I paid out of hide, I never let a credit card balance go over 90-days, nor a car loan over

30-months. We had a 25 year mortgage that we paid off in less than 20 years.

My thoughts on this are - Skip is on target. You can never borrow or spend your way out of debt. All need to take responsibility for their actions; people borrowing more than they can repay, banks lending to people that should not qualify and the Government sitting back singing praises.

Now the banks, state government, credit card companies and numerous others are waiting on hand outs - to me it is obvious that borrowing is not the answer and if we keep doing the same thing and expect different results that is the definition of ----.

To all I wish you good health and a Great weekend.

Reply to
CIL

Now that we are an Obama country "Omerica" we might as well face it. The big government is going to give us play money (printed from the press). Spend it fast becasue it's value will go down even faster!

Dont fight it! Spend it! You only have 4 years and then we have to focus on fixing the country. So live it up!

Jim Knight Senior Sales StockTruth.com

Reply to
jim.knight

"kastnna" wrote

You followed my post. In case you were trying to paraphrase me, I do not feel the above is a reasonable rendition of what I wrote.

For me, the following facts undo the arguments above: Approximately 73% of the age-eligible (that is, about 25 and older) population lack a bachelor's degree. Much of this 73% does not even vote. By contrast, most elected officials have a bachelor's degree.

Reply to
Elle

Agreed. But it's the transition itself that's painful, both at he personal level and the impact to the economy. For example, we use the term (borrowed from David Bach) 'latte factor' to describe the seemingly small expenditures that add up over time. Me, I make a big pot of coffee once a week and heat a cup each day. If everyone decided to make their own, the 10,000 Starbucks in the US would go under. Of course, they don't have a monopoly, this is just an example. We are now in a recession, I think that's not debated, and the question is for how long and how deep will it be. At some point, spending needs to return to some 'normal' level. Whatever that is. Joe

Reply to
JoeTaxpayer

I certainly don't want to kick off a political debate. But I think that approach is not widely supported in Washington. We had the first stimulus package, but the recent packages have been more investment oriented.

As a side note, the first stimulus package was probably responsible for the positive growth in GDP the second quarter. Without it, it we would probably be three or four quarters into the recession. That's kind of a technical thing without real meaning. Slightly more meaningful is the fact that about 30% of the stimulus package went to savings or debt reduction.

Classic Keynesian economics says that national governments should increase spending during a downturn. The part the politicians didn't get is that spending should be balanced with surpluses during the good times.

The Great Depression was caused by easy credit and fueled by balanced Federal budgets along with contracting money supply. It was cured by Federal deficit spending, increasing money supply, and just time to work through the debt.

If we are going to have another spending-oriented stimulus package, it should be oriented towards building or repairing infrastructure. I guess that could be viewed as investment as well. I've got a park near me that still has a lot of roads, bridges, and trails that were built by the depression era CCC.

It's the collateral damage that is the issue here. If one poor fellow is foreclosed in his sub prime mortgage, that's his problem. If millions are, that's everyone's problem. (Don't interpret that as advocating some massive bailout.)

But fundamentally, I agree. We are just going to have to work through it. The Feds can, should, and are doing taking drastic action to minimize the severity. But we can't just spend our way out.

-- Doug

Reply to
Douglas Johnson

Sorry Elle. I just replied to the last post in the group. I thought I deleted all statements from previous posters so it wouldn't seem I was directing my comments at anyone. I apologize

I don't think I follow.... What does the education level of the elected official have to do with it? They could all be Einsteins, but if they want to keep their jobs, their going to give the people what they want (whether they think its best or not). It's a simple matter of self-preservation.

Reply to
kastnna

Trickle down economics works if the trickle is forced and the people at the top do not hoard the money.

I don't like the handout mentality where the government taxes, taketh away and then redistributes tax free.

Creating incentives for working would then have a) more people paying taxes b) fewer people needing handouts c) probable higher budget surplus

this might become know as trickle up economics?

I do not think trickle down works unless the trickle becomes a stream. I do not like handouts because it removes incentive for people to better themselves. This does not need to be the land of equal opportunity, does it? Trickle up is what we had under Clinton, but I have never seen anyone else describe it that way. Less need for handouts because so many people were working.

People will not "emerge from this process" if they are unemployed. I think the government needs to be involved enough to enable most people... but it does not need to enable everyone. If everyone has an opportunity, that is good enough. The opportunities do not need to be equal because so many outside variables affect what would be equal (family, religion, state rules to name 3).

Reply to
jIM

kastnna wrote

I understand. Thanks for explaining.

There is giving the people what they want in the short term and giving them what they want in the long term. I think good leadership, including the type that results in re-election, can explain to the masses that what the masses say they want for the short term (e.g. lower taxes) may conflict with the masses' long term desires (e.g. continued Medicare for the elderly).

Reply to
honda.lioness

There is the issue of trust, or lack thereof. Telling people now that they can have pain now or more pain later only works if they trust you that these are alternatives. If we save (or pay more taxes or have less services) now, but the treasury is looted (figuratively or literally) only the looters are better off, and most people just have the same pain in the future as well.

To some extent, I think this is how the under 40 crowd fees about SS/ Medicare. They can pay the higher taxes into a trust fund now, but they have no guarantee that this will not simply result in a lower political will to restrain growth in payments to people who get to the trough before them (the 40-60 crowd) so that when the 30 year old gets to be 67, 70 or 75 there is the same amount of pain. The children are told they must bail out the program (higher taxes for 25-45 years), but the next generation who pays the higher taxes for a shorter time has the political muscle to drive up the benefit rates. After all there is always the next generation to screw over.

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Reply to
themightyatlast

A friend that does not read this group, but has been having a similar discussion with me, sent the following in an email:

"The government is merely a servant -- merely a temporary servant; it cannot be its prerogative to determine what is right and what is wrong, and decide who is a patriot and who isn't. Its function is to obey orders, not originate them." -Mark Twain

I just thought it was interesting and on-topic. I make no claim to Mr. Twain's knowledge of civics.

Reply to
kastnna

I hope you are right. It seems to me to be the only way that a "gov't first" strategy would work. As I said, I'm still on the fence in regards to this topic.

Reply to
kastnna

You are right, and it is important to note, that trust is vital to my proposition. I also agree trust is very hard to establish, particularly when we see fatcat execs, whose corporations are being bailed out on the little people's dime, continuing to indulge in extravagances. The Treasury Secretary et al. picking and choosing whom to bail out also does not inspire. It makes me less supportive of helping the government in any way. Shades of the anti-government militia crowd. I am not particularly optimistic about a macro-solution to our economic problems. I think folks will have the best chance, now and later, relying mostly on their own budgeting discipline.

Reply to
honda.lioness

I think there are valid things the government can do to make investments in our society that would at least prevent a further deterioration of the economy. We have bridges and other infrastructure that desperately needs maintenance, but we have been building new roads, etc. instead. Perhaps we ought to be looking at what needs doing in that area. As far as the financial picture: the sub-prime mortgage situation is a real mess. Who owns the mortgates? If a borrower wanted to refinance, would they be able to find who owns the note to get permission to refinance? What about those folks who are not behind, find themselves in a few years wanting to sell. To whom does the payoff go? Many of these loans have been sliced and diced so many times that unsnarling the mess may be more than we currently realize. It seems to me the government could invest some money (jobs, etc.) into creating a database for this inevitable future.

No, Skip, I'm not sure that spending our way out of this is exactly the right way to go. However, NOT spending may not only deepen the pain, but prolong it, and I'm not sure that is the right way either.

Elizabeth Richardson

Reply to
Elizabeth Richardson

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