Friday, March 6, 2009

The Illusions of Change; The 2008 Elections, The Bailout and the Stimulus Oh MY!!

It is a popular conceived notion that bipartisanship and the government are the cure to our economic woes, nothing can be further from the truth. Americans are breaking record levels of needing food stamps.

People are worried about food! This is how serious our crisis is, Americans don't worry about food. Ever. This being a crisis for survival, the help needs to just go directly to the people. America's politicians are exploiting troubles for special interest courtesy of their stimulus package or their $410 billion omnibus earmark garbage which is going to be add as a bigger obstacle for economic recovery. Human beings simply cannot get any dumber.

Back to the stimulus discussion.

Before I go any further, please keep in mind that the Stumulus is a Keynesian concept and Keynes himself said that it was will not work with a trade deficit.
This holds true whether or not the government is a socialist or a capitalist one, because neither one can function until the bottom line is fixed. The budget must be balanced in either case.

(again, the Free Market aka. Capitalism is not Keynesian economics. I will send the memo to Naomi Klein.)

The trade deficit is the skeleton in our closet. Our media won't address it. Our Economic "experts" won't discuss it. And this is the very reason why the stimulus will work in China and not in the U.S.

Beware: Recession may be Hayekian
28 Jan 2009, 0007 hrs IST, Swaminathan S Anklesaria Aiyar, ET Bureau

"...The current recession is deeply structural. For a decade, the US has run the biggest trade deficits in history, matched by corresponding trade surpluses of China, Opec, and other Asian countries. After the financial crisis of 1997-99, many Asian countries swore to build large forex reserves to avoid another debacle. So they deliberately undervalued their exchange rates, ran large current account surpluses, and so generated large forex reserves. This had to be mirrored in correspondingly large current account deficits in some other countries. The biggest turned out to be the US

This defied conventional economic logic. Normally, rich countries run trade surpluses, and send their excess savings to poor countries with scarce capital that are running trade deficits. This normality was turned on its head by Asian countries determined to build large forex reserves after the trauma of 1997-99. These forex reserves went mainly into US gilts. Suddenly the world was flooded with money.....

...Yet the boom was patently unsustainable. American households, who historically saved 6% of disposable income
, started saving nothing at all, and dipped into their wealth to spend as never before...

...These bubbles have now burst. A Keynesian stimulus amounts to an attempt to re-inflate those bubbles. "

In my own words, the interest payables on the treasuries bought from foreigners and the debts themselves will continue to cancel out any benefit that the stimulus will create.

The three solutions presented to the American people to remedy the economic crisis were the election, the bailout and the stimulus.

The election was the biggest disappointment in the century, there was nothing on the menu. People voted for change. They wanted to show the world that we are diverse and tolerant. Unfortunately BOTH Obama and McCain voted for the bailout when polls revealed that the majority of Americans were against it. Myself, I went on voter strike. As a republican I would've voted for Marci Kapture (D). I would've voted for Ron Paul (R-libertarian) if he were more pragmatic in his tenure.

"Sixty-two percent (62%) of investors say “no” to all three bailouts, with 24% who favor them. Twenty-eight percent (28%) of non-investors support the bailouts, but 45% are opposed. "

54% Say ‘No’ To All Bailouts
Rasmussen Reports Tuesday, February 24, 2009

The Democrats siezed the opportunity to capitalize power by blaming republicans and capitalism solely for the economic crisis, which worked well in Obama's favor. Unfortunately, many nieve democratic and republican voters are unaware of the fundamentals of economics or the course of events that led to this catastrophe; the lack of objectivity was definately the fault of the media. Who am I to discount the mainstream headlines written by "experts"? I'm just an armchair economist. With Americans, it's our own bottom line that counts.

What's wrong with the Bailouts?

1. They're a moral hazard. Banks and non-bank lenders gave higher payouts and incentives to employees that sold an ARM loan to a risky borrower. They should take the fall for that unethical behavior like the fate that was assigned to them through the natural course of the free markets. The taxpayers did no wrong, the banks did. Why should we suffer for this?

2. Congress approved of TARP without an independent audit. ??? That was DUMB!

3. Banks want to suspend accounting rule in bailout
By Associated Press

"'The American Bankers Association said in a letter to the SEC that current accounting standards "never anticipated the wide variance and price disconnects that we are experiencing today.'"

Paul Craig Roberts, How the Economy was Lost
“All government needed to do was to suspend the mark-to-market rule. This simple act would have removed the solvency threat to financial institutions by allowing them to keep the derivatives at book value until financial institutions could ascertain their true values and write them down over time.”

other solutions;
-allow the shareholders sue. BOD can force CEO resignation/management changes, etc.
-allow the banks to fail, let the competition take the business.


1. If the value of the dollar was declining, what gave these forecasters any inclination that the economy was strong? By the derivative inflated GDP? Who did the economic forecasting? What were they smoking?

2. What business models did they use? What info & method did they use to determine inventory? How did they end up with so many inventories?

3. What were the financial engineers smoking when they created the toxic derivatives? Whatever they were smoking when they created the synthetic derivatives is preferable.

4. The lenders knew they were screwing themselves in the end. Exactly why did they keep doing this? Again, allow the free markets take it's course. This is Darwinism at it's finest. If the rich shareholders don't want to buy AIG stock from corrupt management, why should the taxpayers be forced to buy it?

5. We need complete transparency on TARP. We get nothing.

In my humble opinion, Somebody needs to get a hold of the toxic paper and toss them into the water if the Tea Party is done right.


I'm going to close this post with a brief discussion on Obama, his cabinet and the stimulus.

Obama has a JD in Law from Harvard University. He is a bright individual and a trained lawyer. His wife Michelle is a kick @$$ speaker and having her as the 1st Lady is the one perk we can truely claim in the Obama presidency, and I will get to that later.

Obama is not a businessman or an economist. Infact, he has never worked in a privatized business, he hasn't the training and he's never legislated an effective piece fiscal legislature in his brief term as senator. And he was entrusted by the majority with this housing crisis. Except that this is not just a housing crisis. He is just a legistlator with one third of the power in the House of Representatives.

Many Americans held very unrealistic expectations from this guy and his position as a leader.

When in history has a president created an economy? They've only allowed the Fed to manipulate the economy to get the credit flowing. They've also regulated or deregulated the sectors of the markets.

When in history has the president ever created wealth or innovated? The two are the bread and butter for the American Economy. No, Al Gore never created the internet. Techies worked for 40 years to get the internet up and available to the masses.

All the government needs to do now to get the energy sector up and running is to allow this to happen. They do not need to impose cap and trade policies and taxes to benefit the economy. The government in the past has done this to monopolize the auto industry which led to it's initial disaster and the preference of imported autos. Alternative energy will thrive on it's own as long as the price meets demand, and the public's ability to pay for it (which is trivial at this point thanks to the current account deficit and the wealth inequality).

Bush created a disaster of an economy by using a stimulus after the dot com crash in 2003 with the growing trade deficit. The GDP rose to $13 trillion which was impossible to do without the use of derivatives, credit and the high cost of real estate because the majoirity of Americans are no longer able to save with our real wages.

Obama just repeated Bush's mistake by signing the stimulus. Again, the media nor the politicians want to address the trade deficit, offshoring and interest payables on our treasuries.

Obama has free trade enthusiasts in his cabinet. He also put tax evading Treasury Secretary Timothy Geithner who was again the President of the NY Fed and responsible for manipulating interest rates to create the bubble. With this in mind, I'm left to believe that the Obama administration is going to recreate the bubble to "stimulate the economy".

The government has never worked truely in the favor of the masses. As of now, the deficits are at a critical level where they can be considered a national security concern.

But I close with these thoughts. It was always the American people who made this country great. It was the American people who innovated and created wealth with not only the internet, but modern medicine, the automobile, the airplane, the universities, electricity, space travel, the cotton gin...

It was the American people who labored, saved, spent and invested. It wasn't the very wealthy. It wasn't the politicians.

It is Americans who are out of debt right now. Sure we have less assets, but American consumers cannot be blamed for this mess. The massive debts are those claimed by the government.

It was the American people who paid $1.37 trillion in income tax. Meanwhile Corporate America paid only a quarter of that, or $300 billion (for link see page 11), plus lobbyist funds, or bribes to the government. And of course the government will take the bribes over the American people.

It was the American people who sacrificed their lives for our freedoms.

It was the American people who truly help eachother in times of need. People are doubling up families in single family homes during this crisis. People have helped eachother gain employment. It's the People who also have to call an ambulance at the scene of an accident, the government won't.

I brought up Michelle Obama for a reason. Her people positive energy was quite refreshing, she hit a high note by acknowledging the scene for what it is, I'll give her a benefit of a doubt on her sincerity.

It's a grave mistake to leave "change" up to the administration. As history showed us, change has to come by the people.

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