Tuesday, June 14, 2011

Economic Choices, the Federal Government, and Failure

I pulled the following post from October of 2009. It is a lead in to a newspaper article from the Wall Street Journal that discusses the failure of the Barack Hussein Obama Administration’s economic policies. The articles:

Economic Choices—Good and Bad
Monday, October 12, 2009

I wasn’t planning to write about this particular subject tonight. However, two separate articles caught my attention recently. The first was a short article published in the Peoria Journal Star on 10/8/09, page A6. It seems that consumer debt has been decreasing since the recession began. According to the article, consumer debt decreased by $12 billion dollars in August and that decrease was the seventh straight month that a decrease has occurred.

Economically, one of our major problems has been the increasing consumer debt that has been fueling economic growth. This increasing debt, while contributing to short term growth, was and is a negative long term. Eventually such debt always comes back to haunt the nation as demonstrated by the housing implosion that recently occurred resulting—to a great extent—in the current recession.

In fact, this would be an extreme positive if the American consumer permanently learns that consumer debt is a long term negative. The basic economic principle is to save money during good economic times and spend money in recessions when prices become stable or even are lowered. Unfortunately, we have been doing it backwards. Spending like bandits when times are good and cutting back when times get bad. Cutting back is logical when in debt. The irrational action is overspending—going deeply into debt—during good economic times and expecting those good economic times to always continue. It doesn’t and can’t work that way. Eventually, the increasing debt always comes back to haunt the nation—always!

Unfortunately, from past experience, once the recession ends consumer debt will probably begin to increase again which will eventually lead to the same implosion again. The long term solution is to not go into debt. Will we learn this time or return to our same old bad habits?

Of course, our government has not learned a thing from the recession. Instead of cutting spending since it did not save during the good times, the Barack Hussein Obama administration is continuing the nation’s plunge into greater and greater debt at an ever increasing pace. The yearly national debt for the last fiscal year was 1.8+ trillion dollars ($1,800,000,000,000+). And with the proposals being presented by the administration, if passed, the national debt will only increase. It may be or seem somewhat beneficial short term. Long term it is almost suicidal.

The second article—actually in the form of a graph—was published in the Peoria Journal Star on 10/11/09, page E3. According to the graph which goes from July through June of the next year, the amount of money collected by banks in the form of service charges has increased from just over 15 billion dollars in 2003 to just over 20 billion dollars in 2009. Further, “an estimated three-quarters (75%—my addition) of this income comes from overdraft and non-sufficient fund penalties.”

A banker friend of mine tells me that most of these overdraft and non-sufficient funds penalties come from the misuse of debit cards—which I can certainly believe. While in Arizona, another friend of mine asked me twice to help her balance her checkbook since she was being charged penalties for withdrawing more money than she had—penalties at $25 a pop. Both times the problem was the same. She was using her debit card to make small purchases and NOT recording those purchases in her check registry.

The result? She was writing checks with no money to cover them because of all her debit card purchases that were not recorded. Once she limited her use of her debit card (I would have preferred her destroying the card) and actually recorded those debit card purchases she did make—at the time of the purchase—her problem was solved.

In fact, I have NEVER owned or used a debit card. When offered, I refuse to accept the offer. It is a convenience but it is often a very costly convenience. And the banks know it.
If it weren’t for these poor consumer choices, consumers would have an extra 20 billion dollars to buy goods and services instead of paying fees to banks for small, but economically costly, conveniences.

You would think they would learn. Is it possible to change from the instant gratification mode to making wise long term economic choices? Is it possible for consumers? Is it possible for governments?

From: the 9/12 Project Network


“The Economy Is Worse Than You Think
Expect more bad news until someone enacts a plan to bring deficits under control without raising taxes.
June 8, 2011

The policies of the Obama administration have led to the weak condition of the American economy. Growth during the coming year will be subpar at best, leaving high or rising levels of unemployment and underemployment.

The drop in GDP growth to just 1.8% in the first quarter of 2011, from 3.1% in the final quarter of last year, understates the extent of the decline. Two-thirds of that 1.8% went into business inventories rather than sales to consumers or other final buyers. This means that final sales growth was at an annual rate of just 0.6% and the actual quarterly increase was just 0.15%—dangerously close to no rise at all. A sustained expansion cannot be built on inventory investment. It takes final sales to induce businesses to hire and to invest.

The picture is even gloomier if we look in more detail. Estimates of monthly GDP indicate that the only growth in the first quarter of 2011 was from February to March. After a temporary rise in March, the economy began sliding again in April, with declines in real wages, in durable-goods orders and manufacturing production, in existing home sales, and in real per-capita disposable incomes. It is not surprising that the index of leading indicators fell in April, only the second decline since it began to rise in the spring of 2009.

The data for May are beginning to arrive and are even worse than April’s. They are marked by a collapse in payroll-employment gains; a higher unemployment rate; manufacturers' reports of slower orders and production; weak chain-store sales; and a sharp drop in consumer confidence.

How has the Obama administration contributed to this failure to achieve a robust and sustainable recovery?

The administration’s most obvious failure was its misguided fiscal policies: the cash-for-clunkers subsidy for car buyers, the tax credit for first-time home buyers, and the $830 billion ‘stimulus’ package. Cash-for-clunkers gave a temporary boost to motor-vehicle production but had no lasting impact on the economy. The home-buyer credit stimulated the demand for homes only temporarily. (All of these policies were basically transfers of money from one group of tax payers to another group of tax payers or, worse yet, BORROWED money. Remember: 40% of all money spent by the federal government IS borrowed money. Borrowed money may boost the economy temporarily short term but the long term impact of BORROWING 40% of what is being spent is devastating. It does NOT matter if you are an individual, a business, or a government. If spending is continually based upon BORROWING the long term impact is NEGATIVE!!! And at a continuous 40% clip it is disastrous! The federal government MUST stop and MUST stop NOW!!!—my addition)

As for the ‘stimulus’ package, both its size and structure were inadequate to offset the enormous decline in aggregate demand. The fall in household wealth by the end of 2008 reduced the annual level of consumer spending by more than $500 billion. The drop in home building subtracted another $200 billion from GDP. The total GDP shortfall was therefore more than $700 billion. The Obama stimulus package that started at less than $300 billion in 2009 and reached a maximum of $400 billion in 2010 wouldn’t have been big enough to fill the $700 billion annual GDP gap even if every dollar of the stimulus raised GDP by a dollar.

In fact, each dollar of extra deficit added much less than a dollar to GDP. Experience shows that the most cost-effective form of temporary fiscal stimulus is direct government spending. The most obvious way to achieve that in 2009 was to repair and replace the military equipment used in Iraq and Afghanistan that would otherwise have to be done in the future. But the Obama stimulus had nothing for the Defense Department. Instead, President Obama allowed the Democratic leadership in Congress to design a hodgepodge package of transfers (Transfers of money which was BORROWED money!—my addition) to state and local governments, increased transfers to individuals, temporary tax cuts for lower-income taxpayers, etc. So we got a bigger deficit without economic growth.

A second cause of the continued economic weakness is the president’s emphasis on increasing tax rates. Although Mr. Obama grudgingly agreed to continue the Bush tax cuts for 2011 and 2012, his budget this year repeated his call for higher tax rates on upper-income individuals and multinational corporations. With that higher-tax cloud hanging over them, it is not surprising that individuals and businesses do not make the entrepreneurial investments and business expansions that would cause a solid recovery. (Which is normally the way the country gets out of recessions. When costs are stable or down people are willing to invest in the “future” instead of doing such economically unproductive things as, for example, buying and hoarding gold. Hear any news lately about the rise in the cost of buying gold?—my addition)

A third problem stems from the administration’s lack of an explicit plan to deal with future budget deficits and with the exploding national debt. This creates uncertainty about future tax increases and interest rates that impedes spending by households and investment by businesses. (As I said above, now would be the time to be purchasing and investing—buy low and sell high—but when people and/or governments have only borrowed money to use that advantage is lost to a great extent as far as long term benefit is concerned—my addition.) The national debt has jumped to 69% of GDP this year, from 40% in 2008. It is projected by the Congressional Budget Office to reach more than 85% by the end of the decade, and to keep rising after that. The reality is even worse since ObamaCare alone will cost more than $1 trillion in its first 10 years. The president’s boast that his health legislation would not ‘add a dime’ to the national debt was possible only by combining that increased spending with proposed new taxes and with projected cuts in Medicare spending that will never occur. (It was a LIE! All one has to do is look at the growth and COSTS of similar programs in the past! Do we learn nothing from past experiences?—my addition)

Finally, there is the administration’s incoherent position on the international value of the dollar. The Treasury repeats the slogan that ‘a strong dollar is good for America’ while watching the real value of the dollar fall by 7% over the past year, and while urging the Chinese to allow the dollar to fall more quickly relative to the yuan. The lack of a consistent dollar policy adds to the uncertainty that limits business investment and hiring.

The economy will continue to suffer until there is a coherent and favorable economic policy. That means bringing long-term deficits under control without raising marginal tax rates—by cutting government outlays and by limiting the tax expenditures that substitute for direct government spending (Transfers of money through the tax system—my addition). It means lower tax rates on businesses (As I’ve proposed, no income tax for businesses—my addition) and individuals to spur entrepreneurship and investment. And it means reforming Social Security and Medicare to protect the living standards of future retirees while limiting the cost to future taxpayers.

All of these things are doable. But the Obama administration has not done them and shows no inclination to do them in the future. (AND WON’T do them unless forced to do them!!!—my addition)

Mr. Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan, is a professor at Harvard and a member of The Wall Street Journal’s board of contributors.”

It’s time, it is past time to TAKE BACK THE NATION!!! It’s time, it is past time to TAKE BACK THE NATION!!! It’s time, it is past time to TAKE BACK THE NATION!!!