Wednesday, January 23, 2008

Can We Print It?

I think my problem with current economic thought is the Bob The Builder attitude of "Can we fix it? Yes we can!" For those wondering what I'm talking about, see what some of our current presidential candidates are saying: Clinton, McCain, Obama, Huckabee, Edwards, Giuliani and Romney. The current president has a plan. The leaders of the House and Senate are working with him on it to make it a reality. Let's just say there are a whole lot of plans out there. If the current leadership (executive and legislative branches) pass the one being discussed, everyone will be taking out a loan for $800 or $1,600 for couples (now dropped to $600 each with an additional $300 per child.)

Why do I say 'loan'? I believe that is the best way to describe accepting money from China or your children (and children's children) that needs to be given back somehow. With a deficit, money has to come from somewhere. We don't have a bank account full of all the tax money sent to the government... it's empty. To keep it from becoming an entire black hole, more money is printed which drops the value of what is out there. Economic law of scarcity reversed. This inflates the prices of items purchased abroad as they track our international borrowing and spending by our politicians. These debts no doubt will be passed on to our children.

Yet, for some reason, there is a belief that each of us would spend $800 (updated to $600) each on items that could increase production here in the U.S. to spur growth. Yet, it's hard enough to find items just produced in the U.S. and most people would probably just pay it to their home loans (that just so happen to be secured by foreign investors.) I also have trouble believing that it will happen soon. Even if an economic stimulus program were agreed to this week, we'd see it at the earliest in May. I'd expect even later seeing as how tweaking things often slows something else down. Heck, the recent changes to tax legislation by Congress will be delaying tax returns for early filers. I'm thinking that they need time to print the money.

1 comment:

Ken said...

I love posts like these, and glad I'm not the only one who makes them! Also, thanks for reminding you to make a payment on my HELOC. I almost forgot!

I agree that these tax "rebates" are no more than loans, and the fact that our economy is underpinned by foreign investors and/or governments is dangerous. I'm reminded of two West Wing episodes. The first in which Charlie goes from having a tax refund to owing because of such a rebate. The second was in the last season when the President hosted both his Economic rival and whom he shared a Nobel Prize with where he warned the danger of our economy being basically owned by the Chinese.

Let's face it - these rebates are nothing more than a ploy by our politicians to show people that the they are doing something. The presidential candidates are simply pandering because nothing can swing an election than economic fears. It also gives them ways to advance their own agenda. On the Democratic side, it's "taking care of the little guy" and on the Republican side it's all about tax breaks tax breaks tax breaks.

While I don't necessarily want to go through a recession, maybe Adam Smith's "Invisible Hand" wouldn't be such a bad thing. Help correct some things out there.