No doubt you’re sick of hearing about the recession; so am I. But before telling you how we can end the recession as soon as possible, let me make an observation about our President. I distinctly remember socialist presidential candidate Barack Obama criticizing socialist President George Bush for his use of “fear tactics” during his 8 years in office. Last week Obama stumped around the country claiming that if we didn’t get his stimulus bill passed in a week the United States of America would be facing an economic “Catastrophe”. I guess it’s OK for Obama to use fear tactics to scare the hell out of the American public about their jobs, their mortgages, and their livelihoods, but for God’s sake, it’s immoral for George Bush to use fear tactics to mention the possibility that some Islamic terrorist could be standing in the middle of New York City with a suitcase nuke.
Back to the recession; it isn’t as bad as the 82 recession, but it is a recession, to be sure. On Monday the President will sign a $787 billion pork barrel spending bill that masquerades as an “economic stimulus” bill. Most of the money won’t directly affect the economy or job creation for nearly two years. The President has said that the stimulus package will create “millions of good paying jobs”. Don’t be fooled. Government doesn’t create jobs; it diverts money (and jobs) from the private sector to pay government employees.
Recessions are common and this one would have come to an end by the fourth quarter of 2009, even without this $787 billion stimulus package. When the recovery comes, Obama and the Democrats will take credit for it, but the recovery will be in spite of their spending, not because of it. Because the government will have to borrow or print all of the money, within two years we will have substantial inflation, perhaps double digit. The only way to cure the 2011 inflation will be to raise interest rates, causing the economy to slip into another recession.
Not only is this $787 billion “stimulus” package unnecessary, but the endless debate and poorly thought out results of weekend “crisis” meetings has delayed the recovery. Markets can adjust to bad news, but they are frozen when they have to deal with uncertainty. The politicization of a rather normal recession and the media “spin” that has whipped up a 7.2% employment rate, as if we were selling apples on the streets in 1930’s, has been a great disservice to the economy.
I know people who have been looking at homes to purchase, but they remain on the sidelines, unwilling to sign a purchase agreement. They have a good down payment, real good jobs, and can easily get a mortgage. Why won’t they buy? They’re waiting for the government to quit meddling in the economy and establish the “rules” of the game. One week there’s talk of a 4.5% interest rate on new home loans. The next week there’s talk of a 15% tax credit for new homebuyers. So, while sellers have homes they want to sell and buyers want to buy those homes, no one is going to make a move until the government is done deciding what it will do. After all, who wants to buy a house in February when the government is going to enact a tax credit in March?
Businesses and consumers are also sitting on the sidelines waiting for the government to finish the rule-making. Why buy an automobile now, when they’re talking about a tax credit later? Why should a business invest in machinery and equipment when its owners don’t even know what the government is going to do with depreciation rates and capital gains taxes?
In summary, we know only two things for sure.
1. Whatever the government does to “stimulate” the economy it will be done badly.
2. The sooner our saviors in Washington get done with whatever they’re going to do, the sooner the uncertainty will go away, the sooner markets will adjust, and the sooner the economy will recover. As long as the rule makers fiddle, our economy will burn.