Big Muddy rancher
Well-known member
PREVIOUS LESSON. Nancy Pelosi's little gaffe yesterday about 500 million Americans losing their jobs every month that the "stimulus" package isn't passed should be a reminder that the numbers being tossed around in Washington, DC, these days have long since crossed over into the Land of Oz.
The truth is that federal government spending, however huge the numbers sound, can't have a very large positive effect on the economy. Why? Arithmetic.
The Gross Domestic Product of the United States in 2008 was approximately $14.3 trillion. Let's look at the actual number:
$14,300,000,000,000
Got that? Okay. The total cost of the stimulus package, so far, is $925 billion. Let's pretend that every dollar of the package will add directly to the GDP.
$14,300,000,000,000
+ 925,000,000,000
$15,225,000,000,000
Impressed? Or just drawing a blank? Well, what if we cut these numbers down to a size us ordinary mortals can comprehend?
$14,300,000,000,000
+ 925,000,000,000
$15,225,000,000,000
Are you impressed now? The way the Democrats want you to calculate it (in their dreams anyway), the stimulus bill will grow the U.S. economy by about 6.5 percent, which would be a very good year even in times of prosperity. If the $14,300 were your annual income and someone offered you $925, would you take it? Yes?
What if you could only get the $925 if had to spend it all on specific things: installing new rain gutters, planting some bushes in the front yard, adding a wheelchair ramp to your front door, and laying in a year's supply of condoms? Still interested?
What if it turns out that the money is actually not a gift but a loan? You see, the government doesn't actually have the $925. It has to borrow the principal with you as a co-signer, and you have to immediately begin repaying principal plus interest, which on average at the end of 2008 was about 4 percent. In fact, it's a lot like a mortgage. Now your $925 isn't a 6.5 percent increase in this year's income but something considerably less than that.
Still on board? Really? There are are a couple of other strings attached you may want to know about. You're already pretty heavily in debt, and as we've seen, the $925 is kind of a one-time thing because those condoms and the new rain gutter aren't going to earn you any money next year. If you should face some kind of additional emergency later this year or next, it's going to be much harder and more expensive to procure the loan you need then, and you might not be able to get it at all. And please don't forget, that $925 less principal and interest payments isn't money in the bank; it's in the wheelchair ramp.
Are you feeling stimulated?
I know you can make the argument that even if this kind of stimulus doesn't help you much, it might help others and so you should go along with it. The $925 may not be purchasing something you wanted, but it's good news for the rain gutter contractor, the landscaper who put in the bushes, the carpenter who built the ramp, the lumber yard where he got the materials, and the drugstore where you bought the condoms. Except that these are all one-time benefits for them as well. Nobody's power to earn future income has been improved in any way. And you're paying for it.
For how long? It's possible that the $925 you got was a long-term loan, and you'll be paying 4 percent or more on the principal for years, maybe even a generation.
There's yet another potential downside. If the loan papers you signed said anything about "creating jobs" through all this directed spending, it may well be the case that your principal liability is a lot more than $925. It might be that you've actually agreed to long-term contracts with the rain gutter people and the landscaper, that you're now on the hook to pay them every year for more gutters you don't need and more bushes you don't want.
Feeling more prosperous yet? Or would you prefer to have your gross tax rate reduced by 6.5 percent instead? This time, I'll let you do the math.
Now. Are you ready to talk about bailouts?
Our new president is talking all high and mighty about what he will and will not tolerate from the businessmen he's rescuing with government funds. Sounds like he has a lot of power, doesn't it?
How much is he spending on these bailouts anyway? Some estimates run as high as $3 trillion in troubled asset purchases and stock ownership in ailing corporations deemed too big to fail. The total cost of such "bailouts" strikes most economists as a stupendous figure, even a backbreaking figure. Does this mean the president is essentially buying a majority interest in the asset base of the U.S. economy? Is that why he's handing down commandments like Moses on Mt. Sinai?
The total estimated net worth (wealth) of U.S. households is estimated at $60 trillion. (Have you ever heard that number before?) The government's acquisition of $3 trillion worth is about 5 percent of that. And it's the 5 percent that's most in danger of losing all its value.
Indeed, that's the most relevant fact about the government's power when it intervenes in asset ownership in this way. Almost all its power is negative. It absolutely has the power to reduce the value of its $3 trillion investment to zero. In so doing, it can also seriously undermine the value of the $57 trillion that remains in private hands. But with a mere five percent stake, it cannot fundamentally change business practices by bullying the institutions under its control. Management of the other 95 percent of the asset base will continue to be ruled by self-interest and the laws of economics. Obama can decree that the executives he owns are limited to $500,000 a year in income (or $1 if he so chooses), but without passing new laws he cannot alter the behavior of the market as a whole one whit. If all the people who know the most about the banking and financial businesses of the United States leave Wall Street for jobs in financial and other companies not owned by the government, Obama will have succeeded only in destroying those assets under his stewardship. Are there better-paying jobs for financial executives in the other 95 percent of the economy? You tell me.
And, again, without compounding the business woes of the nation by driving the bailout companies into dissolution, there can be no excuse for further government acquisitions in the private sector. The market is more powerful than the president. And if Obama should seek more powers of interference after completing the ruin of Wall Street and Detroit, on what basis should we, or would we, trust him to do a better job in his next amateurish round of presidential Monopoly?
$60 trillion. Think about that number. That's the real power of "we, the people." It's the shoulder behind our votes if we will only begin to believe again in our own might more than we do in a feckless, unproductive government that seeks to buy our faith with a piddling $925 billion they'll have to borrow from us before they can get their pictures taken giving it away.
Who's got the real power? Keep asking yourselves that question until you fully understand the answer. And when you do understand, never yield that power without a fight.
posted at 10:27 am by InstaPunk
Comments <3> |
The truth is that federal government spending, however huge the numbers sound, can't have a very large positive effect on the economy. Why? Arithmetic.
The Gross Domestic Product of the United States in 2008 was approximately $14.3 trillion. Let's look at the actual number:
$14,300,000,000,000
Got that? Okay. The total cost of the stimulus package, so far, is $925 billion. Let's pretend that every dollar of the package will add directly to the GDP.
$14,300,000,000,000
+ 925,000,000,000
$15,225,000,000,000
Impressed? Or just drawing a blank? Well, what if we cut these numbers down to a size us ordinary mortals can comprehend?
$14,300,000,000,000
+ 925,000,000,000
$15,225,000,000,000
Are you impressed now? The way the Democrats want you to calculate it (in their dreams anyway), the stimulus bill will grow the U.S. economy by about 6.5 percent, which would be a very good year even in times of prosperity. If the $14,300 were your annual income and someone offered you $925, would you take it? Yes?
What if you could only get the $925 if had to spend it all on specific things: installing new rain gutters, planting some bushes in the front yard, adding a wheelchair ramp to your front door, and laying in a year's supply of condoms? Still interested?
What if it turns out that the money is actually not a gift but a loan? You see, the government doesn't actually have the $925. It has to borrow the principal with you as a co-signer, and you have to immediately begin repaying principal plus interest, which on average at the end of 2008 was about 4 percent. In fact, it's a lot like a mortgage. Now your $925 isn't a 6.5 percent increase in this year's income but something considerably less than that.
Still on board? Really? There are are a couple of other strings attached you may want to know about. You're already pretty heavily in debt, and as we've seen, the $925 is kind of a one-time thing because those condoms and the new rain gutter aren't going to earn you any money next year. If you should face some kind of additional emergency later this year or next, it's going to be much harder and more expensive to procure the loan you need then, and you might not be able to get it at all. And please don't forget, that $925 less principal and interest payments isn't money in the bank; it's in the wheelchair ramp.
Are you feeling stimulated?
I know you can make the argument that even if this kind of stimulus doesn't help you much, it might help others and so you should go along with it. The $925 may not be purchasing something you wanted, but it's good news for the rain gutter contractor, the landscaper who put in the bushes, the carpenter who built the ramp, the lumber yard where he got the materials, and the drugstore where you bought the condoms. Except that these are all one-time benefits for them as well. Nobody's power to earn future income has been improved in any way. And you're paying for it.
For how long? It's possible that the $925 you got was a long-term loan, and you'll be paying 4 percent or more on the principal for years, maybe even a generation.
There's yet another potential downside. If the loan papers you signed said anything about "creating jobs" through all this directed spending, it may well be the case that your principal liability is a lot more than $925. It might be that you've actually agreed to long-term contracts with the rain gutter people and the landscaper, that you're now on the hook to pay them every year for more gutters you don't need and more bushes you don't want.
Feeling more prosperous yet? Or would you prefer to have your gross tax rate reduced by 6.5 percent instead? This time, I'll let you do the math.
Now. Are you ready to talk about bailouts?
Our new president is talking all high and mighty about what he will and will not tolerate from the businessmen he's rescuing with government funds. Sounds like he has a lot of power, doesn't it?
How much is he spending on these bailouts anyway? Some estimates run as high as $3 trillion in troubled asset purchases and stock ownership in ailing corporations deemed too big to fail. The total cost of such "bailouts" strikes most economists as a stupendous figure, even a backbreaking figure. Does this mean the president is essentially buying a majority interest in the asset base of the U.S. economy? Is that why he's handing down commandments like Moses on Mt. Sinai?
The total estimated net worth (wealth) of U.S. households is estimated at $60 trillion. (Have you ever heard that number before?) The government's acquisition of $3 trillion worth is about 5 percent of that. And it's the 5 percent that's most in danger of losing all its value.
Indeed, that's the most relevant fact about the government's power when it intervenes in asset ownership in this way. Almost all its power is negative. It absolutely has the power to reduce the value of its $3 trillion investment to zero. In so doing, it can also seriously undermine the value of the $57 trillion that remains in private hands. But with a mere five percent stake, it cannot fundamentally change business practices by bullying the institutions under its control. Management of the other 95 percent of the asset base will continue to be ruled by self-interest and the laws of economics. Obama can decree that the executives he owns are limited to $500,000 a year in income (or $1 if he so chooses), but without passing new laws he cannot alter the behavior of the market as a whole one whit. If all the people who know the most about the banking and financial businesses of the United States leave Wall Street for jobs in financial and other companies not owned by the government, Obama will have succeeded only in destroying those assets under his stewardship. Are there better-paying jobs for financial executives in the other 95 percent of the economy? You tell me.
And, again, without compounding the business woes of the nation by driving the bailout companies into dissolution, there can be no excuse for further government acquisitions in the private sector. The market is more powerful than the president. And if Obama should seek more powers of interference after completing the ruin of Wall Street and Detroit, on what basis should we, or would we, trust him to do a better job in his next amateurish round of presidential Monopoly?
$60 trillion. Think about that number. That's the real power of "we, the people." It's the shoulder behind our votes if we will only begin to believe again in our own might more than we do in a feckless, unproductive government that seeks to buy our faith with a piddling $925 billion they'll have to borrow from us before they can get their pictures taken giving it away.
Who's got the real power? Keep asking yourselves that question until you fully understand the answer. And when you do understand, never yield that power without a fight.
posted at 10:27 am by InstaPunk
Comments <3> |