Econom-nom-nomics Part I: Bubbles, Past and Present

Dear Frank H. Fleer,

You invented bubble-gum, so I'm assuming you're an expert on bubbles. Perhaps you can shed some light on our current situation. See, our economic bubble just popped, and I don't get the rationale behind our government's actions in reinflating it.

Perhaps some background is in order. Let me explain:



So that's how we got here. The government lowered interest rates back in the early 2000s to avoid the painful process that naturally happens when a bubble bursts. The bubble reinflated (more so, really) and then popped again in 2008. And again, the government is throwing everything at the problem to try to avoid the pain: Bank Bailouts, Auto Bailouts, Mortgage Bailouts, Stimulus Plans, and Spending Plans. All of these things are designed to keep the bubble growing bigger.

But Frank, all these programs, initiatives, and efforts cost a LOT of money. And President Obama doesn't seem to mind. Here's what he's decided to spend in 2009:


Now, if that goes through, here's what our national deficit will look like, compared to the past few years:

Eek! That's a LOT of money we're spending as a nation, and all with no guarantee that any of it will work.

Indeed, I worry whether our government's reaction will lead the country to become something akin to a socialized, command economy, where the government controls all the functions of production (a la China). This, in my mind, would be a bad thing, as it reduces the incentive for innovation and achievement, and treats people and their work as cogs in the government's machine.

It puts a tough question to our country's leaders right now: Is the bottom line growth of the economy the only thing that matters, or should we be concerned about the direction our country is taking on a deeper level?

Frankly, Frank, it seems that our country right now is so wrapped up in 'fixing' this problem that it is failing to consider the consequences--short- or long-term--of the policies it is establishing. And who knows how that bubble will end up popping?



TheUkieVillain

Points, Principles, and Financial plans

So we have been hearing from the candidates of late. Partisanship politics paired with bi-partisan statements while a national game of chicken ensues. I was frankly disappointed at the "joint statement" just released, as I felt like it was mostly fluff. I thought they were going to tell us something. But it was just "Kum-by-ah". I don't think Kumbyah will get us out of this one.

Both McCain and Obama took time out of the Clinton Global Initiative to lay out some of their "real" plans.

McCain had 5 points regarding the bail out plan. He thinks these are requirements for any plan that is put in place. Washington post online provided this recap:
"As he has said before, McCain said five principles must be included: greater accountability and independent oversight; a path for taxpayers to recoup the money; transparency in decisions on which companies to help; a cap on the executive pay of those companies that take part and no earmarks in the plan for any specific businesses." and "McCain said that a second economic stimulus package should not be attached to the legislation."

Obama kept his points to 4, but the Washington post was a bit more free with their word count and line space when outlining his ideas:
"Obama's proposed additions include:
--A ban on generous payouts for "irresponsible CEOs on Wall Street." Obama warned: "There has been talk that some CEOs may refuse to cooperate with this plan if they have to forgo multimillion-dollar salaries. I cannot imagine a position more selfish and greedy at a time of national crisis. And I would like to speak directly to those CEOs right now: Do not make that mistake."
--Replacing Treasury Secretary Hank Paulson's absolute authority over the bailout's execution with a bipartisan independent board. Obama noted that Paulson signaled during testimony this morning that he may be open to the broadening idea.
--An investor stake for taxpayers. "The American people should share in the upside as Wall Street recovers," Obama said, adding, "There are different ways to accomplish this."
--Assistance for people who are in danger of foreclosure. He outlined several possible ways to provide aid, including giving the government the authority to purchase mortgages directly, instead of the mortgage-backed securities that have cause the banking woes.
He also called for a stimulus package, although he added that it shouldn't be attached to the bailout bill. "

So there are some definite similarities here. Both want to limit CEO profits, independant or bipartisan oversight, and a way for the taxpayers to recover the money and/or make profits based on what happens with the bailed out companies. I think most can agree on these points. They are fairly good.
But I think there is a giant hole in the points of both men. I mean, what about this 700+ billion dollars? None of these points really directly address that part. Why are we putting that money up? What are we getting for that money? Would mortgage insurance, similar to FHA, do a better job at protecting the market while keeping companies solvant? Are there real homes backing up the 700+ billion, or just "toxic paper"? And how will this toxic paper turn to, well, for lack of a better analogy, green, acid free, recyclable paper?

And what about the whole stimulus package that both men discuss? Didn't we just try that in the fall. Sure it was great to get $1200 in the mail, but I feel like somehow now is not the time.

So I am still confused. But at least we can see that our candidates do agree on a few things. I hope that they can help out up there is Washington. I think I may have a party to celebrate that tomorrow night, if they meet their deadline, regardless of whether the debates are on or off.

You are all invited. We will be having bean soup. No time like the present to start saving money.

CaDh 8