The Recession & Stimulus Packages

Any economy needs a recession once in a while. When you have a bubble, the bubble needs to pop. You need to take some pain to get things on track. People and the economy suffer, but then you don’t have a bubble anymore, which is good. It’s foolish to think there will never be a recession. We need a recession. We don’t want an all-out depression, or even a very serious recession, but occasional recessions are good and necessary for the long term future of the country. Our fundamentals are incredibly out of whack, and it takes some pain to correct them.

The most fundamental of the fundamentals is the national debt. The debt has skyrocketed the last 7 years under our ”conservative” administration. One of the main reasons we are at this point now is because of foolish economic decisions made years ago the increase the debt (Tax cuts, Medicare Plans, Iraq, etc.). When you’re in a hole, stop digging! The very best thing that we could do for the long term health of America would be to reduce spending and pay down the national debt.

A stimulus plan increases the national debt. That is bad, and makes the underlying problems even worse. A stimulus plan increases the national debt, because to get that stimulating money we take out a loan. The loan becomes part of the national debt, and is paid for by us, or our children. So we take out a loan from ourselves to pay for our problems. Does this solve anything? Of course not, it just pushes the problem out to the future. Pushing problems out to the future is why the national debt is so large in the first place. “Tax & spend” is miles better than “Don’t tax and still spend”.

The stimulus package has a couple other problems. Mailing out income tax rebates is not the best way to do it. The poorest people don’t pay taxes, so they don’t get a check. That makes for a regressive package, where the poor don’t get the benefits. And the people best able to weather the storm and most likely to not use the money for anything useful, get the most benefit. It’s regressive, and not as effective. Also, a stimulus package takes a long time to do anything, 5-12 months.

One of the only other tools we have to mitigate big problems is the interest rate. If the interest rate approaches zero, and we cannot lower it anymore, we take away one of the best tools we have. (This happened to Japan.) The current (threat of a) recession is not very big. We don’t know yet know how big the recession is, but so far not much has happened. The overall economy is still chugging along very well, your front page news and political rhetoric notwithstanding.

Our interest rate is already very low by historical standards. You don’t take one of your main weapons (interest rate) and use it at the very beginning of a possibly recession, wasting it so you can’t use it as effectively later. That’s just foolish. It’s doubly foolish to do so in a way that screams ”panic!” to the world. All the measures taken so far are foolish and counterproductive to a healthy economy.

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