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Stock Ideas Investors Daily Edge How To Waste $800 Billion
Stock Ideas Investors Daily Edge How To Waste $800 Billion 
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Prices for Rice Futures in Chicago One of the basic tenets of Material Profits is that as emerging-market participants become affluent they will consume. Here’s a chart of the prices for rice futures in Chicago. Rice is up over 100% year-to-date -- and it is likely to go higher. |
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| How To Waste $800 Billion |
| Wednesday, 04 February 2009 | ||||||||
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Anyone who has any money sense has serious reservations about the new administration’s push for the $800 billion stimulus package. The reasons vary from ultra conservatives who hate the idea of more debt, to moderates who think it has had too little scrutiny to be allowed to breeze through congress. Since when did borrowing money from China and OPEC ever do anything for the USA? That’s what we have to do in order to fund this package. We don’t have $800,000,000,000. In fact, we don’t have any money. We are in the hole to the tune of $9,000,000,000,000. I find when you actually see the number it means more than writing out billion or trillion. The purpose of this package is to get us out of the economic slump we’re in, but what it’s really doing is putting us even further in the hole. In the hole to people who are far from our best friends. Strange concept. My point isn’t that the economy doesn’t need some type of help, it does. This package is just not the answer. Consider how much overspending has been done for the past 50 years, nine trillion dollars worth of over spending. Its most significant affect has been to buy a lot of votes. So we spend $800 billion more we don’t have? I’m confused. When I hear the news about the current stimulus package I can’t help but go back to the 70’s and remember all the efforts by the government to correct the inflation and interest rate craziness of that period. It had zero affect. Anytime I hear D.C. is going to fix something I wish I had my father’s bomb shelter to hide in. Never have I seen any type of economic intervention on the part of Washington have any long term positive affect. The best we can hope for is it has no negative affect. It doesn’t matter who’s in control. Most think tanks, not political ax grinders who call themselves think tanks, but real think tanks, believe that the best solution, and the only one that has ever had any real affect, is significant tax change. Not a temporary cut in rates, or a suspension of a few of the more bizarre taxes, but reduction in how much everyone pays across the board.
Consider this scenario. To inject money into the economy, reduce the payroll taxes for people in the 28% and 31% brackets by 25% for two quarters. Here’s how the numbers shake out. These are ballpark so don’t hold my feet to the fire on this one. Taxable income of $75,000 pays about $21,000 in federal taxes. If the 25% reduction went into affect this quarter and next, this family would have an additional $2625 dollars to spend. That’s a lot of money to a family living on $75,000. Multiply that by the total number of households in the 28% tax bracket and you have one hell of a stimulus. Add the other tax brackets and it’s more than we need. This is just a temporary quick cut; imagine how much money wage owners could control and spend if we got back to the almost flat tax of 15% and 28% brackets of the Reagan era. But wait a minute. If we eliminate congress from the process there are no vote buying extras for our elected officials, no payoffs to the contractors and developers who pledged money to campaigns, no pork for another building named after one of our professional D.C. spenders, and the people who actually earn the money have control of it. This will never fly in D.C. Excuse my sarcasm. Of course, the government wouldn’t have the 25% to spend. Hey, I think we’re onto something here. Here’s the biggest hurdle. I have mentioned this in several of my past articles. No matter what kind of cash injection is made, it is going into a broken banking system. The result will be the same as the first half of the TARP money, none. Banks are hoarding assets trying to survive. This stimulus money will disappear as fast as the TARP money and we will then have another $800,000,000,000 in debt and virtually no improvement in the economy. Nothing should be done until the banking system is put back in order. This is key to the success of any stimulus. Let’s hope the current discussion of a “Bad Bank” to absorb the toxic assets plaguing banks becomes a reality. It is the real solution to the stalled economy. Steve
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