Coming back to the subject of our economy I am getting a little ticked off at our government and the way they are handing out billions without a plan that I can see. I am talking about the Bush government and their recent infusion of over $100 Billion into the Bank of America on top of what they already received.
The “too big to fail” argument for bailing out companies tells us what needs to be done. Reduce all companies to manageable size so they can fail without tanking our entire financial system. Citi Group is already cutting itself up into manageable entities after years of acquiring companies and making itself into a monstrosity.
That aside, the basic principals of supply and demand are at play in our economy as well as the world economy and as simple as those principals are, many lose sight of them when trying to fix our economy.
What is happening right now is a lack of demand. People are losing jobs, have lost 50% of the value in their investments, have lost homes to foreclosure and now will hold on to every penny they have just to survive.
Without demand (spending), businesses cannot sell their products or services and therefore they stop manufacturing and when they do that, they let their workers go. These workers become the masses that have no money to spend or are too scared to spend. You do see the cycle here, right?
The government must boost demand (spending) to get things rolling again. So it spends like mad by creating jobs that pay good money which workers will then use that money to spend thus creating demand – kapish?
The workers will build and repair highways, repair schools, expand the internet broadband system, install energy efficient systems in public buildings among other things. These are necessary things that need to be done so we are not paying artists to paint pictures as they did in the 1930s.
The problem is that this government spending is what is called “stimulus” spending hoping to stimulate the economy to once again start cycling normally; demand followed by providing supply which requires jobs which creates more demand, etc……..and stimulus spending is short-term spending meaning the jobs are not permanent. Workers that know their jobs have limits will not feel safe enough to start investing and buying; they will hold their money close to their vests, saving it for the time when the government stimulus job ends.
This same type of stimulus spending was tried in the 1930s to no avail. I am going to have to find out what the Obama rationale is for his $850 Billion stimulus package because right now, I just don’t see how it will work (in the long run).
The “too big to fail” argument for bailing out companies tells us what needs to be done. Reduce all companies to manageable size so they can fail without tanking our entire financial system. Citi Group is already cutting itself up into manageable entities after years of acquiring companies and making itself into a monstrosity.
That aside, the basic principals of supply and demand are at play in our economy as well as the world economy and as simple as those principals are, many lose sight of them when trying to fix our economy.
What is happening right now is a lack of demand. People are losing jobs, have lost 50% of the value in their investments, have lost homes to foreclosure and now will hold on to every penny they have just to survive.
Without demand (spending), businesses cannot sell their products or services and therefore they stop manufacturing and when they do that, they let their workers go. These workers become the masses that have no money to spend or are too scared to spend. You do see the cycle here, right?
The government must boost demand (spending) to get things rolling again. So it spends like mad by creating jobs that pay good money which workers will then use that money to spend thus creating demand – kapish?
The workers will build and repair highways, repair schools, expand the internet broadband system, install energy efficient systems in public buildings among other things. These are necessary things that need to be done so we are not paying artists to paint pictures as they did in the 1930s.
The problem is that this government spending is what is called “stimulus” spending hoping to stimulate the economy to once again start cycling normally; demand followed by providing supply which requires jobs which creates more demand, etc……..and stimulus spending is short-term spending meaning the jobs are not permanent. Workers that know their jobs have limits will not feel safe enough to start investing and buying; they will hold their money close to their vests, saving it for the time when the government stimulus job ends.
This same type of stimulus spending was tried in the 1930s to no avail. I am going to have to find out what the Obama rationale is for his $850 Billion stimulus package because right now, I just don’t see how it will work (in the long run).
No comments:
Post a Comment