A glimpse of things to come: Half-baked “demand-side” and timid “supply side” economics
Today's Financial News - Posted November 19, 2008
Congress is talking about extending unemployment benefits and loans to retool factories to produce the kind of cars few people cared to buy even when they had money.
by J. Christoph Amberger
Baltimore — (TFN): Based on a running tally conducted by CNN, the financial crisis so far has cost the U.S. government around $4.28 trillion — “a complicated cocktail of budgeted dollars, actual spending, guarantees, loans, swaps and other market mechanisms by the Federal Reserve, the Treasury and other offices of government taken over roughly the last year”.
The Troubled Asset Relief Program (TARP) only makes up 16% of that amount.
That’s about $14,266 for every man, woman and child in the United States. An average family of four would’ve cleared a cool $57,000 had the money been slathered about in the form of a government hand-out (pardon me, “stimulus package”.) Enough to pay down a quarter to a third of the median home price. Or buy a brand-new Chrysler Town & Country minivan to drive little Pugsley and Britny to soccer practice… after contributing the maximum to mom and dad’s 401(k).
The economy would be rocking, builders would be building, financial analysts would do whatever financial analysts do. European exporters would be wagging their fingers at American fiscal imprudence while waving goodbuye to boatloads of Mercedes and Mini Coopers bound for U.S. ports. And goldbugs could wean themselves off Prozac.
For the time being, that is.
Instead, Congress is talking about extending unemployment benefits and loans to retool factories to produce the kind of cars few people cared to buy even when they had money.
This unholy hybrid of half-baked “demand-side” and timid “supply side” economics should be called the “low expectations” package. But is still being sold under its misleading brand name of “stimulus.”
But what can you expect from this particular crop of politicians?
Given the amounts of money already spent, this might be indeed the time to unabashedly “spread the wealth” on the demand side. Because so far, the economy and stock markets have been veritable wealth destruction machines. Any money thrown at the problem simply evaporates.
Inflation is dead. Wholesale prices in October decreased by 2.8%, the sharpest one-month decline on record. This drop was mainly about energy prices — which careened downward by 12.8% after falling a modest 2.9% in September. Gasoline prices dropped 24.9%.
But this is just the beginning. There are entire football stadiums full of unsold cars… cities of empty houses… warehouses of unsold electronic appliances that are waiting to be dumped on the market at firesale prices.
Until mid-January, we will be experiencing a veritable bargain fest… as companies try to generate revenues and sales by any means possible. Inflation will be forgotten. Until not enough money starts chasing too few goods.
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