Bailouts and Reaganomics

Tax cuts, FED rate decreases, and government bailouts have little impact on the US economy. The unemployment data showed another increase for January and corporate profits are down do to inflationary pressures on raw materials. The dollar continues to make new lows. Inflation, even as calculated by the FED’s skewed prism of life without food and energy, is now well above 4.5%. America is not ready to look at the real problem. The experts are convinced that the tax rebate plan will save the US economy.

I do not mind the idea because it will be the first tax cut for those who make less than $ 250k annual. Most likely the rebate will not have the desired results. Hopefully a significant portion of the recipients will pay down debt. The rest will spend money at Walmart or other distribution chains for Chinese manufacturers. Our current production structure will cause the primary benefits to be felt in China. Perhaps this is inline with the Chinese government’s recent announcement that a stimulus program is on the way following recent weather events.

Unfortunately this program will be very expensive. Although it is said to be %1 of GDP these funds are not coming from surplus revenues. Instead this program increases the irresponsible debt levels of the federal government. Recent, and proposed future, FED rate cuts will further weaken the dollar without providing benefits for working America (known as the consumer). These cuts will directly benefit financial institutions as their working spreads increase (the difference between what they pay on deposits and what they receive for loaning money). This policy is directly related to Reaganomics (Corporatism) where government’s primary concern is to make business more profitable believing that the rest of the nation will benefit from the trickle down effect.

If we are looking to improve our economy we need to think like the salt of the earth workers. You do not spend more than you have. You eliminate debts before buying new things. You make quality products and treat your customer (who is also your neighbor) with respect and give them a quality product at a fair price. You buy things from those you know and trust. You repair your house before you buy a new car.

These concepts may seem to be those of a simpleton but I have found they are valid rules to build true wealth. The old adage “the simplest ideas are usually the best” may have new value in a world that is constantly changing.