The economic stimulus

We are being directed to doing economic stimulus by Nobel economists.  I have to say that my credentials can't possibly match theirs.  They have written books.  They have taught at Princeton, Harvard or other Ivy League schools.  They are the kings in the economic fields.  I am just an engineer with a small dollup of common sense that I like to use on occasion.

On one thing we agree.  The US economy is in sad shape.  Unemployment is at record highs.  According to shadowstats, the official unemployment rate is 10%.  The Bureau of Labor Statistics unemployment rate estimate is 16% and shadowstats estimate is 21%.  I am more inclined to believe the stadowstats estimate.  The banks are in terrible shape even if they did show remarkable profits.  If they ever applied mark to market rules, all of the top banks would be under water.  The US government could not afford to have the top banks all going under water at the same time so they simply changed the rules.  We have not touched on the commercial real estate loans that are coming due this year.  According to a Smart Money article, Goldman Sachs now predicts that asset prices will fall 40 to 42 percent on average. Private-equity firm Blackstone has marked down its commercial real estate portfolios by 45 percent. Rents are dropping at a 9 percent annualized rate, the worst decline on record.  California is paying debts with IOUs.  Tent cities are forming in the US. 

What we have is a crisis of debt.  A federal government with a debt, $12.3 trillion, almost as big as the GDP of the United States, $13.84 trillion.  At our rate of indebtedness, it will overtake the GDP this year.  At the state level, California is broke, paying their debts with IOUs and still showing no signs of the political will to cut spending.  Unfortunately, California is not the worst.  State pensions are moved off the books so that they are not included in the calculation of state debts.  Adding these in makes investment in state debt a poor gamble.  Debt permeates the structure of the US economy like a malignant cancer on steroids.  So to handle the poor economy that is a result of debt the Nobel prize winning economists feel that we need to spend more and incur more debt. 

I do not understand how they got their credentials.  I do not understand how incurring more debt will make our debt crisis better.  Do the schools teach this?  Next thing they will be telling us that war will make our economy better.  Oh wait!  They do.  They still teach that WWII brought the US out of the great depression.  God help us if they think that will work again.


The Economic Rules


These are economic rules that apply to the everyday. There are others and as they are needed, I will add them to the list.

1. A dollar spent is a dollar taxed
2. To consume you must produce
3. The law of supply and demand still applies even if you are the government
4. Education, infrastructure, production, efficiency, trust raise the economy. Burdens such as commitments, promises, debt, crime, security issues and overhead lower the economy
5. Savings takes money from the now and moves it into the future. Borrowing takes money from the future and moves it into the now.