By now, people all across America has heard of the curious, perplexing, and devastating story about the Bernie Madoff scheme that lost money for many investors that had been giving Mr. Madoff their trust with their funds. They were intrigued by Mr. Madoff’s advertisement that he could provide ten percent returns on their investments. Many high-profile people sought to invest in these terms only to find that Mr. Madoff was merely putting on a front.
Mr. Madoff did not have the money behind the investments to give back to his clients. If they had all cashed out at once even a year ago, he would not have had enough money. Sure, he was sending them statements on their earnings, but it was simply a piece of paper. When the bottom of the housing market dropped out this past fall, Mr. Madoff’s clients wanted to cash out and take back their money. There was one little problem: he did not have it and he had been lying to his clients for years that he did have it. Now Mr. Madoff is awaiting trial.
The federal government is now taking quite an investment from the taxpayers and from foreign nations buying American bonds. The American Recovery and Reinvestment Act, after calculating the interest that goes along with the spending in the bill itself, will cost approximately $1.3 trillion. Under the Bush Administration, the federal budget transitioned from running a surplus to running a deficit where the government was spending between three and four percent of its GDP in red figures. In other words, if one were to make $10 a day, it would be comparable to spending $10.30 to $10.40 per day. It does not sound like a big deal in that context, but take it to what the 2008 figures were: $2.9 trillion in spending versus $2.5 trillion in revenue. That is about $400 billion in deficit for just that one year.
Under President Obama’s new proposed budget and after the new American Recovery and Reinvestment Act of 2009 has been signed into law, federal deficit spending will increase to about 13 percent of the American GDP. This does not include the new idea of federal assistance in refinancing sub prime mortgages to protect homeowners from foreclosure. Going back to the $10 per day example: that would be like spending $11.30 per day and running $1.30 in the red every single day.
So the federal government is somehow going to convince Americans to continue to give Uncle Sam more money and convince other nations such as China to buy American bonds to help bankroll these new programs with the guarantee that Americans and foreign investors will see a return in their investments.
Does this not sound a little too similar to the Bernie Madoff story? Is this not like a poker player trying to bluff a pair of sixes to appear as four of a kind? The current administration and Congress will try to sell this as a temporary deficit that promises to yield returns that will increase the GDP and cure the federal deficit.
Will the federal government have a sealed indictment if they have to turn to its clients and say they do not have the money to return the investment?
Saturday, February 28, 2009
Wednesday, February 11, 2009
Tuesday, February 10, 2009
One Bad Economy, Two Solutions
The economy has suffered a very serious recession. The housing crisis that resulted in the meltdown was only the beginning of some of the losses the American public has seen as of late. The federal government has responded to this by cutting interest rates, printing more money, and by bailing out several lending institutions and private industries. The government would not have reacted with such urgency had this been a minor concern. President Obama is now several weeks into his term and is pushing one solution to the economy along with his Democratic colleagues. His political opponents in the House and Senate are rallying around another solution. To arrive at an informed conclusion regarding the American Recovery and Reinvestment Act of 2009, one must consider both arguments.
1) Argument for the American Recovery and Reinvestment Act of 2009
To stimulate the American economy, people who are currently out of work must be put to work in order to generate an income. To help generate increased employment, federal tax money can be put to use in employing private citizens in long-term jobs with steady incomes. This money can go toward infrastructure projects for American schools, roads, bridges, and many other areas that need to be addressed given the difficult economy.
Additional money needs to be dedicated to educational needs for public schools that are overburdened and currently struggling to meet the needs of a modern education. Children will then be the direct beneficiaries of the stimulus by having proper and efficient school buildings in which to learn. Teachers will have the facilities available in order to provide the best possible education.
Building new schools, improving roads, and exploring energy alternatives are all ways in which qualified citizens will maintain work and also benefit their communities and nation. Alternative energy sources including wind, solar, and hydrogen power are vital in the future of the nation; therefore action must be taken to put people to work to develop these technologies.
When the people who have lost their jobs and seen their investments become depleted once again have a steady income, they will be more likely to invest again as the economy stabilizes. Banks will be more likely to give loans for first time homebuyers. The stock market will see an increase in investors’ collective confidence. The average citizen’s discretionary income will increase, which will allow them to spend it and benefit other places of business that are currently hurting. While the funding will be public funding, this will ultimately be an investment that will lead to long-term benefits. In order to stimulate the economy, the government must make an investment that will reap great rewards and set the economy on the right path toward a better future.
2) Argument Against the American Recovery and Reinvestment Act of 2009
The federal budget is already running a deficit, inflation is rampant, the value of the U.S. dollar is decreasing, and unemployment is on the rise. Given these circumstances, stimulating the American economy may seem to be an appropriate response. What does stimulating the economy mean? If the stimulus comes from the federal government, it must be from public tax dollars or from borrowing money from other nations. In the case of the American Recovery and Reinvestment Act of 2009, it could very well contain tax money, borrowing money from the Chinese, and then if not enough can be borrowed from the Chinese, the Federal Reserve will need to print more money. The money that would be printed would lead to a devaluation of the dollar.
To spend this much money at a time when the economy is already in a difficult time is similar to a business that is in the red deciding to expand. Only $47 billion is committed to repairing American infrastructure projects. The vast majority of the money in this bill is either committed to the creation of jobs within the government or to special interest groups such as the $335 million committed to STD prevention.
The risk of this bill being implemented will be to have what occurred during Jimmy Carter’s administration when the American public experienced double-digit inflation, unemployment, and interest rates.
The alternative plan is to cut taxes and allow some of the money that would go to the federal government to remain in the hands of the taxpayers. This eliminates borrowing from China, printing more money, and spending more money while the federal budget is running a deficit. Cutting taxes, reducing federal spending, and placing the recovery of the economy on the shoulders of the American people will ultimately lead the United States out of the recession. With additional money and reduced federal spending, people will be more likely to invest their money, expand private businesses, and create jobs independent of public funding. These same private businesses will also develop energy alternatives such as nuclear power, hydrogen power, and hybrid technologies based on the market demands for an alternative energy source.
Such steps, given additional detail, would help reduce the federal budget deficit, strengthen the dollar, and create jobs without reaping a debt that will be felt for generations to come. Instead of compounding the economic crisis, it would instead be absorbed with the chance to recover from it.
1) Argument for the American Recovery and Reinvestment Act of 2009
To stimulate the American economy, people who are currently out of work must be put to work in order to generate an income. To help generate increased employment, federal tax money can be put to use in employing private citizens in long-term jobs with steady incomes. This money can go toward infrastructure projects for American schools, roads, bridges, and many other areas that need to be addressed given the difficult economy.
Additional money needs to be dedicated to educational needs for public schools that are overburdened and currently struggling to meet the needs of a modern education. Children will then be the direct beneficiaries of the stimulus by having proper and efficient school buildings in which to learn. Teachers will have the facilities available in order to provide the best possible education.
Building new schools, improving roads, and exploring energy alternatives are all ways in which qualified citizens will maintain work and also benefit their communities and nation. Alternative energy sources including wind, solar, and hydrogen power are vital in the future of the nation; therefore action must be taken to put people to work to develop these technologies.
When the people who have lost their jobs and seen their investments become depleted once again have a steady income, they will be more likely to invest again as the economy stabilizes. Banks will be more likely to give loans for first time homebuyers. The stock market will see an increase in investors’ collective confidence. The average citizen’s discretionary income will increase, which will allow them to spend it and benefit other places of business that are currently hurting. While the funding will be public funding, this will ultimately be an investment that will lead to long-term benefits. In order to stimulate the economy, the government must make an investment that will reap great rewards and set the economy on the right path toward a better future.
2) Argument Against the American Recovery and Reinvestment Act of 2009
The federal budget is already running a deficit, inflation is rampant, the value of the U.S. dollar is decreasing, and unemployment is on the rise. Given these circumstances, stimulating the American economy may seem to be an appropriate response. What does stimulating the economy mean? If the stimulus comes from the federal government, it must be from public tax dollars or from borrowing money from other nations. In the case of the American Recovery and Reinvestment Act of 2009, it could very well contain tax money, borrowing money from the Chinese, and then if not enough can be borrowed from the Chinese, the Federal Reserve will need to print more money. The money that would be printed would lead to a devaluation of the dollar.
To spend this much money at a time when the economy is already in a difficult time is similar to a business that is in the red deciding to expand. Only $47 billion is committed to repairing American infrastructure projects. The vast majority of the money in this bill is either committed to the creation of jobs within the government or to special interest groups such as the $335 million committed to STD prevention.
The risk of this bill being implemented will be to have what occurred during Jimmy Carter’s administration when the American public experienced double-digit inflation, unemployment, and interest rates.
The alternative plan is to cut taxes and allow some of the money that would go to the federal government to remain in the hands of the taxpayers. This eliminates borrowing from China, printing more money, and spending more money while the federal budget is running a deficit. Cutting taxes, reducing federal spending, and placing the recovery of the economy on the shoulders of the American people will ultimately lead the United States out of the recession. With additional money and reduced federal spending, people will be more likely to invest their money, expand private businesses, and create jobs independent of public funding. These same private businesses will also develop energy alternatives such as nuclear power, hydrogen power, and hybrid technologies based on the market demands for an alternative energy source.
Such steps, given additional detail, would help reduce the federal budget deficit, strengthen the dollar, and create jobs without reaping a debt that will be felt for generations to come. Instead of compounding the economic crisis, it would instead be absorbed with the chance to recover from it.
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