Monday, February 23, 2009

The "stimulus" timed to next election campaign

It is interesting to note that the "stimulus" package of spending just passed has been touted by politicians from congress to the White House as the medicine the economy needs.

It is ironic that the vast bulk of spending dosn't come on stream this year 2009 or even next year 2010 but really hots up in 2011. Just in time for the next presidential election er re-election, campaign.

So those of you who think that politicians cared to read the details of this behemoth spending bill, let alone been given time to think through the unintended consequences of these expenditures must have been at the same party that Michael Phelps attended.

Between now and the start of the next election campaign, we are going to see ever more strained relations with our trading partners who are going to be strong armed into buying the trillion dollars of Treasury securities we must sell. They are ,of course, going to extract tribute by forcing us to pay ever higher interest rates.

That means that every other interest rate in this country that is keyed off treasuries must go up in tandem. Poof goes the real estate/mortgage rescue... So the banking system will paralyze..

And of course unemployment is going to hit 8% this year and 9% to who knows maybe even 10% next year. So tax revenues will drop... it does work that way ya know, no income so no tax liability...oh yes we do tax unemployment benefits..we dont?? just wait a while.

Then of course, that exquisitely timed political calculation kicks in. Spend untold billions of dollars into an economy with rising unemployment (nevermind that the banking system will be in a mess), and rising prices and dropping real estate values and rising bankruptcies, foreclosures and demands for costly social services.

But wait... the solution is obvious!! Raise tax rates on those who can afford to pay!!Easy peasy!!

About 5% ish of taxpayers by then will fall into that magic $250,000/yr rich category. Or is that $100,000 or $75,000 I forget. But then we can always go back and see where our esteemed Veep defined rich.

Oh yes... the most wonderful political fairy tale is that higher tax rates wont ever change the behaviour of those suffering the tax raise. Their behaviour dosn't no they meekly pay up. The DONT hire accountants to find any and all loopholes, or buy legal tax shelters, or switch their behaviour so that they avoid rising into the higher tax brackets. No No they dont do that despite 5000 years of economic history to the contrary with nary an exception (there are a few but weapons and death threats were involved--our legal system would never stand for that).

This time its different. Ask Nancy Pelosi. The arithmetic is too elegant to mess up with reality. Or Chuck Schumer who wants us to join him in his arrogant conviction that people "dont really care about a little pork". I believe Marie Antoinette referred to it as cake but she lost her head anyway. Watch out Chuck!!!

Prediction: the people WILL notice. Beware o politicians. You might have to get a real job where your pay actually does depend on your performance and making tthe correct choices. The greatest politician job security bill ever foisted on a weary and scared nation will come back to bite you.
Chuck..lowest ever approval ratings for Congress are that way for a reason. Remember it cost Marie Antoinette her head. Will this cost this nation its head? We are a few heartbeats away from finding out.

If you have any investments sell them now and sit on the cash.... I predict that very soon you will get VERY much bigger returns from US treasury debt than available now.

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