The True Road to Recovery

Friday night John Boehner, Harry Reid and Barack Obama reached a budget agreement for the U.S. government.  Conservatives and liberals complained there was too much compromise involved but hey, that is how agreements are reached between parties with different agendas.  Personally, I would have preferred higher spending cuts.  The democrats' threat to shut down the government would have hurt them more than the republicans.  Remember, Bill Clinton shut the government down for 3 weeks in 1995 and we're still here.  Back in the 1970s the government was shut down over budget problems.  I was a Federal employee with the Social Security Administration at the time.  I and my coworkers went to work every day.  The only difference was our earnings from October 1 until the budget was resolved was delayed.  We did not get any interest on the delayed funds even though they were in the U. S. Treasury deposits accounts earning interest.

At least we have a budget again.  The demagogues democrats were so busy with their 2500 page earmark and pork-laden piece of scrap law called obamacare they forgot(??!!) to make a budget.  A budget is a map for government to follow.  No budget means no real control over the government's spending.

One more point here.  There were reports that non-essential federal employees would be laid off until the budget impasse was resolved.  The number of employees affected was estimated between 500,000 and 800,000.  If that number could be reduced that would be a considerable savings.  It's like what Jay Leno said in response to Mr. Obama's request that small businesses increase hiring, The President forgot that only the government hires more people than they need.   

Why the Economic Corpulence Package will not work

President Obama (and his supporters) said one of the ways his economic stimulus package will (eventually) succeed is by encouraging banks and other creditors to start lending again so people can go out and buy lots of stuff. All of this spending will "save or create" lots of jobs, all good ones and all here in the USA. Wait one minute here, what happened to more manna from heaven than we can shake a stick at?? Cures for cancer, heart disease, diabetes, obesity, hangnails, etc, etc?? Throw in the moon and stars while you're making pie in the sky promises.

Increasing credit liquidity (aka encouraging banks and other creditors to start lending at lower standards just to boost Gross Domestic Product) will not turn around the worldwide economic recession. The reason for this blog and the current economic crisis is the gross overextension of credit caused by subprime mortgage lending. In other words, lending money for extremely high ticket purchases, homes that the buyers were not expected to be able to repay in the long run, turned a nice normal all-American business cycle recession into a severe worldwide recession.

In 2005, the USA had a negative personal savings rate, the first time since the great depression. In 25 words or less, the USA spending exceeded its disposal income. (disposal income is money after taxes. Jiminy Cricket, talk about your endangered species!!) A return to the credit abuse habits that got the USA into this extreme recession will not get us out of it. We may see an increase in sales and gross domestic product on a short term basis, but another extreme recession will be just around the corner. IMHO, Americans don't need more cell phones with cameras, music, video and web surfing ability; we need to hunker down, tighten our belts and get our feet back under us. Put another way, start living within our means and saving money for long term wants and needs. College tuition, home purchase, retirement come to mind.

President Obama recently said he wanted the US government to do the same thing American families do with their money. Sit down, work out a budget so the family income will cover all necessary expenses and some savings for future items. This would be real, unprecedented change for the better. Now the decision must be made, do we continue to encourage a consumption based economy or start to encourage a savings based economy?

Armageddon California Style!

Here's the latest news from the California State Budget Crisis:

John Chiang, Controller for the State of California, announced on Friday, January 17, 2009 suspension of some State debt payments effective Feb. 1, 2009. $3.7 billion will be suspended (AKA not paid) unless the governor and legislature can work together and put together a working budget in 2 weeks. At a news conference in his office Friday, Chiang said "It pains me to pull this trigger. But it is an action that is critically necessary."

The suspended payments include $2 billion in tax refunds, $13 million in student grants and $300 million for elderly, blind and disabled Californians. The tax refunds are actually excess collection of income tax payments to the state from the taxpayers wallets in the first place. This has got to hurt the taxpayers unless they are masochistic, suicidal or both. The $300 million for the blind and disabled may be a place to start trimming the budget. Here is a quote from www.news10.net, the website for News 10 KXTV in Los Angeles:

Also affected are an estimated 1.3 million blind and disabled Californians, like Kathy Hall, who's friend Lillian Duran explained the impact it could have. "She will not be able to pay her house payment, her VISA payment, her rent."

Only in California can the blind and disabled afford house payments and rent, not to mention a visa card. I don't mind a whole lot assistance for someone to pay either a house payment or rent but not both. I also find the visa a little too much. Maybe that statement needs some clarification.

While we're on the subject of clarification, let's review the budget crisis over the last 12 months. Governor Schwarzenegger declared a fiscal emergency for the state of California under the rules of proposition 58, which he sponsored and the voters ratified in 2004. Proposition 58 requires action by the legislature to correct the anticipated monetary shortfalls. 1 year later, they are still trying to resolve the shortfall. Most emergencies and crises have such urgency that 12 months with no resolution is unthinkable.

More on this later.