Friday, February 6, 2009
The Game Is On
While millions of people have lost their job or are having their hours cut back, the Congress debates the Stimulus Bill. The debate attempts to address concerns of Republican legislatures about the amount of money being spent, but the real reason for the debate is politics. The Bush administration would not have seen the same debate had they purposed a Stimulus Bill before leaving the White House, but Bush and his administration had their heads in the sand. The situation now is beyond economics, it is what it is, just plain old fashion politics.
Regardless of how much money is spent by the Federal Government to stimulate our domestic economy, unless there are changes in the regulatory environment in banking and the investment banking industries, very little if any improvement will be realized in the efficiency of the capital markets. The problem of the conflict of interest remains concerning the rating agencies and underwriters, and the methodology used in the rating of structured debt instruments such as mortgage-backed bonds. This problem of bond ratings for structured debt may appear small to those outside the workings of the capital markets, but it is just enough to keep the housing market from getting back on its feet. The same is true for car loans and manufactured housing. The ability to finance consumer debt is critical to a healthy economy in the 21st century.
The second part of the economic problem is the amount of money being spent to import oil and goods made in China. Without a plan to reduce the wealth that is being exported to pay for the oil and goods made overseas, the domestic economy will continue to find difficulties. Money spent on infrastructure is probably the best bang for the buck along with cutting taxes for people in the lower tax brackets. Cutting corporate taxes at this point, in my opinion, will have very little stimulative effect. People and families making less than $50,000 a year could do more for the overall economy if they did not have to pay any income taxes until this economy got back to near full employment. People on Social Security should have their tax burden eliminated as they are not saving their money, but using almost every dollar to survive.
The state governments need this Stimulus Bill as much if not more than the Federal Government because it is the state governments that are being forced to cut payrolls and eliminate jobs for teachers, police and fire fighters.
Hopefully, by next week sometime a Stimulus Bill will be passed by the Congress. That is only a start. Much work needs to be done to correct the regulatory environment on Wall Street and rebuild the Securities & Exchange Commission.