A Rush For Stimulus To Avoid Economic Catastrophe

The debate on stimulus continues and the bill on the Senate floor continues to grow toward one trillion dollars. Meanwhile, unless the package dramatically changes only twelve cents of every dollar will eventually be for economic stimulus.

The remainder will be just a huge bill of pork. The one area that has not had much discussion is the stimulus given to the states. Here is some of what this taxpayer money will go to:

From Today's Wall Street Journal:

Las Vegas, which by some accounts already glitters, wants $2 million for neon signs. Boynton Beach, Fla., is looking for $4.5 million for an "eco park" featuring butterfly gardens and gopher tortoises and Chula Vista, Calif., would like $500,000 to create a place for dogs to run off the leash. These are among 18,750 projects listed in "Ready to Go," the U.S. Conference of Mayors' wish list for funding from the stimulus bill moving through Congress. The group asked cities and towns to suggest "shovel ready" projects for the report, which it gave to Congress and the Obama administration. Although the bulk of proposals are roads, sewers and similar projects, some wouldn't require a shovel at all. The mayors group sees a potential 1.6 million new jobs from the projects, though a few of them wouldn't create any. Some localities are using a kitchen-sink strategy. "Our approach has been to list everything, because we don't know what the final guidelines will be or what the final dollar amount will be," says Greg MacLean, public-works director in Lincoln, Neb. Among entries on Lincoln's list is a $3 million environmentally friendly clubhouse for a municipal golf course.

So, does the United States government just give money to the states to fund all these dubious "shovel ready" projects? It seems that money going to these projects should be separately approved and be made transparent all the way down to the local level.

Meanwhile, President Barack Obama warned again today that the financial crisis will turn into "a catastrophe" if a stimulus bill isn't passed quickly. This is the same haste that was used to approve the TARP program. A program that still has not achieved anything, is constantly changing, and has billions of dollars being spent without any transparency.

Its the dubious crisis politics of today. Its the rush to spend a trillion in the hope to avoid economic catastrophe. So, what happens if this stimulus solution doesnt work and an out of control deficit sends the dollar into a free fall? Then we will see an economic catastrophe and realize that spending hundreds of billions of dollars on pork was not really a practical solution at all.

Paris Fashion Week: Declining Hemlines And Strange Designs

Let me just say that I don't really know anything about designer clothing. In fact, I am certainly the type of person that prefers fabric comfort over making any type of designer fashion statement.

However, I know that there are people who view the most contemporary fashion design as if it were an art form. So, when it comes to taste in apparel, fashion is clearly in the eye of the beholder.

Fashion Week in Paris ended last Sunday and I decided to use the Internet to look at some of the latest fashion show clothing designs. I was driven to this strange state after recieving my latest 401k account statement that showed the negative impact the recent global stock market carnage had made to my investment holdings.

Consider that I was looking for a future stock market rally by researching a leading economic indicator, the length of designer hemlines. It is thought that when the economy is good, hemlines decline and clothing is short. However, when the economy is bad, hemlines increase and clothing is lengthened.

What was the result of my research about hemlines at Paris fashion week for the Spring design? Here is a quote from Alexandra Shulman, the editor in chief of British Vogue from the Associated Press: "I don't think it's been as exciting as other seasons. On the whole, most of the designers here have kind of stuck to what they know they can do, and not really tried anything that's going to scare the horses. We've seen a lot of very short clothes, which goes against the old idea that when the economy is bad, hemlines go down."

There you have it. Hemlines are not going down. So the economy should improve by next spring. It could well be a sign that its time to buy equities. After the recent market carnage led by the decline of the Investment Banks, could clothing fashion designers perform any worse than current stock brokers?

Probably not, but its still very hard for me to understand who would actually consider wearing some of those strange fashion designs.

Paulson's Bailout Plan Is Financial Shock And Awe

It's another Monday and there is another government bailout to talk about in the sub prime mortgage mess.

However, this time its the "mother of all bailouts". U.S. Treasury Secretary Henry Paulson has proposed and the Congress will soon approve a taxpayer bailout plan for everyone.

The Paulson bailout plan will use at least 700 billion taxpayer dollars to bail out toxic mortgages from every United States financial institution and even large U.S. banks that are foreign based.

In addition, the Paulson bailout plan saves any money market mutual fund that was in danger of breaking its one dollar net asset value. There were two such money market funds that were in that dubious category last week.

While there can be no doubt at this point that the Paulson bailout plan was necessary to save the financial markets from the abyss, the plan is financial shock and awe to the American taxpayer nevertheless.

The commitment of 700 billion in new taxpayer dollars to save the financial markets along with the cost of the Iraq war and the already huge federal budget deficit projected for next year will dramatically limit the next President's ability to spend any money.

So, any Presidential candidate that still maintains that he is going to cut taxes, provide National Health Insurance or any of the other myriad of vote pandering treats in the election 2008 goody bag is simply not facing fiscal reality. Make no mistake about this, American taxes are going up and the growth of the economy is going to be subdued during the next Presidents first term in office.

It is really remarkable how poorly our elected politicians and 2008 Presidential candidates have handled this financial crisis during the last week. Last Tuesday, Republican John McCain said: "We cannot have the taxpayers bail out AIG or anybody else." By Wednesday, he had completely changed his mind.

How about this strange quote from the Arizona Republican: "the fundamentals of our economy are strong". Unfortunately he said this as one brokerage house had just filed for bankruptcy, another was about to, and the Dow Jones industrial average had tumbled 504 points in a single trading day.

Meanwhile, America is still awaiting the economic plan of Democratic candidate Barack Obama. He has already delayed unveiling his plan twice. I guess at this point, he has just decided to vote "present" on the current financial crisis. It's apparently a pattern of behavior since he voted "present" on 130 different occasions when he was a member of the Illinois State Senate.

The leadership in the Congress was not much better. In the United States Senate, Majority Leader Harry Reid is quoted as saying "no one knows what to do" while in the House Of Representatives, Speaker Nancy Pelosi initially promised to hold hearings on the crisis after the Congressional vacation.

This week both Republicans and Democrats will spend more than 700 billion dollars of taxpayer money and then go home on vacation. In the 2008 election, it will be business as usual as the candidates continue to make campaign promises that they cannot hope to deliver. However, despite the Congressional commitment of a huge amount of taxpayer money and all those campaign promises, this financial crisis is far from over.

A long and deep U.S. recession has now increased in probability. Indeed, defaults on credit card payments could eventually require the Treasury to commit more taxpayer bailout dollars for banks and credit card companies. In addition, a run on hedge funds is very likely and this whole mortgage mess may well spread throughout Europe.

Paulson's bailout plan of 700 billion taxpayer dollars is certainly American financial shock and awe. However, the sobering reality of the plan is that as an economic solution, it may be only phase one.

A Financial Crisis Of A Century

Alan Greenspan has just called this ongoing United States economic disaster a "once in a century financial crisis."

The problem for Greenspan is that he sounds like an impartial, detached observer providing commentary on the sinking of the Titanic. The reality is that he was the captain of what is now the sinking American economic ship.

The truth is that today's financial crisis can trace its origin back to 2001, amid the end of the Internet boom and the shock of the September 11 terrorist attacks.

It was at that point that the Fed under its Chairman, Alan Greenspan turned on the monetary pump to try to combat an economic slowdown. The Fed poured money into the US economy and slashed the Federal Funds rate from 3.5% in August 2001 to 1% in 2003.

Then, Greenspan's Federal Reserve made two fatal mistakes. First,it kept the Federal Funds rate too low for much too long. In doing so it created the environment of speculation for the creation of a housing bubble which is now exploding.

Next, Greenspan failed to closely regulate the bankers. Lending standards became shamefully lax and the Fed should have done something about it, not to mention the deceptive and in some cases fraudulent sub prime mortgage practices.

The problem is that as Fed Chairman, Greenspan actually encouraged the development of the housing bubble which has led to this "once in a century financial crisis". Remember when Greenspan suggested that many homeowners could have saved tens of thousands of dollars in the last decade if they just had Adjustable Rate Mortgages?

How about his request that encouraged greedy bankers to create those unique alternative products which led directly to the sub prime mortgage problems of today. In 2004 Greenspan said: "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage."

So, former Fed Chairman Alan Greenspan created the environment and without any real oversight, the immense greed of the investment banks did the rest to create this financial mess. Now, one by one these banks march to the United States taxpayer for a bailout.

It is hard for many American citizens to understand the sheer arrogance and greed of all this. Consider that Lehman Brother's CEO Richard Fuld made over twenty two million dollars in compensation in 2007 alone. Twenty two Million dollars paid to a man who was about to run his company into bankruptcy. He is hardly alone. Tens of millions of dollars in annual compensation is the going rate for all these failed financial bank CEO's.

Indeed, it seems like every weekend brings headline news of another major failure in financial corporate America. Bear Sterns was bought by J.P. Morgan with government guarantees. FannieMae and Freddie Mac are now owned by the Federal government and the American taxpayer. Lehman Brothers has just declared bankruptcy. Merrill Lynch was bought by Bank Of America in a rush to avoid another impending disaster.

The problem is that this economic crisis is far from over and there are many more financial corporate failures to come during the remaining months of 2008. The sad truth is that there have already been 100,000 layoffs in financial services this year. It now looks like there are at least 50,000 more to go.

Bush, Congress and The 2009 Federal Budget Deficit

The Federal budget deficit for 2009 is now projected at a record 482 billion dollars. That will eclipse the old record of 413 billion set at the end of George Bush's first term in 2004.

The next President will certainly have a sobering first few days in office when he realizes that there is no money left to spend to cover all the promises that he made to get into the Oval Office to begin with.

In fact, he has to find at least 482 billion dollars just to make ends meet. Of course, the next President can just add to the ten trillion dollars of cumlative national debt that the country already has a tab for.

In truth, the record budget deficit of 482 billion for 2009 is actually going to be to low. It assumes higher economic growth than is forecast and doesn't account for the total cost of the country's ongoing military obligations in Iran and Afghanistan. Sooner or later the Congress of the United States has got to stop spending money that it doesn't have and the President needs to veto legislation that is fiscally irresponsible.

A stewardship of foreign Wars with dubious management and irresponsible fiscal spending has dramatically lowered the public's opinion of the performance in office of President Bush. Huge annual deficit spending is also contributing to the damage to the Republican brand in this election year.

During the last decade, pork barrel domestic spending to insure re-election has become an addiction for the career professional politician in both major political parties. The stealth cover of Congressional earmarks have been the used to hide their domestic spending trail.

Therefore, a President who wants real change in Washington D.C. in 2009 will have to reign in, "out of control" federal spending first. The longer the delay, the more we all will have to eventually pay. (For more on Congress and spending see: The Surreal World Of The United States Congress on eWorldvu.com.)