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MAKING CENTS OUT OF THE NEWS
Blog #19
(November 20th, 2008)
OVER-STIMULATED AND CAN'T SLEEP?
TAKE TWO BAILOUT PILLS; CALL CONGRESS IN THE MORNING!
By Tom McAllister, CFP™
The Congressional cavalry's on the march once more, hatching plans for at least one more stimulus package to “get the economy going again”. Bailouts these days seem to be one of those lame ideas which take on a life of their own, moving through the legislature almost without debate. Certainly there appears to be remarkably little resistance to the idea of further bailouts on the Republican side of the aisle. President-elect Barack Obama is pushing bailouts as well, in order to fulfill some of his campaign promises for “change”.
No one seems to be asking what happened to the $300 Billion stimulus bill passed just a couple of months ago, or the stimulus package attached to the $700 Billion “Wall Street bailout ” legislation just a month or so back. Does anyone even remember the rebate legislation of last spring? Those dollars seem to have disappeared into consumers' pocketbooks or bank accounts with little or no impact on our rapidly slowing economy.
The bald truth of the matter, I fear, is that this kind of Congressional action just doesn't work well. Bailout bills are typically poorly conceived, poorly executed, focus in the wrong places, and take too long. By the time legislation is enacted, signed by the president, assigned to the appropriate government bureaucracies, and eventually pushed through to impact the economy, the problem could we well on the way to being over.
There is a world of difference between being effective and being efficient. This is especially true when it comes to actions by governments. For example, the United States military is normally quite effective in completing wartime tasks assigned to it. But no one would ever describe them as efficient, or even expect efficiency of such an enormous and widespread organization. (FUBAR - Fouled Up beyond All Repair - is a term coined specifically in reference to our military forces!) Whether the arena is state, local, or national, things just do not seem to get done efficiently if any arm of government is in charge.
For all these reasons, I do not put a great deal of hope or trust in any stimulus package that might be passed by a “lame duck" Congress, signed by a “lame duck" president” or, for that matter, any stimulus package signed by a brand new President during his first few days in office.
I don't pretend to be an economic guru, but forty-six years of studying the markets and advising financial planning clients have given me a philosophic attitude and something of a more patient perspective. I do know this: most recessions are over in twelve to eighteen months. This one started this summer and should be at the bottom before mid-2009. Any impact of the legislation currently being proposed will not be felt until sometime in 2010.
If Congress is to inject funding into our economy, the money should be directed towards infra- structure construction and repair. We are in desperate need of this type of work in many parts of the country, and that work should be done regardless of the current state of the economy. But let there be no hope that any bailout bills passed today will serve as an economic quick fix tomorrow morning. Since we are already "over-stimulated" to the point of tossing and turning, further stimulus in the form of bailout "pills" doesn't seem the proper prescription. Our cyclical economy, like Nature, may simply need to be allowed to take its course.
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