Stimulus Package – What is Not Seen

On January 24, 2024 , an agreement was announced by the White House, Boehner and Pelosi, promising individual taxpayers would recceive $600 in rebates, working couples $1,200 and those with children an additional $300 per child. In a key concession to Democrats, 35 million families who make at least $3,000 but don't pay taxes would get $300 rebates.

The rebates would phase out gradually for individuals whose adjusted gross income exceeds $75,000 and for couples with incomes above $150,000.

Of course, pundits are taking pot-shots, some saying this is “too little, too late.” I have really no opinion as to whether it will do what the government intends in the short run. What we see may be the government scrambling for solutions that make the problems worse. I know that it will fail in the long run. It might help if total expenditures are cut drastically and the 2002-03 tax cuts are made permanent.

What is Not Seen

The first thing that is not seen is the underlying cause of the problem the government is now talking about fixing: government acts that caused the sub-prime mortgage crisis, namely the Community Reinvestment Act.

Whereas the $1,200 rebate for couples is seen, what is not seen (recalling Frederic Bastiat) is from where the money will come. We see the $150 billion being sent out to stimulate the economy, which is near recession or already in recession. What is not seen is what happens because of the way government is coming up with the money.

Where will the money come from? They cannot simply start printing checks. The checks will clear local banks and the system will pass them along for actual funding with cash at the Federal Reserve. The Fed does not have it. The government does not have it. It does not exist, except in the form of gold in Fort Knox . But to make rebates in the form of this $238.7 billion in gold would open a Pandora's Box. That could lead to a sound monetary system and, horrors, government would lose control. The government prefers borrow it. It will sell bonds.

The U.S. national debt already stands at $9.1 trillion and the fiscal year 2008 deficit already tops $250 billion. We will see the total debt balance now creep closer to $9.5 trillion. Let us not even think about the other obligations that no one wants to do anything about (Social Security and Medicare).

More that is not seen: What will all of this borrowing do?

More of what it already is doing: (1) crowd out private borrowing and (2) raise interest rates, causing higher inflation.

Crowding out private borrowers causes the economy to slow down.

“The problem with both debts and deficits is that they tend to drive up interest rates. This is because the government is competing with private borrowers for loans. The result is that government borrowing tends to crowd out private borrowing. Much private borrowing is for the purpose of making capital investments, so the long-run result of crowding out is reduced economic growth.” (from California State University Northridge )

Government borrowing also pushes up interest rates (competing for a limited supply of money). This is aggravated by the recent injection of credit into the financial industry because of the sub-prime mortgage crisis, increases the money supply.

The American economy does not need this stimulus package.

What the Economy Really Needs

The American economy is staggering under the weight of taxes, regulations, rising interest rates and lack of funds to borrow for growth.

American entrepreneurs, the people who spie out the opportunities before others do, need capitalists, who can provide the funding, whether saved or borrowed. But they cannot implement their job-creating new projects. They cannot put their new products and services on the market.

The savings were sunk into government bonds. The available lendable funds were sucked up by government for give-aways. That is not charity. That is a crime.

We need to get government off the backs of business, off everyone's backs. We need to get government out of the monetary system, out of the economy. We need separation of the economy and state just as much as separation of church and state. Ayn Rand, Atlas Shrugged – on the last page – was right in suggesting this constitutional amendment:

“Congress shall make no law abridging the freedom of production and trade.”