No More Stimulus Packages, U.S. – Try Sound Money Management

I just read an article about how both the Congress and the Bush Administration (with the blessing of Fed Chair Bernake) want to issue another “stimulus package” to strengthened the economy still reeling from the credit crisis that, it was said, required $700 billion to avoid collapse. Let’s make this simple: it’s a bad idea.

First—and this is key—our political leaders have to accept the fact the economies have boom and bust periods, and you simply can’t throw money at a problem in the expectation that it will go away. Oh, perhaps you can if you have the money in hand, but the seat of the U.S. government’s pants are dragging on the floor from the piles of debt it has built during the Reagan+Bush+Bush2 administrations. Supply-side economics, at least in this country, does not work.  Let me repeat that for those of you who are shaking your heads: SUPPLY-SIDE ECONOMICS (at least in this country) DOES NOT WORK!

In addition to this still-being-formulated stimulus plan, the Fed wants to, once again, drop interest rates. I just want to slap their hand and say, “Stop that!”

The way I see it, we need a massive systemic change of mindset, not only with government, but with business as a whole. Businesses are too often encouraged to borrow, borrow, borrow in the expectation that there will be a brighter tomorrow. This fosters an undisciplined economy that thinks that whenever things aren’t perfect, you can just ask the bank for some ducats and everything will be rosy again. That’s what deregulation did for us. Business would expand faster than was wise, and would acquire other businesses that were too expensive and/or not well-matched.

Again, I blame a lot of the MBA culture that focuses on widgets instead of the realities of specific markets. Too much emphasis is placed on the paper appearances of value instead of actual, real, value. I’m not saying that the accounting math isn’t correct, or that it doesn’t provide for an interesting take on the available data, but too often it skews the perception of those looking at it into thinking that an interpretation of data is the reality of the data. As I’ve asked before: please stop this sort of cooking of the books.

So, here’s what I propose: no stimulus package. The mindset of the people is now shifting to one of saving/protecting money. While that is bad for business in the short term, beyond that time-frame you will have a stronger economy than before because people will understand that money has VALUE. Second, I suggest capping credit card interest rates a current levels (though allowing them to drop), and having the Fed raise interest rates by half a point. WHAT!?! Yep, half a point. Here’s why: a lot of Americans not bitten by the credit crunch (or at least, not bitten badly) are surviving on the interest of their savings and “safe” investments. Dropping interest rates hurts them quite a lot. Also, dropping interest rates encourages more lending…which is not something we want to do right now.

I would also propose that once the interest is raised, that that rate is frozen for eighteen months as a hedge against inflation, and so that our roller coaster economy can smooth the mountainous hills and valleys into something a little more molehill-ish. A lot of the uncertainty that people and businesses have been feeling comes from not knowing from one month (or week, sometimes) to the next what the government is going to do. I think the first bit is to stop panicking. Yeah, there is going to be some massively shared pain, but we aren’t going to get through this without that.

We’ve gotten ourselves into quite the little mess, but it will work itself out on its own if the government lets it. This, by definition, is the conservative approach. Are you hearing me, (mostly) Republicans? THIS is the conservative approach. Yes, some businesses that are saddled with debt will fail…some will be very impressive companies indeed. In a stable economy they would never have gotten so deeply into dept in the first place. Yet as fun as a bullishly prosperous economy can be, the fact is that there has to be a foundation of stability. That foundation has been dangerously worn away by two cycles of free-spending economics. It’s time to stop the erosion, patch the small cracks, and repair & replace those parts that have crumbled. We’ve been trying to spackle over gaping holes for too long; while it looked pretty, it was never going to hold up under strain. So, lest we let our economic house fall, it’s time to get serious. Play time is over.

When I was younger, I once had a lot of that dreaded credit card debt. Not to be specific, but it was well into five-figures. Instead of declaring bankruptcy (which might have been, on paper, a sounder choice), I worked hard and paid it all off. I can say that I have never been so free as I was once the debt burden was lifted, or how satisfied I felt that I was able to do it on my own. It’s amazing how prosperous you can be and how much more you can do when you no longer have this expense (too much of it interest that pays for nothing but banking) that’s draining to the soul, if not the wallet. Now imagine what a business or a country could do without the yoke of debt on their shoulders.

The way out of the mess isn’t to have consumers spend money that should be saved. The path of freedom isn’t to have businesses trying to stand while shouldering unmanageable debt. The road to salvation is only through sound financial policy at all levels.

If the majority of households in the country: those having to save for college educations, and home repairs, and medical bills, and utility bills; if they have to be mindful of how money REALLY works, then it’s time that business and government learn the same lesson. If that’s a possibility, then perhaps we can finally erase our national debt (which goes back to WWII) and have a truly prosperous nation for generations to come. Unfortunately, based on the depth of the hole that’s been dug (much of it in the past seven years), it’s going to take the will of some 4 or 5 administrations to stay the course.

Now is not the time for a “stimulus” package. Now is the time for true conservatism. If the markets have to raise and spend their own money, then given a fair amount of time, it will level out on its own. The most important thing is calm consistency instead of the wild flailing about that’s been happening. As with the noble turtle: slow and steady will win the race.