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Tuesday, January 20, 2009

Obama's Stimulus/Looting Plan

I've been hearing a lot about Obama's proposed economic "stimulus" plan, and figured I should do my analysis. It's tricky, because the details keep changing. Each member of Congress will attempt to add his own personal pork to the spending law. Here's an article in USA today that I use as my source.

$318 billion for state governments

The Federal government can have unlimited deficit spending without being forced into bankruptcy. Individual state governments don't get that perk. Facing declining tax revenues and an inability to borrow, individual state governments are feeling the crunch. This bailout allows the pork to be distributed by individual state governments.

$102 billion more for unemployment insurance

This just rewards workers for staying unemployed. Suppose my unemployment check is $800/week, and I'm offered a job for $700/week. It's in my rational self-interest to refuse the job.

Unemployment insurance is normally paid by a payroll tax, in addition to Social Security and Medicare (around 1%-2%). All non-unemployed workers pay the cost of unemployment insurance.

One frequently undisclosed "perk" of unemployment insurance is that it requires all newly-unemployed workers to register with the State. This enables the State to track the unemployment rate, using unemployment claims.

$275 billion in tax cuts, in the form of $500 per person

That doesn't add up. 300M people times $500 is $150 billion, and people who don't owe income taxes don't qualify for the cut. The remainder is the usual corporate tax cuts and corporate welfare.

$58 billion for energy
That seems like entirely corporate welfare.

$141 billion for education

This is $141 billion for brainwashing children. This is welfare for school bureaucrats. In order to qualify for the money, individual state governments must follow certain new rules.

$90 billion for infrastructure

This is pork for the people who build the new infrastructure.

$111 billion on health care

Medicaid spending includes psychiatry/murder for poor people.

This includes computerizing medical records (i.e., the State may track everyone better).

This is welfare for doctors and hospitals and insurance companies.

Of course, the bailout package will likely grow as it moves through Congress.

The Federal Reserve currently has the Fed Funds Rate at 0%-0.25%. By inflating the money supply, this is a further bailout to the financial industry not included in the above. Under a corrupt monetary system, part of the proceeds of inflation go directly to the Federal government, and part of the proceeds of inflation go to the financial industry.

Obama could implement a $1T "stimulus" package by just directly writing everyone a check for $3k and doing nothing else. Of course, that proposal would never be seriously discussed by a politician or in the mainstream media. The insiders wouldn't be able to loot and pillage as easily that way!

When politicians "give away" money, it's never an outright gift. There always are strings attached. As cited above, unemployment insurance requires workers to register with the State. Federal education spending requires states to follow the Federal government's guidelines.

According to pro-State troll economics, the Federal government must have deficit spending during a recession/depression to "stimulate the economy". Deficit spending by the Federal government causes inflation. Part of this is compensation for the Compound Interest Paradox.

Inflation also subsidizes bank profits. The Federal Reserve cannot lower the nominal interest rate below 0%. The real interest rate equals the Fed Funds Rate minus the inflation rate. I estimate real interest rates to currently be negative 10% to negative 20%. By increasing the inflation rate, the Federal government lowers real interest rates further into negative territory.

Suppose a bank owns a $400k mortgage on a house currently worth $200k. If there is 100% inflation, then this house is now worth $400k and the bank is solvent again. In this manner, inflation bails out banks. In the meantime, the house's former owner lost his home, his downpayment, and his savings. People who were the victim of a home foreclosure essentially forfeited their life savings. All the labor they spent earning their downpayment and mortgage payments was stolen by the financial industry.

The primary beneficiary of low interest rates are people who borrow directly from the Federal Reserve at the Fed Funds Rate. Large banks borrow from the Federal Reserve directly at the Fed Funds Rate. Executives at large corporations may borrow for a couple percent more than the Fed Funds Rate, and they qualify for a State bailout if they mismanage their business. State bailouts for failed businesses can come explicitly and directly, as occurred with GM and FRE. State bailouts for failed businesses come indirectly in the form of bankruptcy and limited liability incorporation.

If I went to a bank and said "I want to borrow $500k so I can invest in my own webiste, and I don't want to pledge any of my personal assets as collateral!", the banker would laugh at me (even if I could profitably invest the money). (If I owned a home, I could borrow via a mortgage, but then I'd be risking my house if my business fails.) If a CEO says "I want to borrow $1B to buy out a smaller competitor", the banker says "Here's the money!" I pay for the CEO's subsidy via inflation. The CEO is not risking any of his personal assets if his buyout decision is later proven wrong.

When the Federal government "stimulates the economy" via deficit spending, no real new wealth is created. Via inflation, the State steals from the productive sector of the economy and gives the proceeds to the parasite sector. Insiders who print and spend the new money are stealing from everyone else.

It's the "seen vs. unseen" fallacy. You see the State hiring people and those workers do things. You don't see the person who can't afford a new TV or a new car because his savings and paycheck were eroded by inflation. The true cost of the State is hidden from most people, allowing the abuse to continue.

When you hear about Obama's stimulus plan, you should realize "That's my money Obama is spending, and he's giving the profits to other people!"


fritz said...

The Obama stimulus plan is akin to a starving man. seeking to save himself and unable to find a food source. begins to consume his own flesh in an attempt to ward off starvation. What utter nonsense this is.

It will not be long before they find our sun bleached bones, picked clean by the buzzards. Lying face down in the sand.

Wait,,Did I just make my first attempt at a positive agorist fnord?? Almost!!


Anonymous said...

steamroller says -
There will NEVER be an economic recovery until some State Troll will have a epiphany and realize that unless we produce wealth, no new wealth is created. Politicians think that 'stimulus money' creates new wealth. Wrong again pretzel breath, That is socialist redistribution and with the multiplier effect guarantees that unless we produce wealth in goods the people will only share the MISERY, and the poverty not the prosperity. Somebody has to be productive and make something so the "Something" can be shared.

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