U.S. Dollar in Decline

As the world begins to to talk about pricing oil in a currency other than the dollar, the dollar has also lost its status as the reserve currency of the world.

Over the last three months, banks put 63 percent of their new cash into euros and yen -- not the greenbacks -- a nearly complete reversal of the dollar's onetime dominance for reserves, according to Barclays Capital. The dollar's share of new cash in the central banks was down to 37 percent -- compared with two-thirds a decade ago...

...Economists believe the market rebellion against the dollar will spread until Bernanke starts raising interest rates from around zero to the high single digits, and pulls back the flood of currency spewed from US printing presses.

"That's a cure, but it's also going to stifle any US economic growth," said Schiff. "The economy is addicted to the cheap interest and liquidity."

Economists warn that a jump in rates will clobber stocks and cripple the already stalled housing market.

"Bernanke's other choice is to keep rates at zero, print even more money and sell more debt, but we'll see triple-digit inflation that could collapse the economy as we know it.

"The stimulus is what's toxic -- we're poisoning ourselves and the global economy with it."

Our rapidly increasing national debt along with expansionary spending policies (causing the U.S. government to print more money while keeping interest rates near zero) is leading the world to believe that we are no longer a reliable source of investment.

Has the Stimulus Bill Helped the Economy?

Early in the year we were told that the massive, pork-laden stimulus bill had to be passed immediately so that our economy could rebound more quickly. The Obama Administration showed us graphs of what would happen with and without the stimulus package. They promised it would "create or save" millions of jobs (never mind that you can't measure "saved" jobs).

Well, if you go back and look at that graph, we WORSE OFF than we would have been WITHOUT that massive spending bill. Except, of course, that our government is further in debt...

click here for graph

US Debt Per Household Tops $546,668

The amount of federal U.S. debt per household is now $546,668.

Bottom line: The government took on $6.8 trillion in new obligations in 2008, pushing the total owed to a record $63.8 trillion.

And this is before General Motors and Chrysler, the 2009 Stimulus bill and the 2009 Omnibus bill. Also before any more government involvement in health care, which is coming up soon!!

And this is before additional federal deficits are piled on...remember this chart?

Spending vs Spending Cuts - In Pictures

Granted, the Heritage Foundation is a conservative organization. However, they do a good job of reporting facts. The numbers are not made up. The picture and example in this post say it all. And just to reiterate. Any money that they do "cut" is not going back to the taxpayers. It is just "less overspending".

Stimulus Bill at Work?

We are now hearing that President Obama sees signs of optimism from the economy. Could it be a result of the actions of Congress and this Administration, in moving so quickly to pass a huge stimulus bill?

The answer is no....stimulus funds are just now starting to percolate down, with many not slated to be spent until 2010 (and 30% slated to be spent after 2010).

White House officials say the bulk of the money will start hitting the streets later this year and early next, with the goal of spending 70 percent of it by the summer of 2010.

Is it possible that we could be in relatively the same economic position without having spent 800 Billion dollars that we don't have? We will never know.

The good news: some of the delay in spending the funds is because state and local officials must show plans for how they will use the money before they can get it.

Understanding the Financial Crisis

This is a short but good video by Reason TV regarding our strategy for solving the current financial issues.

Tea Party Protests

There were several more Tea Party Protests against government spending this weekend. There are many more planned for April 15th across the country.

This weekend's Tea Parties were as follows:

Cincinnatti, OH 4,000 - 5,000 people
Columbus, OH 200
Leawood, KS 110 (4th protest in 4 weeks in KC)
Little Rock, Arkansas 200
Boise, Idaho 100-15o

More Stimulus?

Nancy Pelosi and other Congressional leaders are beginning work on another stimulus bill. They aren't sure if it will be needed or not.

Remember, much of the spending in the original $787 Billion stimulus package won't be spent until 2010 or later, so it's unclear how they know more is needed.

Let's hope they read this one before they vote on it!

Poll of Economists Give Obama and Geithner Low Grades

Forty-nine economists were polled by the Wall Street Journal to get their opinions on the administration's economic policies.

"On average, they gave the president a grade of 59 out of 100, and although there was a broad range of marks, 42% of respondents rated Mr. Obama below 60. Mr. Geithner received an average grade of 51. Federal Reserve Chairman Ben Bernanke scored better, with an average 71."

Criticism centered on the lack of a clear plan and delay in enacting key parts of the plan to rescue banks. Most of the economists surveyed expected the economy to begin recovering next October.

2 Governor's Take a Stand on Stimulus Money

Governors Mark Sanford (R-South Carolina) and Rick Perry (R-Texas) have both made announcements today that may prove politically unpopular for them, but which they feel are the best course of action for their respective states.

Governor Perry is refusing some of the stimulus money designated for Texas because it would require the state to change how it defines unemployment. His concern is that this will create an increased burden on business. Per his office...

Strings attached to the unemployment insurance stimulus dollars would require an unprecedented change in Texas’ definition of unemployment, increasing the tax burden borne by Texas employers. This increased burden would counteract the stimulus package’s objective of job creation by leading companies to limit hiring and raise prices on products, hindering their ability to overcome the economic crisis and ultimately limiting growth. Full Article...

Governor Sanford has made a formal request to the President, asking that he be offered some flexibility with 25% of the money designated for South Carolina. Instead of being "forced" to use it as proscribed by Congress, he would like to pay down the states debt (i.e. strengthen their balance sheet). He feels that would be the best use of the money for this particular State. On the left side of this link is the 3 page letter to the President. I encourage you to read it.

Housing Plan Unveiled Yesterday

The president announced his much awaited housing plan on Wednesday. Major items are:

1. $75 billion in direct spending to provide incentives for lenders (and borrowers) to not foreclose or enter bankruptcy
   
   Lenders will be paid $1,000 to $1,500 for each mortgage that they modify. They will receive up to an additional $3,000 over the next 3 years if the homeowner makes all their payments. Borrowers who make their payments could receive a $1,000 reduction in their principal balance each year for the first 5 years. This part of the bill does not provide relief for speculators/house flippers.
   
   The purpose of these incentives is to decrease foreclosures and keep folks in their homes. For neighborhoods that have a large number of "at risk" mortgages, a decrease in foreclosures should stop further declines in housing values. Of course, this is helping many folks who made poor decisions to begin with and there is a high probability that they will not be able to make the payments on the revised mortgage.
   
   
2. Making it easier for people to refinance, assuming they have been "doing the right thing" and are not speculators/house flippers
   
   Interest rates are very low now, and almost everyone would benefit by refinancing their existing mortgage. The problem is that many people do not qualify, because the value of their home has declined so much that they do not meet the existing requirement of 20% equity in their home. This plan loosens that restriction for homeowners whose mortgages are already with Freddie or Fannie.
   
   This part of the plan assists people who have "done the right thing" and are still in trouble due to circumstances out of their control. However, the restrictions are not removed entirely. So, someone who is underwater by more than 5% will not qualify. (eg. Their home is currently valued at $200,000 and they owe more than $210,000).
   
   
3. $200 billion additional investment in Fannie Mae and Freddie Mac
   
   The Treasury will invest $100 billion more in each entity. It also increases the size of the mortgage portfolio that each can keep by an additional $50 billion (up to $900 billion now). This is intended to "prop up" the mortgage market on the whole, and allow Freddie and Fannie to buy more mortgages / mortgage-backed securities.
   


4. "Cram Downs" available for bankruptcy judges to use.
   
   Cram downs allow bankruptcy judges to reduce the outstanding principal and/or change payment terms on mortgages for homeowners filing for bankruptcy. Some argue that this will end up increasing mortgate rates because lenders will charge higher rates overall to cover the risk that bankruptcy judges may decrease the principal.
   

The White House has published an executive summary of the plan (PDF) and an online Q&A.

Recovery Act Signed into Law

The bill was signed this afternoon by the President. Here is a link to the official White House website that it will use to "track/report on" progress to us. Below is a copy of a table from the site that categorizes how the money will be spent.

Not to be picky, but why do they show "Tax Relief" of $288 Billion, and then in the footnotes "take away" $123 Billion, to make the "Net Tax Relief" amount equal to $165 Billion?

Category	Amount ($ Billions)
*Tax Relief	$288
*State and Local Fiscal Relief	$144
Infrastructure and science	$111
Protecting the Vulnerable	$81
Health Care	$59
Education and Training	$53
Energy	$43
Other	$8

* Tax Relief - includes $15 B for Infrastructure and Science, $61 B for Protecting the Vulnerable, $25 B for Education and Training and $22 B for Energy, so total funds are $126 B for Infrastructure and Science, $142 B for Protecting the Vulnerable, $78 B for Education and Training, and $65 B for Energy.

State and Local Fiscal Relief - Prevents state and local cuts to health and education programs and state and local tax

Stimulus Watch Web Site

Now that the stimulus bill has been passed, Congress and the President are gearing up to spend hundreds of billions of taxpayer money. The U.S. Conference of Mayors has already provided a list of shovel-ready projects in cities around the country that the mayors would like to see funded. President Obama, however, has promised to spend stimulus dollars only on critical projects.

There is a website that "shines the light" on this list of shovel-ready projects. Remember, these projects are not yet part of the stimulus bill. They are candidates for funding.

If nothing else, it is interesting to look at the list to see what the various cities and states have proposed. Who knows, this may end up being something that "takes off" and provides the type of transparency and accountability that is required.

Congress Passes Stimulus Bill

The Democrats in the House and Senate passed the stimulus bill yesterday.

The White House is claiming that it will create 3.5 Million jobs. Cost of the bill (not counting interest that will have to be paid on the debt issued) is $787 Billion.

More than one way to stimulate the economy

An alternative stimulus plan was outlined today. It would cost half as much as the one passed by the House and being considered by the Senate.

The focus is on putting more money in the hands of taxpayers and businesses (to increase jobs) , to provide a safety net for those hurt worst in this recession, and to fund road repairs and other "shovel ready" projects.

Key provisions include:

• Cut payroll taxes (FICA) in half for one year
• Lower bottom two income tax brackets
• Reduce corporate tax rates and those for small business owners
• Tax credit to people who buy homes in 2009
• Extend unemployment insurance and food stamps in 2009
• Grants to states to build/repair roads & bridges and invest in public transportation
  
• Modernize Defense Department facilities and equipment
• All spending programs to end 3 years after legislation takes effect

Because this was proposed by Senate Republicans, it is unlikely to be adopted.

Treasury Needs to Borrow $493 Billion to Partially cover TARP

The Treasury needs to borrow $493 Billion to partially cover commitments made as part of the "rescue package" passed last fall. They already borrowed a record-breaking $569 Billion in October through December. This borrowing alone will bring the national debt to over $11 Trillion by Spring.

This is BEFORE we even start to borrow money to pay for the "stimulus" package that Congress is currently considering.

This is our money - taxpayers are the ones who will have to pay off this debt (see post below).

Job Creation, Stimulus or Pork?

We are told by the Congress that they must pass the $800-900 Billion plan to stimulate the economy and create millions of jobs.

Check out a summary of the bill by House Democrats here (skip past the first three pages and look at the laundry list of spending plans) or the actual bill here (if you are having trouble sleeping).

In case you don't have time to do either, here is just a sampling of items that may be worthy but may not create jobs or stimulate anything:

• $6.2 Billion to weatherize homes for low income families
• $13 Billion in Special Education grants
• $13 Billion in grants for disadvantaged kids
• $87 Billion to states for Medicaid costs
• $79 Billion to states for bonus grants, education, and other stuff
• My personal favorite: $650 million for coupons for Americans who have to buy converter boxes to go from analog to digital TV

See for yourself -- there are over 130 items in the summary. The Senate is deliberating on this today.

Spending Spree - Perspective

Scare, then spend, seems to be the government motto in the past year. They tell us the world is falling apart, that only they can fix it, and by the way here's the tab. Let's just remember what happened in 2008:

Government Bailouts of various entities (Fannie Mae/Freddie Mac, AIG, Auto Industry, etc). totaled 1 Trillion 369.9 Billion of your tax dollars. Written out, that looks like $1,369,900,000,000. I can't even enter that number in my calculator!! Click Here for details.

It's working so well to fix the economy that they want to do more of it (see the $800-900 Billion Spending bill that the House passed this week -- details below). If the Stimulus (in reality, Spending) bill passes the Senate next week, we taxpayers are on the hook for spending of 2 Trillion, 269.9 Billion dollars. After all, the goverment's source of income is our tax dollars.

Not Everyone Thinks the "Stimulus" Bill Will Work

The President and the news media keep saying that everyone agrees on the need for the government to spend massive amounts of taxpayer money to "stimulate" the economy.

In fact, many economists and others disagree.

Hundreds of prominent economists have signed a statement to the effect that more government spending is not the answer. History buffs also note that government spending did not get us out of the Great Depression and did not help Japan with their economic woes in the 1990's.

"Stimulus" Package - Part 1

House Passes $819 Billion "Stimulus" Package

The House passed it's version on Wednesday. The Senate version is closer to $900 Billion, and will be debated and voted on next week. Both packages use a combination of government spending and "tax cuts". Roughly $550 Billion in spending and $275 Billion in "tax cuts".

Some of the spending "highlights" are:

$90 Billion - infrastructure projects
$125 Billion - education related items
$87 Billion - Medicaid to the states
$50 Billion - Renewable energy sources
$20 Billion - Health Care Information Technology updates

The Obama Administration is pushing for quick passage of this legislation. However, here is when the spending would actually occur:

2009 - $26 Billion
2010 - $110 Billion
2011 - $103 Billion
2012 - $53 Billion
2013+ - $63 Billion

Of course, these numbers change by the hour as the Congress works on them. And I have no doubt that if they put their mind to it, the politicians at both the federal and state levels (working closely with thier lobbyists ) will be able to spend it somewhat faster than projected.

Given the above, my question is "Why the Big Rush?"


Additional information

Glenn Beck website
click here

Washington Post
click here

An $800 Billion Mistake

By Martin Feldstein

Thursday, January 29, 2009; Page A19

Wall Street Journal
click here