Stimulus Bill Causes Hope to Fade

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The subtitle to this article is Bringing a Hose to a Flood

I’ll be honest, I was equal parts hopeful and doubtful that anything new would come out of Washington because, well, I’ve been watching the situation for a long time and nothing really “new” comes out of there very often.

For now, I must content myself to sit back and watch, and wait, knowing that sooner or later reality will force itself back onto the radar screens of our leaders. For now, they remain hopelessly out of touch. For example, check out this well-meaning statement:

“This is a continuing disaster for America’s working families,” Obama said at the White House yesterday. “They need us to pass the American Recovery and Investment Plan,” designed to save more than 3 million jobs, he said. House lawmakers passed the stimulus Jan. 28, moving action to the Senate next week.

I agree with the ‘disaster’ part, but I am less than certain of the ’save more than 3 million jobs’ part.

Here’s why:

An $800 billion-plus package, it turns out, gives lawmakers plenty of opportunities to rid themselves of nagging headaches left over from the days when running up the government's $10 trillion-plus debt was a bigger concern.

There's $345 million for Agriculture Department computers, $650 million for TV converter boxes, $15 billion for college scholarships — worthy, perhaps, but not likely to put many Americans back to work quickly.

There's $1 billion to deal with Census problems and $88 million to help move the Public Health Service into a new building next year. The Senate would devote $2.1 billion to pay off a looming shortfall in public housing accounts, $870 million to combat the flu and $400 million to slow the spread HIV and other sexually transmitted diseases such as chlamydia.

But nothing is in the legislation by accident. By including in the Senate stimulus bill such far-ranging ideas as $40 million to convert the way health statistics are collected — from paper to an electronic system — lawmakers are able to thin out their in-boxes, even if they aren't doing much to create jobs.

There's also $380 million in the Senate bill for a rainy day fund for the Women, Infants and Children program that delivers healthful food to the poor. WIC got a $1 billion infusion last fall.

But some Democrats, like Sen. Ben Nelson of Nebraska, think the $3.5 billion in the stimulus package devoted to health research, or the $14 billion-$15 billion for boosting Pell Grant college scholarships by $400 to $500 would be better spent on additional brick and mortar infrastructure projects.

Instead of directing money where it is most needed, Congress could not resist using this massive appropriation as free money for pet projects. In other words, there’s no sense that we need to be smart or careful with our money. Instead, an $850 billion package is the ideal time to do all the nifty things that couldn’t be funded during normal budget discussions.

It's exactly how we might expect a lottery winner to behave during their first few weeks in the millionaire bracket.

How is it possible that DC Congressmen can see things this way? This embarrassing quote sums it up:

"If the house is burning, you're not going to worry about which hose you grab, so long as you get water on the fire," said Rep. David Obey, D-Wis., one of the chief authors of the House package as chairman of its appropriations committee.

Well, Mr. Obey, it might matter if you’ve misdiagnosed the problem and it turns out the economic house is not on fire but rather caught in a flood of debt. Then your additional “spray and pray” deficit spending could be more harmful than helpful over the long haul. Having a basic understanding of the problem is essential to picking effective solutions.

It is attitudes like Mr Obey’s that cause me to lose hope that adults are in charge in DC and have some idea what they are doing. The vast amount of spending waste has convinced me that the actual seriousness of the predicament has not yet penetrated the thicker layers of the more obtuse lawmakers.

This is a companion discussion topic for the original entry at https://peakprosperity.com/stimulus-bill-causes-hope-to-fade-2/

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CM Wrote:

"Well, Mr. Obey, it might matter if you’ve misdiagnosed the problem and it turns out the economic house is noton fire but rather caught in a flood of debt."
Hello Chris: I could not agree more with that statement. I truly believe that the U.S. is insolvent. We are in the last days, it took Enron 16 years to "create" 65 billion of "wealth" and 24 days to go bankrupt. We are in the 24 day period, how long it will take to play out, who the heck knows. One thing for certain, our books would make the late Kennie Boy green with envy. In aviation when the bad stuff hits the fan and you miss diagnose the problem your solution only exacerbates the problem. Ditto when debugging computer programs. Seems clear as day that when all your solutions put you on track to obliterating 6 million jobs this year then you are making things worse not better and you need to re-diagnose the problem. Truly, and let me rant, the issue is the idiots doing the diagnosing. My hunch is that England or one of the EU nations will fall first and it will cascade around the world, by then they will figure out that 2+2=4 not 3. In any event, I'm pretty certain that a re-denomination will obliterate our 70 trillion dollar black hole. The only cruddy part will be the road there and of course, if they don't know what hit them we will all get hit again. Take care
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Agree. Question becomes timing of currency and government collapse(s) and subsequent (hyper)inflation. Any comparisons based on past historical countries when cash flow w/r/t debt…GDP we reach this?

So…patients are in charge of insane asylum. Another question is how long before crash in confidence in leaders and social, political unrest?

To borrow from Chris, my intuition suggests within 6-9 months to both questions.

Nichoman

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NichoMan:
Should be something. Greece (below) didn’t take all too long, somewhere I have their GDP. Gallery Photo

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@Davos…

Unfortunately, I’m inclined to think sooner as well. Maybe much sooner. Frown

 

Nichoman

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Chris, you hit it right on the head…it’s like bringing a bucket of water to douse a California wildfire. I got into so many heated arguments this past week with people when I was trying to tell them that stimulae do not work. And listening to their arguments, I could tell that these same people are being brain washed by the media and the economists and the congressman they trot out there telling us we need to do something, anything! Mr. Obey, as you point out above is one example. Paul Krugman is one I hear about a lot. We’re all out there trying to save people from themselves, yet they want to stay on the Titanic that’s about to sink.

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Chris, you are on the money. The only question I have is that this action taken by Washington seems so obtuse, that it smells of a controlled demolition.
The fact that it is happening so quickly actually gives me hope. Maybe there will be enough infrastructure left to re-build. A slow collapse, I’m afraid, would be longer and harder for America to make a come back.

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I am very new to gold and I keep asking myself "will it go up and why?"

The answer I keep coming back to is that gold is worth whatever people are willing to pay. In a currency crisis people will view gold as a safe haven and the resulting demand will push up the price.

So why does the current gold price not reflect the risk of a future crisis?

Because the majority of the public, including our leaders as demonstrated by Chris’s observations above, have no idea what is going on, nor how serious the situation is.

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Cedar, I disagree. First gold prices are and have been manipulated for a very long time. Second, I truly believe that our leaders know exactly what’s going on.

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Thanks. I am not saying you are wrong because I am seeking the truth. I am interested in your thoughts.

I agree gold is manipulated. More specifically, US government is selling gold so that the dollar appears stronger than it is.

My logic is that the market is much bigger than the government. At some point when public consciousness shifts, the government’s actions will be overwhelmed. This will result in an economic crash with a resulting spike in gold, regardless of what the government does.

I overstated and/or mis-stated what I was trying to say about our leaders. I agree they understand that piling on debt will cause serious problems. I think they have decided that the political risk of inflation is better than deflation. Where we might disagree is that I do not think our leaders understand the profound implications of declining cheap energy that underlies this crisis. It’s for this reason that I believe "this time it really is different". And therefore history provides little guidance unless you look at, for example, ancient Egypt or Easter Island.

 

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I agree, Cedar. Good points. You are right that the governments actions will be overwhelmed and that right now there may have been a gold breakout.

But I do strongly believe that our leaders do understand the profound implications of declining cheap energy. In my opinion it’s is all connected. The current global meltdown is and always has been about energy.

Read this article from 2004 by Michael Ruppert. He has connected the dots as well as anyone. Besides Chris of course. TPTB have been preparing for a long time. Also, if you look at a map to see where our military is set up around the world, you would see an eerie corrilation to where the oil is.

http://www.fromthewilderness.com/free/ww3/062104_berlin_peak.html

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I question whether the powers that be really do understand what is happening. They are conditioned to believe in economic growth. They do not understand that all the operations of civilization entail using up limited natural capital. They do not know of the Dependence on Nature Law. Cheap oil is only one of the components of the natural capital that is being used up. This natural capital is becoming scarce. Consequently, economic contraction is becoming the new paradigm, regardless of the attempts to foster business as usual. There will be chaos in the transition. We are seeing the tip of the iceberg now.

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A come back? Whatever it is you’re smoking, I want some too…

Mike

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It was worked out thus: 158,000 tonnes of gold (from memory) @ $1000/oz.

Now just think about what all the ‘stuff’ we have built/made/accumulated over the last 100 years is worth. one thousand trillion? Ten? One thousand? I’d hate to hazard a guess really…

158,000 tonnes is ~ 5 billion ounces.

If the wealth of civilisation was, for argument’s sake 1000 Trillion ($,1000,000,000,000,000), then gold would have to be valued at $200,000/oz

If I had to guess, I’d say Civilisation’s wealth would have to be one
or two orders of magnitude higher… which would make gold then be
also worth one or two orders more… like $2 to 20 million/oz.

Whatever the truth… hang onto that gold Dude!

Mike

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If banks and businesses get money directly why do they have to bother with us pesky middle people?

Don

7 billion people can be wrong, very wrong

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castlewp, thanks for excellent article.

I agree our leaders understand some of the problems associated with declining cheap energy. But its one thing to understand that an important commodity is becoming expensive. And its another thing altogether to understand that the physics of energy underlies everything in our way of life, not the least of which food and water. After many discussions with people I have concluded that without a sound education in physics or engineering, most people do not grasp the significance of energy. And it stands to reason. Culture is what we learn. And the culture of this generation has never known anything other than abundant energy.

Yes it is enlightening to look at a map. Many think of Iraq and Afghanistan as being in quite distinct locations. When in fact they encircle the last decent reserve of cheap oil on the planet.

denisaf,

You are right that oil is only one of many resources in decline. But I still think of energy as being very different. For example, with abundant energy you can desalinate sea water and irrigate a desert. Or you can profitably strip mine very low grade mineral ores. Without energy, all you can do is grow food to feed yourself.

 

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I know, but my girlfriend is accusing me of a gloom and doomer and says that if I have no hope, then what’s the use?

Believe me, this is a 100% catastrophe IMO, but you have to have a little hope.

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On gold: Unless Bernanke finds a way to become some alchemist who can make gold out of lead, I wouldn’t worry all too much about price suppression of gold.
I’m certain they jack with the paper price now, but I myself think there are a few currencies set to topple.
Looking ahead I can safely assume that people will exit that currency when it srarts to tank. To digress: While, as absurd as it seems, when they exit from the falling currency they likely will put it in what they consider to be a safer currency. I say absurd becuase I can only imagine what the masses of that country might consider a safe currency to be — the U.S. dollar if the U.S. dollar isn’t the first to go?
That said I’m sure a lot of folks will make a rush for gold, physical gold. Even if it is 5% or 10% of them, my hunch, and it is just a hunch, is that this will put the cabosh on future jacking around of the paper gold price and we will see a much larger disparity between the paper and the physical price of gold. God forbid enough people take delivery of the metal by delivery…
Talk about a rush for the door.

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Like Captain Hook said in Financial Sense "Gold is like a beach ball being held underwater"

I think we see the behemoth holding the beach ball down losing its grasp, but the behemoth knows that the beach ball will pop out.

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Castle said: "I know, but my girlfriend is accusing me of a gloom and doomer and says that if I have no hope, then what’s the use?"

Ha! I feel for you. I’m in the same boat. Most of the time now I can’t even talk about this stuff anymore. She’ll ask me what I’m up to and my response will be, "You know…" And she’ll say, "Okay. I’m gonna stay downstairs then."