Debt Does Not Equal Wealth

Yesterday the recession was over.  Now, as we head into the holiday season no one is optimistic.  I always prefer saying “told ya so” when something good happens.  But even when my negative predictions come true, I think I deserve a little recognition.

I love the headlines.  Unexpectedly.  Surprise drop.  Short of expectations.  These are all terms we have seen in the headlines this past week.  If we see a headline stating “car sales drop unexpectedly in October” I don’t know if I will laugh or cry.

Consumer confidence dips unexpectedly.  Some rogue economists think it could be tied to 10% unemployment.  Is it possible that people are not buying as much because they either don’t have jobs now or don’t know if they will have a job tomorrow?  Or are they still getting over the pain and embarrassment of the last 8 years and are just not able to show their faces in the shopping malls yet?  Unfortunately, Obama is losing jobs six times faster than he is creating or saving them, so don’t expect a huge reversal in this trend yet.

Difference between debt spending and real growth

So after breaking our recession in the third quarter, why is consumer confidence still dropping and retail expecting a terrible Christmas season?  It’s because partisan economists and left leaning news media are mistaking debt spending for growth.

Think about it, if you have a million dollars you can buy a pretty nice house and car whether you earned that money or borrowed it.  In fact, someone might see your nice house and car and think you were actually doing pretty well.  That is what has happened here.  We have thrown $1.5 trillion at our economy.  We have basically borrowed growth.  Now we are realizing that we are far over-extended and we must pay it back.  Expect a great fourth quarter as well as business try to recognize as much income as possible while taxes are still low.

Difference between leverage and spending for the sake of spending

So why did Bush tax cuts succeed where Obama’s pork spending and cash for clunkers fail?  The difference is in what you are buying.  By cutting taxes across the board, Bush put money back into the hands of employers and employees so that they could invest in growth.  When a business owner died, they no longer had to sell the business to pay the estate taxes.  Employers received enough back in tax relief that they could afford to hire a new employee just from the tax dollars saved.  And that’s what they did.

In a free market capitalist system, when people have confidence they will invest in things that will bring them returns.  As they do, the people they are investing in will receive a paycheck and begin to build their own capital so that they can eventually do the same.  It’s one of the beauties of capitalism.

What Obama has done instead is spend our money for us.  Instead of giving business owners their money back so that they can invest in growth, Obama took the money and invested in community projects, infrastructure, and everything that is the sole constitutional responsibility of states and localities.  The result is that a duck pond and a turtle bridge only produce jobs while they are being built.  And the jobs that they produce are not reproducing jobs.  In other words, a construction worker is rarely going to take his minimum wage from pouring concrete and go out and start a new capital enterprise with hundreds of employees of his own.  Obama created revolving door jobs that are disappearing as quickly as they are being created, and by his own over-positive math it has cost him $1.2 million per job.  In the private sector you could create 20 good jobs for every one job Obama bought, and they would last more than a couple months.

With cash for clunkers and the $8,000 free money for buying a house, Obama has created very short term growth.  You want to know why the economy grew in the third quarter?  It might have something to do with the $3 billion we paid middle and upper class people to buy Japanese cars while destroying their old car making used cars unaffordable for the poor.  Now, cash for clunkers is over.  There is no longer a need for the employees who were making the cash for clunkers cars, the salesmen who were selling them, or the accountants brought on to fill out all the paperwork to try to get the dealers money back.  At least the CEOs and upper level managers earned a nice bonus from the sales.

Obama borrowed $1.5 trillion and spent every penny on short term projects.  That is not investment in our economy,  and when the Obama bubble bursts we will be even worse off than we were before because we will be that much more in debt.  When you have a jobless recovery, you know the money went to the wrong place.


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