Senator Paul is right in that the economy needs to deflate to a level that’s able to self-support without the goverment’s help, and that the government is spending too much (which will weaken the dollar, and leave our grandkids’ kids still holding the bill). And I agree to lowering overseas spending, and using that money to invest in infrastructure spending and other domestic needs.
But he wants to put a brick wall in front of a speeding car instead of an airbag.
His solution to our economic issues is to get rid of income taxes to spur spending, allow the economy to deflate without government intervention, and rely on the private sector to provide the funds to keep businesses afloat.
If we get rid of income taxes (and corporate taxes), how do we replace the crater in the federal budget that this will create? Reducing overseas spending will help. Yet overseas spending to some extent boosts our interests internationally and helps us either monetarily or politically.
But will reducing taxes spur spending? In particular, when there are people who don’t pay income taxes and won’t reap the benefits of getting rid of these taxes? Reducing income taxes by itself won’t necessarily spur spending because we have to also create an environment where individuals aren’t afraid to spend (for example, for fear of losing their job).
Plus, don’t forget that many people are losing their jobs and as a result, paying less income taxes already. Bloomberg is dealing with a $2B loss of income to New York City because fewer people (in particular, in finance) are paying income taxes–they’ve lost their jobs. Continue these job losses, and noone will be paying income taxes. And Senator Paul will get his wish.
Let the economy deflate without government intervention? He seems to be ok with double digit job losses–in particular, while he’s still employed as a Senator and getting a paycheck–but I don’t believe our psyches can survive that. Try convincing someone to spend when they’re frightened that they’ll lose their job. Which is leading to more job losses because businesses are losing income from sales revenue (which the economic bailout–not TARP, but AARP–is intended to replace until people spend again).
And private sector spending? Some in the US private sector have money (e.g., Buffet who invested in Goldman). But overseas folks have money too (Saudi/Citigroup, China/Morgan, Mexico/New York Times). What will it mean for the future of the US economy if we have a Bank of Dubai instead of Bank of America? Would we psychologically and monetarily recover? Can we say that we’re the most powerful country after potentially some serious international rebranding?
I don’t like the bailouts, but it’s lose/lose–a more contained mess than what Senator Paul is recommending. Plus, comparing deficit spending today to deficit spending in the past isn’t an apples to apples comparison.
As a side note–Dylan Ratigan gives me a splitting headache and I often wonder either what point is he trying to make or when will he let the guest speak. But he won me over at minute 7:20.
Once again, it’s not about giving Americans ipecac but rather Children’s Tylenol…now’s not a time to teach people a lesson even though we really deserve it after overspending and overinflating our economy to an unsustainable level. Do we want to give our grandkids a bill, or a country formerly known and branded as America?
Want more geeky observations? Please buy my book Three Little Securities!
Tim Geithner is our new Treasury Secretary, the head guy on Obama’s economic team.
He’s not a product of Wall Street, unlike Hank Paulson (former CEO of Goldman). A plus, because occasionally it wasn’t clear if Hank’s decisions regarding formal rival banks were personal or not (for example, letting Lehman go bankrupt potentially because of his not liking Lehman’s CEO). Just a rumor, but not a far-fetched one.
Geithner is also more experienced than Paulson when it comes to government operations. He’s not a former CEO, and understands that it may take more than a 3-page explanation to sway Congress to pass a billion dollar bailout with no oversight or accountability.
And Geithner of a newer generation–one that shucks ideology, and questions rather than does things the way they’ve been done in the past because that’s the way it’s always been done.
Maybe Geithner will bring more thoughtful economic tools to the table. For example, perhaps he understands that it’s not rate-cutting that’s required to stimulate the economy, but rather a concrete plan communicated in terms that mom and pop can understand so that their confidence is restored.
Perhaps he knows that banks won’t loosen lending if the cost of borrowing is decreased. They’ll loosen lending if they’re more confident that the person doing the borrowing will pay it back.
And maybe he even knows that today’s investors won’t necessarily put more money in the stock market if rates in the bond market are lowered. They’ll put more money in the stock market if they’re confident that the companies they’re investing in won’t go under unexpectedly, nor spend their hard-earned investment dollars on spa retreats and private jets.
Tim Geithner isn’t perfect–he was at the helm of the NY Federal Reserve and Federal Open Market Committee this past year as Lehman went bankrupt and a whole host of perfect storm events occurred.
Nevertheless, he’s a fresh beacon of hope in a stale cabinet position.
But I just want to hear him talk first before being completely positive. Does he use big SAT words, or does he talk so that Jim Bob can understand what a credit default swap is? Will he be thoughtful enough to examine a problem and map out a solution that he’ll stick to, or will he speak first and think later, and hope that noone catches on?
The Dow seems to like him. Let’s see if mom and dad investor will too.