Tag Archives: stimulus

Is A Better Bubble Inflating the Stock Market?

Many trillions of dollars have been invested by the United States in the financial industry during the last 15 months.  And the pace of the bailout continues to increase.  A lot of real money has been put into the economy.  But it seems to have disappeared.

Except for maintaining the lifestyles of upper management, the financial industry has not done what it is supposed to do with their economic stimulus monies.  It has hoarded all of that money.  And why not?  When prices for everything is falling, stagnating cash is a good investment.  But moving money is what drives the financial industry.  Rest assured that those managers are brow-beating the few employees they have not yet laid off to find a place to invest the real money given to them by the treasury and Congress.

Now a trend spearheaded by US stock markets is forming in stock markets around the world.  The values of stock markets in the Untied States are experiencing the most spectacular rises in their history.  That would be an inviting investment, at least in the short term, for the big bailed out financial industry.

Imagine all of those trillions of dollars of bailout and stimulus money suddenly being invested in stock markets again.  The value of US markets alone would rise at least several trillion dollars.  Financial institutions are leading the charge.  There is no other place, except T-bills…, for them to invest their bailout money.  Could this rise in stock market values simply be another bubble?

Unlike the previous bubble, this rush for stocks is backed by the US Treasury’s bailout funds.  The previous economic bubble, spanning several industries, has been funded by what is known as ‘leveraged’ investments.  That basically means the borrowed money is invested in hopes of making that money back and then some more.  Often money has been borrowed from a source that borrowed money from a source that borrowed money from a source… you get the idea.  The financial industry is at the top of that pyramid.  They can invest at least 9 dollars for every dollar deposited, or invested…, in their institution.  Many, such as Lehman Bros., have leveraged their investment by more than 100 to 1!  Now these financial institutions have real government money to invest.  Now they won’t need to sell to satisfy a calling creditor.

The market’s current inflation is due to the mutual investment of the Treasury’s cash by financial institutions in each-other.  But that money will do the rest of the economy little good.  Manufacturers don’t have customers.  So  they won’t get loans.  Higher stock prices in times like these only help companies that are willing to sell their own stocks for capital.  And that does not help their stock’s price.  The only stable increase in stock prices will be with financial companies that are investing in each-other.

Those of us who cannot afford to take advantage of this new bubble must be content to cheer on the financial superstars that can until this bubble pops too.  The government is going to be compelled to do it to satisfy fearful politicians.  Growing resentment combined with unemployment and a poor shopping experience is stirring up the voters.  Eventually the government is going to take back the bailout and stimulus money.  If that happens before the rest of the economy grows enough to support big financial companies again, then the bubble pops.

(Imagine the insider trading knowledge that federal politicians can peddle in that situation.  They are going to make a killing!)

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Short-term Stimulus with Long-term Benefits

Please pardon my absence.  (I didn’t know that I had a few regular readers.)  I have been waiting to see the new administration’s true colors.  Although it is still too early to know them, I am beginning to once again feel compelled to sow my little seeds of thought.  So here is one:

What should the government do to help the economy?

First of all, do not save the companies that crashed full speed into this mess.  They did that despite glaringly obvious signs that trouble lay ahead.  Instead of being careful, short sighted business leaders and investors obsesivly followed unsustainable economic incentives.  If we keep them around to lead after the economy recovers, then they will do the same thing out of habit.

While we are getting rid of those bums, re-invigorate the economy in the short-term by investing in projects that have long-term benefits.  Besides investing in sustainable home-made energy sources and transpertaion networks to do that, also fund education.  Give students or their parents vouchers that will fund the hiring of more teachers.  Give shcools vouchers for hiring construction workers to improve their buildings.  Save the commercial publishing industry, (and access to their low-cost content), by sponsoring a nation-wide marketing campaign that targets the audience of every publication.  Have it encourage American’s to value education, hygiene, and courteousness.  Employ graduates by sponsoring research and developement of technologies that are more efficient.  Then give the results to domestic employers.  Investment in these kinds of economic fields will yield short-term stimulus while providing long-term benefits.

The culture of American business and the irresponsible consumerism it fostered are what caused most of our economic and environmental problems.  The business environment encourages corporate gluttony.  And its leaders are familiar with only that system.  A fresh start is needed.  It is time to dismiss the old corporate guards to find new employment.  They should consider learning a new skill; a sustainable business skill.

In the meantime, our government must take charge.  Only the government has the resources and authority to correct the economy.  It can begin doing that by using short-term economic stimulous money to invest in labor-intensive endevours that provide long-term benefits.  While that is putting money back into the hands of wage earners, the government can reform market regulations.  A network that employs the most talented professionals can be created to develop a system of sustainable economic incentives.  Irresponsible business leaders, by their own hands, have given us this opportunity to replace them and their unsustainable ways.

Bryant Arms