Tag Archives: stimulus

FED’s $600 Billion Quantative Easing Tax, Is it Necessary?

Charles Plosser, CEO of Philadelphia’s Federal Reserve, addressed an audience at Cato Institute on the topic of employing monetary policy to prevent asset bubbles, which caused the current recession. He told the audience that using monetary policy to adjust interest rates in order to compensate for asset price gaps (bubbles) was not a good idea. One example given was raising rate on mortgages to restrict rising housing prices. Two reasons for being against employing broad-based monetary policy for individual asset markets like housing were: (1) The risk of wrecking havoc in other parts of the economy is too great, and (2) no precise measure of asset-movement exists by which to form sound rule-based monetary policy. (Read his Cato speech titled “Bubble, Bubble, Toil and Trouble: A Dangerous Brew for Monetary Policy.)

John Mauldin, CEO of Millenium Wave Advisers, came to a similar conclusion about Fed Chairman Ben Bernanke’s decision to inflate the economy through the latest $600 billion quantitative easing. Bernake’s reason was to prevent deflation, which means core inflation rate as measured by the Consumer Price Index (CPI) dropped below 1 percent. Core inflation is all consumer goods except food and energy. Mauldin claims core inflation is actually about 1.5% not 0.6% when housing costs are removed.

There seems to be two reasons Mauldin measures inflation without housing costs: (1) Historically, the Bernanke should have used monetary policy to lower an increasingly high inflation rate back in 2005 that was caused by the housing price bubble. (2) More important is the fact that over the past few years housing cost is growing at near zero percent (see the chart below).

If Puru Saxena, CEO of Hong Kong based Puru Saxena Wealth Management, is right, Bernake’s quantitative easing will not revive the U.S. economy. Just like the previous two stimulus bailouts, quantitative easings never do. (Read his article titled “Band-Aid Solutions

What Bernanke’s cash infusion will do is devalue the dollar. This will causing food, energy, and everything else to rise, which will act as a tax on disposable income. Less disposable means fewer sales. As Mauldin also pointed out, food and energy costs already are high for those with lower income. These people will suffer the most as a result of the Fed’s easy quantitative induced inflation.

There are some creative ideas that could solve the housing price problem. For example, Fannie Mae, Freddie Mac, and FHA could rent their growing stock of foreclosed houses, which would keep some people in their homes. Banks also could lend to investors (landlords) to buy cheap housing if they promise to rent them out. Read Maudlin’s article “O Deflation, Where is Thy Sting?” to learn more.

Cost of Government Day Finally Arrives on August 19, 2010

Every year, the Americans for Tax Reform Foundation and the Center for Fiscal Accountability calculate Cost of Government Day. This is the day on which the average American has earned enough gross income to pay off his or her share of the spending and regulatory burdens imposed by government on the federal, state, and local levels.

In 2010, Cost of Government Day falls on August 19. That means working people must toil 231 days out of the year just to meet all costs imposed by government. In other words, the cost of government consumes 63.41 percent of national income.

“Two years ago Americans worked until July 16 to pay for the cost of government: all federal, state and local government spending and regulatory costs. That government was too expensive and wasteful. Two years later, we work until August 19 for the same bloated government. We have lost an additional full month of our income to pay the cost of government in just the last two years,” said Grover Norquist, president of Americans for Tax Reform.

Key findings of the Cost of Government Day report include:

  • Cost of Government Day (COGD) falls 8 days later in 2010 than last year’s revised date of August 11.
  • Workers will have to labor 104 days just to pay for federal spending, which consumes 28.6 percent of national income.
  • Taxpayers will have to work 52 days just to pay for state and local government expenditures.
  • The average American worker must labor 74 days to cover the costs of government regulations. A breakdown of the COGD components can be found here.
  • The report also includes a state breakdown. The earliest Cost of Government Day occurs in Alaska, on July 28. Connecticut has the latest COGD, on September 17.
  • One of the contributing factors to increased spending is the growth in government payrolls. The federal workforce totaled 4.4 million employees this year, while the addition of state and local workers brings the total government workforce to 24.315 million employees.
  • The report also tracks taxpayer migration, showing taxes are a driving component behind interstate movement. In 2008, the ten states with no income tax gained over 80,000 new residents who brought with them over $900 million in net adjusted income. In contrast, the states with the highest tax burden lost 129,445 residents and $10.2 billion in wealth.

To read more, go to the Americans for Tax Reform webiste.

Federal Stimulus Money Saving Jobs in Non-Existent Ohio Districts

A recent report from the Ohio WatchDog organization states:

Over $5 billion of stimulus money has seen its way into the State of Ohio thanks to the federal stimulus. The main goal of the money is to create or retain jobs and stimulate the economy in Ohio. According to www.recovery.gov more than 17,00 jobs have been created or retained, 11 of which are in Congressional Districts that do not exist: 21st, 99th, 69th, 87th, 85th, 49th, 20th, 54th, 56th, and 00. These 11 jobs have cost more than $5.3 million; more than 80% of the jobs created or retained so far are located in the Central Ohio area.

The five million dollar question is who is pocketing all of the money? Could it be Obama and company? Cooperating Ohio politicians on Capitol Hill? Or maybe it is Gov. Strickland and company? After all, he is a member of good standing in the liberal club of Capitol Hill Democrats. And, they are the co-architects of the economic crisis and its salvation via tax increasing bailouts and corporation bailouts.

I think it would be a good idea to audit the Ohio Treasury for some unexpected budget balancing stimulus.

Source: OhioWatchDog.org November 17, 2009