The Big Stimulus - "Buddy Can you Spare a Dime?"

Yes folks, Uncle Sam is borrowing colossal sums of money effectively rising domestic debt. The demand for U.S. debt allowed the government to sell more than $1.7 trillion worth of Treasurys during fiscal 2009. Those sales paid for billions of dollars of stimulus spending, effectively sending the cash out in the form of bail outs. What is a Treasury? It’s an IOU from Uncle Sam to those who purchase them. In effect purchasers (Americans) are financing the stimulus packages and paying the interest rate on the debt to do so.
With analysts predicting a slow recovery or even some back-peddling, Uncle Sam can’t count on the Federal Reserve to soak up $300 billion of Treasurys, again in 2010 to ease already stressed credit markets. The effect will be an agonizing rise in interest rates that come along with the expected glut of coming debt issuance.

Translatation. This means that U.S. households bought up $374 billion of Treasurys during the fiscal year that ended Sept. 30, 2009, making them the second-biggest buyer after foreign governments. According to Federal data the majority of those purchases took place in the first quarter of 2009. The scramble was an attempt by big investors to recoup severely damaged portfolios destroyed in the market meltdown of late 2008.

Uncle Sam, however, expects increased interest in Treasurys to slow as the economy improves – which is the kicker as economists say the economy may stall decreasing tax receipts due to the government thus requiring further stimulus spending or dealing with a repeat of the crash and burn of the U.S. economy that started in 2008.

Yes, America is in a saving mode. We spend less, but lose more. Sub one percent interest rates are causing havoc nationwide, even with declining prices on housing and other big ticket items. Americans are more dependent upon spending what’s left of their retirement income on the necessities, such as, medical insurance coverage, mortgages, and burgeoning college expenses because their nest eggs have cracked.

U.S. taxable bond funds received nearly $300 billion of net inflows in 2009, according to Investment Company Institute data. The personal savings rate rose above 4% last year after years at negligible levels, but it cost us more in goods and service in the long haul.
Uncle Sam has sold Treasurys even in this tough market and did so while offering tiny interest rates. Although, this may be considered a good thing since China has been buying America, gobbling up Treasurys at an alarming rate – some $800 billion worth of US government IOUs- since May, 2010 even though the likelihood exists that inflation will eat into their worth in the future.

During this time, our buying power has also decreased due to differing rates of inflation between global countries. Prices of non-traded goods and services are usually lower where incomes are lower. China is the perfect example, as they make a lot of the products on American shelves today. Odds are the items you purchase are made in China. They get paid less, buy their cost of living is less, a huge factor when American companies decided to send their manufacturing business overseas. Here’s the comparison: The International Monetary Fund lists the 2009 income per capita for China at $3,678 and the U.S. at $46,381. The rates were figured at purchasing power parity which removes exchange rate variables, but does not take into consideration cost of living differences.

What does all this mean? Government borrowing makes goods and services even more expensive in the long haul. Consumers who pay more for goods and services have less money to spend. Goods and services not being purchased impacts the prices of goods and services (remember a bulk of our goods are made in China), thereby shifting manufacturing of the same goods and services to slow forcing corporations to look for even cheaper alternatives, spurring mergers and take overs and eventual deepening job loss. This phenomenon can be seen in China today as some manufactured goods production is being moved out of China to other Asian countries where the cost to produce them is even lower.

Overall, Americans are the sole supporters of the stimulus pump. It is up to Americans to ease government spending. How? Curtail the cry for more government intervention. Stem the need for more and more government programs, ones that require internal funding, stop stimulus packages like the ones sent to huge corporations that are now handing out billions of dollars in incentive bonuses to executives. They state it was their contracts before the stimulus packages, but if their returns on investment were slashed 50 to 70%, much like the value of American 401 Ks, would the bonuses get cut, too?

Take back America. Vote for less government for the people, by the people.

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