Putting it all in perspective – A short analysis

Yesterday’s post (Wednesday, May 6, 2009) on Zero Hedge touches on a few points that I would like to dwell on a bit longer.

THE RECESSION AND BEYOND

The program to get us out of the recession should have been aimed not only at stabilization but also at fostering incentives to save and invest. It does not. It could have provided large spending for infrastructure (such as energy infrastructure) which would remove bottlenecks in the supply chain, catalyze growth and innovation, reduce dependency on uncertain and expensive foreign sources of energy, and other spending which would provide leveraged long-term benefits. It does not, except in very small doses. Instead, it focuses on hollow spending which will result in some stabilization at the cost of trillions of dollars of government debt being added, year after year. Merely shoveling money out the door is not a path to giving people confidence in America’s economy, future growth and leadership in the world. We applaud the fact that the government action is big and relatively fast. However, it could be much stronger and smarter, and it could have included more strategic thought, collaboration and input from others across the political spectrum. We predict that these errors and omissions will produce ill effects much later.

It is hard to disagree with that, except for the last two sentences. A stimulus package needed to go out fast and deploy most of the effects early on not years down the road. People are losing their jobs now. This excluded pretty much a long debate about strategic projects.
However, from my point of view, the money that has been and is doled out to ‘save’ financial institutions would better serve the country and the global economy if used in some strategic projects. With very little effort, I have been able to identify two.
(A) Conversion from fossil fuel to fuel cell cars. This is almost shovel ready but needs some work and planning. The technology is mostly there but the political will seems to be lacking. It would be good for the environment, if we could use the remaining oil and gas for really important things.
Read more about this here on my other blog.

(B) Securing and updating the national electric grid. There is lots of talk about e-cars and how the environment would benefit from them. While this is correct, some thought needs to go into the state of the electric grid. It turns out that it not only does currently not have the capacity to deal with the additional load of millions of cars being plugged-in for recharge over night, the grid is also very vulnerable and our dependence on it makes it clear that a failure, for example due to solar flares is something we simply cannot afford. This is another black swan waiting to happen.
Read more about this here on my other blog.

There are others that are worthwhile undertaking. Which I will write about later on. However this shows that it is not difficult to find projects to be undertaken if you are asking yourself the right questions.

INFLATION

Inflation is the furthest thing from most investors’ minds during this deep recession and financial crisis. It should not be. The unprecedented size of the government’s spending programs, entitlements, guarantees, and its lack of strategic thoughtfulness, point to an inflationary potential that is unique in the history of this country.

I entirely disagree with this one. Inflation is not caused by government spending. In fact, the current crisis is caused by a huge debt bubble that the private sector generated. Reuters columnist John Kemp wrote in his blog on Jan. 20 about the public sector and the private sector debt. I especially recommend looking at the three charts linked in the blog post.
The private sector debt has become unsustainable and would need to be managed through bankruptcies. However instead for some reason that only Goldman Sachs can know, the government and the FED are trying to plug that hole by pumping money in – this is the real cause of the danger of high or hyper inflation we are facing.
In addition, some inflation is built-in to the financial system as I pointed out in a previous post on this blog.
If you want to avoid inflation then don’t try to plug that debt hole, it cannot be plugged anyway, it’s too large and reform the banking system.

TAX POLICY AND CLASS WARFARE

It is amazing and unprecedented to be raising taxes on investors and entrepreneurs in the midst of a deep recession, accompanied by a promise for more of the same.

Well, all the debt that has been accumulated in the private sector and that the government seems hellbent on plugging with taxpayer money needs to come from somewhere. Of course, it needs to be coming from raising taxes across the board but especially on raising taxes for the high-earners and wealthy. This is trickle down I can believe in. Anything else IS class warfare, or robbing the poor to pay the rich. That’s the right path to take if you absolutely insist on getting beheaded and wiped out by an angry population.

CLEANING UP THE BANKS

The programs that have been announced so far will not clean up the banks, are overly complicated, and could lead to cozy deals, conflicts of interest, massive taxpayer losses and concentrated large profits reaped by a small group of anointed gatekeepers. If you think any of the foregoing is an exaggeration, we encourage you to read on.

With this section I agree. Especially PPIP has something of a money laundering scheme to it. If we were to assume that this whole “investment thing” since Reagan, was essentially a Ponzi-scheme and that the toxic assets which are now euphemistically called ‘legacy assets’, are not worth anything but have been assembled and sold with the criminal intent of defrauding people, then you must draw certain conclusions as regarding ill gotten gains. If that is true, than the government is essentially laundering those criminal papers and redeeming them to the fraudsters. This is also something not to do, if you want to avoid getting killed by an angry mob.

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