House Fire

“Our holy and our beautiful house, where our fathers praised thee, is burned up with fire: and all our pleasant things are laid waste.” Isa 64:11

A number of people in print and on the Internet seem to be in denial about the November election. They seem to feel that if they continue bringing up the same old issues, the American people will somehow change their minds.

Here’s a message to those unhappy 30%.

We get it. You don’t like the current President and you are going to continue to accuse him of killing everything from babies to capitalism. If you are determined to hold your breath until things change, I hope that shade of blue looks good on you.

For everyone else, we’ve got a big problem that is going to require big changes.

Capitalism is broken and the only viable solution is for the government to spend money to get it going again. It may be tough medicine for those who have this ideological view that capitalism is the cure for all evils. The reality is that this is a time when government has to take the lead. It doesn’t matter whether you call it socialism or not. All that matters is getting our capitalist engine started again, because right now it is broken down by the side of the road.

This is not something that can be fixed with tax breaks alone. That’s because tax breaks only help those who have taxable income. They do no good for the person who is out of a job. They do no good for the company that is losing money. In fact one of the better things we can do is to give poor people more money because they are the ones most likely to spend it right away.

This is also not something that increased productivity can fix. The problem is not a lack of productivity. The problem is excess capacity. We have resources in the form of people and infrastructure that are not being used because there isn’t enough demand.

This is also not something that will fix itself. If we do nothing, it will get much worse before it gets better. That’s because we are already in a downward spiral where we are shedding jobs and eroding asset value. Both loses constrict what the economy needs to grow – credit.

Credit is tight because the banks don’t really know what their outstanding loans are worth because they don’t know what the assets backing those loans are worth. What they do know is that every month, the value of those assets DECREASES. So they are holding on for dear life to the cash they have because they are concerned about their own survival.

Every contraction throws more people out of work. Those folks run out of cash, are underwater on their mortgages, and have to declare bankruptcy. Unsold houses put more downward pressure on the real estate market and banks take the hit in terms of defaulted loans and houses they can’t sell.

The government (local, state, and federal) have to spend money quickly and massively to create demand across all sectors of the economy, get people back to work, and stop the deflationary spiral. If we can do that wisely, that’s a plus. But even if we spend foolishly, the sooner those dollars get into the economy the better.

As long as the money stays in this country, it will do good. It is best if it directly creates jobs, but even if some of it ends up in banks or paying down debt, it’s good. This is a massive amount of money. The challenge is going to be spending it fast enough.

The numbers can be challenging for some to comprehend, but in the context of a $1T spend, a $100M expenditure is .0001%. In other words, as bizarre as it sounds, it is not worth arguing about – yet that is what some would want us to do. Republicans want to delay this bill to because of $150M for endangered honeybees (which is a problem), $50M for the arts, $198 million to keep a broken promise to Filipino WWII vets, $15B for college scholarships, and $700M to buy fuel efficient government cars from US car makers. If you add up all of it, it is less than 2% of the total.

This is insanity.

Our home is on fire. Now is not the time to argue about how much water it’s going to take to put out the fire. Now is the time to open the hydrant wide and point the hose in the general direction of the fire. The water will do the rest.

13 Responses to “House Fire”

  1. keith says:

    hello jeff,
    i dont know that 30% are looking backward to the election, really don’t.

    we have a mess currently in the economy but i will not use that to excuse tax issues….and thats not looking backward, its about the rule of law.

    as to the package, im inclined to be not for it. if i were it would be directed at things we need to do, roads, bridges, etc, things we need to do at some point anyway. having worked with those guys in the past i’d also say that their is NO WAY they cna produce billions of dollars of work that quickly. we are talking about years worth of work to produce billions of dollars of infra structure.

    i need you to consider this. the auto companies just got billions of dollars. already GM is telling congress they will need more by the end of march. what is being accomplished here? are we just going to keep giving them money? they are effectively out of business and bankrupt now. just what are we funding. do you know anyone who is buying a new car. stimulus or no stimulus these companies are dead becuase they cant sell enough cars. so what have we gained by giving them 15 billion? my fear is the same with the stimulas…….it will have mostly the same effect as the car bail out and in the end little will have changed we”ll just be that much further in debt. beyound making sure the banks dont fail im not sure what the right thing to do is.

    dont confuse those who question the stimulas with someone who only is fighting obama because they dont like the outcome of the election. there is real debate and questions about this thing.

  2. Jeff Beamsley says:

    keith,

    good to hear from you again.

    Just a couple of thoughts about the car companies.

    The whole industry is in trouble, not just the US companies. Toyota announced their first loss in history.

    The nature of their business is that they have a huge capital expense to design and manufacture these cars. They have to sell a bunch of cars to break even. If they sell more than that, they make a lot of money.

    The best selling vehicle this year is the F150.

    The reason people aren’t buying cars isn’t because American cars are inferior. It’s because they can’t afford to, or if the can afford to, they can’t get a loan.

    Outside the government and healthcare, the car companies directly and indirectly are the next largest employer of people and generator of revenue in this country. The same is true in other countries and they are taking similar steps to help their domestic manufaturers make it through these tough times. We are the only country where there is even a debate. And this should be no new news. Southern states, where most of the opposition to the domestic manufacturers has come from, have as a group already handed out billions in tax breaks to attract foreign car companies – and that was in good times.

    As far as the stimulus package is concerned, I’ve already said that my concern was how quickly the money could be spent.

    What really bothers me at this point though is how Fox in particular and some Republicans in general are spinning this whole thing. I happen to catch a little on the news this morning on my way back to Detroit. They were listing various construction projects – the one I remember was a Frisbee golf course. The golf course itself when built would employ a handful of people, so they were criticizing the project because it would only result in a handful of jobs. They were completely ignoring the jobs that would be created to build the darn thing. How many long term jobs are created by a highway? Unless you count the toll booth operators, very few. But when you take into account the construction jobs and indirectly the transportation and commerce jobs the come from faster cheaper transportation and the demand for services of people on the move, then it starts to make sense.

    I think that the Senate will end up doing the right thing. The is a bipartisan moderate group that is going to comb through the bill and give it their blessing. That should clear the way for passage.

    The sad truth is that it really doesn’t matter what we spend to money on as long as we spend it quickly. As long as it gets into the economy and buys SOMETHING made here in this country, it’s going to create jobs and that’s what we need.

    I don’t know how many people are listening to Rush, Hannity, and Fox – but these folks are not doing the country a service right now. They don’t have better ideas. Instead they are arguing for a return the Bush years.

    It’s not gonna happen.

  3. keith says:

    rush is only speaking up for what he believes is correct.
    his comment of “i hope he fails” was totally taken out of context.
    i have no problem with what he has said and what he is agrueing for.

    hannity is obbsesive and he is getting very annoying. i can’t listen
    to him very long. his show is terrible and i liked it much better
    when it was hannity and colmes.

    fox is mostly fair and balanced. they are the ONLY ones who are
    truely talking about whats going on…everyone else is purely cheerleading
    and are lazy. just like their coverage of Obama has been from day one.

    remember i listen to all of them. MSNBC are just a collective group of
    hacks. spend one night watching Chris M, Keith O, and Rachel M. Keith
    continues to bash Bush, Channey and co as though they are still in office. I’m not sure what else he’s interested in dicussing. I haven’t hear a peep out of him regarding taxes. Rachel seem to be spending her time telling everyone the world has changed and its safe to come out and play again…..unfortunatly she isn’t being in touch with reality yet. we will not be closing gittmo….we might move it but it will still be the same thing. And we’ll still make allowences, which the Obama admisitration already has announced, that torcher might be ok in very limited cases….they called it something else.

    you frustration with the right is only two weeks old. try defending the country the best you can with you political opposition telling the ememy and the world they we attacked by a group of lyers and we should be doing what we are……hopefully you will not know that frustration.

    to me its simple ….argue you point and win elections. period…

    have a good night

  4. Jeff Beamsley says:

    Keith

    The point did get argued in the November elections.

    The public rejected McCain’s economic policies and his leadership. Yet we find ourselves arguing the same points now that were in play during the election.

    I don’t watch much of Fox or MSNBC. I prefer to get my news in more depth by doing research on the web. I supliment that with NPR, Mclaughlin Group, McNeal/Lehrer, and of course Daily Show and Colbert Report.

    As best as I can see what is going on is the same old politics. The Republicans are claiming that any spending beyond tax cuts is going to be disasterous and put us on the slippery slope to socialism.

    This while economists from across the spectrum are saying that tax cuts aren’t enough and massive government spending NOW is what is needed. The “how” isn’t nearly as important as the “now” – yet we are wasting time on the how.

    http://www.washingtonpost.com/wp-dyn/content/story/2009/02/07/ST2009020702348.html

    We’ve lost almost 2M jobs over the last three months and 3.6M since the economy turned. That’s the equivalent of dropping an atomic bomb on Chicago or LA. We were concerned about the economic impact of a terrorist attack similar to 9/11. This economic collapse is WAY more threatening to us than any terrorist attack – yet we have republicans who are willing to risk the well being of this country in order to better position themselves for a comeback in the next election cycle.

    The time is well past for that. Now’s the time to get into the boat and start rowing.

  5. keith says:

    soooo much to talk about but i will limit it to this.
    the dems promised 48 hours for the public to view the final verson of the stim bill before they would vote on it. it was posted last night and a bill is expected today. so much for transparentcy. The “final” version was posted last night in two PDF files totaling 999 pages. this morning the “final” bill had grown to 1,071 pages. (see drudge) further it is believed NO will read the final bill in totality. we are about to go into debt greater then ever before and we are rushing this through like there is no tomorrow. i would expect those voting on this bill would at leat read it. appently that won’t be the case. i am opposed to this thing. if i were king i would protect the banks first and foremost, then build roads and bridges, then cut the payroll tax in half on imcome less the $60k. very little after that. this thing, from what i know does little of those things, and does a lot of giving to dem political causes….

  6. Jeff Beamsley says:

    Keith,

    Fortunately you aren’t king. (grin).

    The bill and how the money is actually being spent will be up on recovery.gov for everyone to see.

    As far as the votes, the Republican strategy was clear. It didn’t matter how much time they were given to read it, they weren’t going to vote for it and further, they were strong-arming any republican who appeared to waiver from the party line with threats of loss of support in their next re-election bid.

    I do hope that the “reading period” is put in place for future legislation that isn’t nearly so time critical.

    Saving the banks is what Geitner is all about. It will likely ultimately involve the government taking over a number of them as was done during the S&L crisis. Republicans aren’t going to like that either, but just like the stimulus package, we don’t have much choice.

    Cutting payroll taxes, though not a bad idea, is at best a partial solution and has it’s own problems. It’s a partial solution because it only helps those who are working. If you extend it to business, it helps temporarily reduce the cost to operate a business, but if there isn’t a commensurate increase in demand, it only allows business the temporary ability to survive at a lower cost level. The problem for both workers and business is the disincentive when those taxes are put back in place.

    So unless you are also planning to replace social security and unemployment insurance at the same time, any reduction in these taxes has to be accompanied by something larger than just building roads and bridges.

    Better stimulus are the projects that are in the package today. These will create new jobs that will last at least during the couple of years that this spending will be in place. The quicker that money is spent, the quicker people who are out of work will get back in the work force. The quicker people are put back to work the less stress there will be on the social systems and the mortgage system. The quicker they start getting paid the sooner they will start buying those things that they have been putting off (like cars). The quicker they start to spend that money, the sooner our manufacturers will have to increase production and start hiring on their own.

    In particular, the new industries that will be created (beyond construction) promise long-term growth in areas that will benefit the country.

    Near term it would be difficult to spend too much and, as long as the money stays in this country, difficult to spend it unwisely.

    Jeff

  7. keith says:

    Hey Jeff,
    You said..”Better stimulus are the projects that are in the package today.”

    Jeff, since no one read it no one knows what’s in it. Believe it or not
    the “final” package GREW after it was posted for our rep’s to read by 72 pages as I mentioned above. I saw last night that there is actually hand written notes and corrections on it. Even one spot that had $100 million crossed our and $150 million penciled in. Another spot where something along the lines of a dicription of how a specific line item was to be spent was crossed out and incerted was something that ment the money could be spent at the users discretion.

    If know one read it how you can you make the statement “Better stimulus are the projects that are in the package?”

    As to my being king you might be considered for a spot in the court. (jester????)

  8. Jeff Beamsley says:

    Keith,

    If you become king, I’m grateful for any job that might be available.

    The only defense that I have for the rush to market is that there is need to get this done quickly. If there were plans to conceal the spending plans from the public, I would be concerned. I believe going forward the manner in which this money is spent will be the most open process that we have seen government attempt to undertake.

    Let’s face it, this is a huge amount of money and the paint is still drying on exactly how it is going to be spent.

  9. keith says:

    well jeff i think you need to be concern…….they told every one there would be a 48 hour peroid in which to review……blah, blah, blah,…read my comments again…….they didn’t. this wasn’t a a campain promise but, if my facts are correct, the promise was make a mere 48 hours before it was broken. what you should be concerned with are the additions and corrects(?) made after the “final” bill was posted for review, 10 -12 hours before the voting started in the house. who could have read it?

    my question is this, why not the 48 hours? Obama left town friday and headed for chicago for the wekend. no need to rush the signing as nothing can be done with it until he gets back.

    tell me it didn’t have anything to do with nancy p taking a trip for rome she needed to leave by 6:00pm for…i hope thats not so.

    jeff i’d be concerned.

    but i have an interesting fact for you,,,when bush had the house and senete consider authorization to go to war with iraq, he made availible to them everything they would need to see, all the evidense he felt was relivent. do you know how many actually went and read all the material. i use to know but i know i can say this an be correct; virtually no dems went and read the facts. so jeff its not suprising to me they they would do this now as appearently its not important to them to actually read things before voting. its herd mentality. (my bigger fear is that both sides are this way)

  10. Jeff Beamsley says:

    Keith

    go look at recovery.gov and tell me when you’ve seen anything like this in government.

  11. keith says:

    i like it…..so why no review of the bill before it was voted on or why not the 48 hours as promised less then 48 hours beofre they broke there promise?

    look i hope this helps, i really do. i dont think it will….

  12. Isobel says:

    Did Gm deserve the bailout? You Ask me I would say NO.. why? When Honda and Toyota were out inventing new cars, GM was busy boasting about its pride and Showing off its hungry hungry Daughter the Hummer

  13. Jeff Beamsley says:

    It is about jobs and not cars.

    We have to put people back to work and GM and their suppliers employ a lot of people. Those people buy things and have mortgages. If GM is able to recover, we will have saved an industry and dramatically shortened our recovery.

    BTW, if you look at the quality reports, our domestic car companies are producing product that can compete on a quality basis with imports. They don’t have the same margins as Toyota and Honda because GM has higher healthcare costs.

    I’m convinced our restructured car companies will do just fine and produce product that even you will buy.

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