Bailouts, Stimulus Packages and reality

With all the talk about bailouts in Washington and on main street I thought I'd throw out my two bits on the subject. Governments around the world have reacted to the economic crisis by pledging trillions of dollars in corporate aid to shore up the banking and credit markets. Their collective actions are unprecedented in world history. A great deal of this money has already been spent and much more is on the way as soon as details of President Obama's stimulus package are negotiated and the bill is passed.

From where I sit (the cheap seats) it appears that all this money has done little to restore the confidence in the banking and credit systems that are so crucial to our economic prosperity. If people don't trust these systems and start spending money more like they have in the past, there is no amount of money that can make these problems go away. Consumer are the only sure solution, but they won't spend if they lack confidence. Fix the confidence problem, and you'll solve the economic ones along with it.

The wealth that drove the economy higher for the better part of the past 5-6 years was created from easy access to credit. This easy credit helped push property values artificially higher, along with many other goods. Now that the easy money well has gone dry there are far fewer dollars chasing a glut of overpriced real estate and we're seeing the natural correction in prices. The prices of the past couple of years weren't justified and so we've got a painful correction to endure. This correction is impacting people at every level of the economic food chain from the wealthiest to the poorest.

Businesses are seeing the slowdown in spending and trying to stay one step ahead of the correction by laying off thousands of workers to keep their businesses healthy, or at least stable. The dramatic loss of jobs is adding momentum to the slowdown as there are fewer people with money to spend. It's a vicious cycle that seems to be picking up steam rather than reaching the bottom of the hill.

The real crisis we're facing is more a crisis of confidence than a banking or credit crisis. Banks don't want to lend until they know the asset they accept as collateral isn't going to continue to drop in value. People don't want to spend for major purchases, like homes and cars, until they know the prices are at the rock bottom. If we have to keep waiting, the prices are just going to keep falling and the consumers are going to keep holding on to their precious dollars to make things even worse. There are lots of tremendous bargains in the stock market and the real estate markets, but that's not enough to motivate fearful consumer to part with their precious dollars.

So will all the bailout money really help us find a bottom in the economy and financial markets? I hope so, but I'm not too optimistic. Government has never been able to do anything efficiently and I don't think that's about to change. The people who are being targeted for the stimulus package are not those that will use that money to create jobs to help the economy grow, but rather people who will spend that money on basic needs to stabilize their financial lives. Remember those $600 checks that went out over a year ago to stimulate the economy. All that's left from that round of bailout money is the debt that it created for the next generation of American families. Giving away money will never solve the problem. Never has - Never will!

Unfortunately the people who can do the most good to turn things around, business owners and corporations, are about as out of favor as any group of people could be right now. Everyone hates the executives who took the million dollar pay package and flew on the private planes and they want to make them pay. It's a political impossibility to think that these villains will get any love in the upcoming stimulus package. It's simply not going to happen. So fewer businesses are going to be started and fewer existing businesses are going to expand. Government simply can't fill that void. Unfortunately punishing businesses (deserving as they may be) isn't going to help grow the economy or create any new jobs.

The stimulus money will only stabilize things for the short-term and it won't create nearly as many long-term jobs as the politicians want us to believe. Once that fact is exposed, we'll be right back on the slippery slope with one major difference, we won't have more billions or trillions to throw at the problem to fix it.

Let's face it, we have just lived through a period of unbridled excess and we're going to have to pay a heavy price to get things back in line. We collectively broke the first rule of finance, "live within your means."

Gone are the days when a home was your "best" investment. From now on, where you chose to live is a lifestyle choice. The myth that saving a portion of all you earn in a 401k or IRA and investing in a well-diversified portfolio of stocks will get you to a secure retirement has been exposed. Until we as a country come to grips with the fact that we simply can't afford all the government programs our politicians have created to reward their loyal constituencies, we're not going to really fix the problem.

If you want to survive and prosper in these tough economic times, you must take action now. You can't trust anyone to do this for you. It's simply too important to trust someone else to do for you.

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