President Bush's announcement today that he is pushing for a $140 to $150 billion stimulus package in an effort to prop up a flagging economy makes me think that now is the time to prepare for the worst. I'm not an economist and I don't play one on TV either (just had to hit that tired old joke), but I am a business owner. Times are tough and the government is about to make things tougher.
I don't pretend to understand monetary policy very well. What I do know is the basic laws of supply and demand and their effects on prices. The U.S. government seems to have been playing a dangerous game of artificial inflation. They've been printing money (increasing supply) like it was going out of style in a concerted effort to drive the value of the dollar down (the more their is the less it's worth). There are many reasons for this such as artificially inflating the price of oil, stimulating exports, discouraging imports, encouraging foreign investment, and who knows what else. The problem is that the cash in our pockets doesn't buy what it used to.
The federal government has also fully embraced Global Warming hysteria by passing that dreaded Energy Independence and Security Act of 2007. An energy bill that has at its core no proposals for new energy. It should have been called the American Conservation and Economic Slowdown Act of 2007. Instead of tapping into domestic sources of oil and building new coal and nuclear powered electric plants the act calls for increased use of ethanol and higher CAFE standards. The end result of this will be higher food costs, because ethanol is made from corn and corn is the source of animal feed, and tiny crappy cars that no one will want to drive.
The Republicans in Congress, at least when they had control of Congress, failed to make President Bush's tax cuts permanent. This means that when 2010 rolls around we will all see the largest tax increase in history. I'm sure it's going to be exacerbated by a Democrat President that will call for increases beyond that since they view the expiration of the tax cuts not as a tax increase at all. This is going to result in less consumer activity, since prices will be higher from the energy bill and rising fuel costs, less business activity, since businesses will not be able to expand, and higher unemployment, as businesses cut back to maintain profitability.
If the 2008 Presidential election goes to a Democrat we can expect a further downturn in our fortunes. If you look at every single one of the Democrat candidates stand on the economy they all propose a redistribution of wealth program. They want to do nothing to help those that are low income to become high income. They only want to take from those with high incomes and pass it out as they see fit to people of lower income. Add to this the inevitable march towards universal health care and the tax increases that will be required and we have a recipe for a Jimmy Carter style malaise.
The quick fix just proposed by President Bush is not a quick fix at all. It's a "feel good" proposal that will cost more than it will benefit. If a rebate is in the works where will that money come from? If a rebate, i.e. returning money to the taxpayers, will stimulate the economy than why not a permanent tax cut? The only way that government can spur this economy forward is if they announce a huge across the board tax cut along with huge across the board spending cuts coupled with a huge reduction in government regulation. Reducing all three of these things will get government out of our way and let market forces once again bring wages up and prices down the natural way. But this is not going to happen. At least not any time soon.
So in preparation for this pending disaster I'm taking the following personal actions. First, I will be eliminating all my outstanding debt with the exception of my mortgage. As I do have a couple credit card bills that can be wiped out in the next two months. Second, I will be spending much less on non-essentials. No new electronics, furniture, interior decorating, no eating out, no movies in the theater, and the like. Third, I will be taking the money9 that I would otherwise pump into the economy and sock it away into my money market account, certificates of deposit, and checking in order to build a larger buffer than I normally keep should something really bad happen like my wife losing a job or my business severely tanking. Fourth, I'm going to seek out new sources of income by getting part time work.
I am interested in doing my part to help the U.S. economy because ultimately helping the country's economy helps me. But what I'm seeing is a change in philosophy here that seeks to take money from my pocket and give it to other people. I'm not against helping people but I am against helping them on an involuntary basis.
These changes in my lifestyle won't be that difficult, with the exception of the extra job, as I'm conservative in the way I live in the first place. I expect to have to live this way for the next five to ten years depending on our political situation and the scope of government largess that we will have to suffer. At least until some conservatives get back in Washington to correct this mess.