Also, the timing of stimulus packages makes them ineffective. By the time the money gets into the economy the worst of the damage is typically done and things have bottomed out. The cost of administering them siphons off some of the money. Also, the stimulus, intended for consumers, will have no effect on businesses that export products overseas. And since this is a developing GLOBAL recession, the stimulus typically only attempts to buck up domestic spending and demand, which ultimately may have little effect on job creation.
This recession, like all others before it, will run its course. The seeds for recovery are already being sown, it’s just that most people, lacking an education in economics and finance, don’t understand what those are: falling inflation, especially falling energy prices, falling home prices, falling prices of commodities. The financial system is also de-leveraging, as banks are getting their balance sheets stronger. Lower interest rates will have their effects, given time.
Here are the things that will kill the recovery:
1. The cap and trade system (essentially Kyoto Protocols penalties by stealth).
2. Shutting the door on domestic energy production.
3. Higher taxes on businesses and individuals.
It would appear that the crowd that is piling into Washington now favors a hard cap and trade system, which is very bad news for the economy. It means there will be a recovery… eventually. But that recovery will be sub par. I’m expecting the unemployment rate to reach 8% by mid – 2009. Under a hard cap and trade system we might get back to around 7%, maybe slightly under, but it will still leave us with higher unemployment than when the Obama administration took off running in the Fall. Plus, it will mean higher energy prices, which will mean higher prices for just about everything else.
So, get ready, kiddies, for the Carter lesson we got but you either were too young to know about or you weren’t born yet to experience.
