Arun’s Mind

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The world around us

The Stimulus Package

Barack Obama is pushing for his economic plan everyday.  Meeting with both republican and democratic congressional leaders as well as speaking directly to the public, in effect to get public support.  

The underlying problem we are facing is cyclic, we have gone past the point of no return, and I believe that anything we do at this point will not do much to stimulate the economy.  Obama’s plan calls for lower taxes and more government spending (create jobs).  I believe that lower taxes during these times is a great idea, but it won’t be very effective in terms of spending the extra money.  Your average family still wakes up in the morning and sees the job reports coming out every month.  A couple of weeks ago we lost almost 100 thousand jobs in a week.  Nobody is going to go out and spend money.  The mentality of the nation is to conserve wealth, not grow it.  

The spending portion of Obama’s plan is supposed to create more jobs as well as send people a “stimulus” check.  Again, sending people a few hundred to thousand dollars will not do anything for the economy and most people will just pocket it, I know I will.  Creating jobs right now is a great idea, but let us look at the jobs that would be created.  Jobs related to infrastructure, as well as alternative energy.  Obama says that there will be some 4 million jobs that will be created that will not be outsourced.  My only problem with this is that what will these workers do after the infrastructure jobs are completed?  I can see the energy related jobs being there for a very long time only because energy is constant.  

The real problem here is that jobs are being outsourced here at home.  High paying jobs are being outsourced to people from outside of this country.  Microsoft is increasing the amount of foreign labor they are bringing into this country via H1B work visas.  Countries, such as India, hate this visa because it causes their domestic workers to leave their country of origin in order to work abroad.  This globalization is causing workers in this country to be less appealing to companies because workers abroad are willing to work for much less.  

Globalization is a huge dilemma that this country is facing.  There really is no precedent for what is happening here because the US economy is now so intertwined with other economies.  Almost everything we purchase these days is made from China.  There needs to be a balance between the two nations in a trade agreement.  I am sure that if we were to go to China we would not find as many made in USA products as we find made in China products here in the United States.  What it all comes down to is cheaper labor vs. fair labor.  Capitalism will always align with cheap labor because it will increase a companies profit margin.  

In the short term, there really is not much we can do at this point.  No matter how much money we pour into banks and corporations, natural selection will weed out those companies that should no longer exist and smaller/newer companies will be created to take their places.  The only thing we can do is ride it out.  It will not be fun or pretty but overall it is what will happen.  I believe the government will try and spend money in order to increase consumer confidence, but I do not think it will change the fundamentals of what is happening these days.  We are in a transition period and the only thing we can do at this point is wait it out and see what emerges in the next year or two.

Filed under: Finance, Politics , , , , , , , ,

Change?

So here it is.  We are less than one month away from having an African American president.  During Obama’s entire campaign, he told us that he will bring about change.  Obama has become an icon for change by giving much of this country hope for the potential this country has for everyone.  So I suppose it is only fair to ask what change will we likely see…if any?

To see whether Obama is about change, let us take a look at his newly appointed inner cabinet.  Many of the members that Obama chose to be around him are former Clinton advisors including Rahm Emanuel, Bill Richardson, and Paul Volcker.

In respect to the economy, Obama wants to increase taxes,  create more regulation, as well as bailout failing businesses.  I do not agree with any of those proposals.  Raising taxes during an economic crisis is change, but in the wrong direction.  More regulation is not needed.  What is needed is a complete overhaul of the SEC.  The SEC is the problem when it comes to “regulating the market.”  Bailing out failing businesses is useless.  The tarp money that was issued to the financials was originally stated, by Paulson, to buy out bad mortgage assets at a premium rate.  A month after that was said he comes out and completely changes the tarp’s purpose.  Also, these companies use the tarp money to basically pay the executives their bonuses and vacation day spa’s (AIG).

Obama is the first African American president and that is change.  We will have to see what Obama does in his first 6 months in office to see whether or not real change is coming in this country.  I have high hopes for this administration when it comes to the progression of alternative energy as well as the progression of science.  Both of which I feel has been stunted in the last 8 years by the Bush administration.

From what I have been observing and the people Obama is surrounding himself with, I feel that this administration can be named Clinton 3.0.  Hopefully Obama will take the reigns on many of these issues and really do something new.  Or hopefully these Clintonites will have something new to offer in this day and age.  Ultimately it all comes down to hope, and I hope our president-elect  keeps to his word and things change.

Filed under: Finance, Politics , , ,

Paulson… Flip Flop?

Treasury Secretary Paulson came out today and basically said that the original 700 billion dollar fund that was originally created to buy out bad assets is not going to be doing that.

To begin, for everyone that was saying Obama was a socialist, well the bailout to begin with is a socialist act. What Paulson is proposing now I believe is even more socialistic than it was when he sold it to congress. He is now saying that the 700 billion dollars (or what’s left of it) is going to be used to buy up bank stocks to help stabilize their balance sheets. In a capitalistic society, the market is supposed to determine if a company has a stable balance sheet or not, but the banks screwed up so bad that the governmentwe has to come in and fix it. Stocks, as we all know is ownership of a piece of the company. Now the government is wanting to buy up stocks, that to me is very socialistic; as part the definition of socialisim is that the government has ownership of companies.

I believe the bailout to begin with was a necessary step, If it wasn’t done the economy would be in a terrible state, worse than it is now. I also believe that a bailout must be created for the auto industry as well, since they supply a good chunk of jobs in this country. I do not think that the governemnt buying out bank stocks to help the companies balance sheet is going to cause the problem to go away. Banks still won’t loan money because confidence is low. People won’t want to get loans because most people don’t want to get stuck or caught in this economy. My own feeling is that this statement by Paulson will cause the financials to sink even more in the coming months. I am planning on buying puts and ultra short ETF’s in the near future.

Filed under: Finance , , , , , ,

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