General Economic Rants

Now that Super Tuesday’s behind us, I can talk about the economy. Since I mentioned the stimulus plan a few posts back, I’ll start there.

In a word, it’s stupid. Rebates never work. In spite of what Hank Paulson says, the majority of recipients of the 2001 rebates saved them. (Hank has either forgotten everything he learned at Goldman Sachs, or he’s just a bad liar. I’ll go out on a limb, and bet on the latter.) What do you expect when you throw money at people during a recession, when they’re worried about losing their job or their house? Especially people who are already over their heads in debt? They’ll save it, or use it to pay down the plastic.

Plus, my view is that we have no rational economic choice but to save the rebates. Why? To earn interest on the money. Why? Because the government – running near-record deficits – doesn’t have the money to pay the rebates. So how will they get it? They’ll borrow it. How? By selling Treasury securities. To whom? China. Why will China buy the securities? Because they pay interest. Who will pay them back when the securities mature? The US Treasury. Where will the Treasury get the money to pay them back? From the taxpayers (that would be us). Where will the interest come from? Either out of our pockets, or out of the interest we earn on the rebates when we sock them away. See?

An alternative is to go to Wal-Mart and spend the money on Chinese toys and clothing. Then China can double-dip – we pay them now, AND pay them later. I actually heard a story of one woman who was interviewed about what she’d do with her rebate. She was a 19-year-old single mother working for minimum wage, and she was excited about getting the cash, which she planned to use for a trip to Jamaica. That’s a great stimulus to the economy … of Jamaica.

Another general observation about the economy (and this will be a recurrent theme on this space): Ben Bernanke is a pansy. Only Christian decency prevents me from using a stronger word. Wall Street says, “I’m alpha,” and Bernanke rolls on his back like a weak pup. It’s unconscionable for the Fed to ease with unprecedented aggressiveness in the face of inflation that is above its own stated “comfort zone,” yet that’s what’s happening.

Why? Because Wall Street wants it. So our central bank bails out Wall Street after years of excessive risk-taking, spawned by previous Fed blunders (vehemently denied by the Bubble Maestro himself, Alan Greenspan, but the numbers don’t lie). Guys like Jim Cramer scream for the return of a 1% fed funds target, because they could care less about bubbles. Cramer’s house is paid for with cash, but he keeps making money only if the market’s going up. So what’s a bubble to him?

The European Central Bank and the Bank of England actually have some backbone. They told the financials that they’d have to pay the price for their own excessive risk-taking, and they backed up strong language by standing firm on rates, even as the markets clamored for rate cuts. It’s a sad day when a French central banker is a stronger man than our guy. To paraphrase Archie and Edith, “Mister, we could use a man like Paul Volcker again.