The Stimulus Game

Ulli Uncategorized Contact

I’ve never thought much of the various stimulus packages in the pas, nor have I changed my mind at this time.

From my vantage point, ridiculous amounts of money have been poured down the drain with nothing to show for.

For some more on this topic, Mish at Global Economic Trends, had these thoughts in a post titled “No amount of stimulus will work.” Here are some noteworthy highlights:

No Amount of Stimulus Will Work

The problem with Keynesian clowns is they never look ahead to when the stimulus stops. By definition “stimulus must end” and as soon as it does, unless the stimulus created lasting new jobs, there will be nothing to show for it other than debt.

And interest must be paid on that debt. And that interest has to come from somewhere, either more taxes, or printing money and cheapening the dollar. That means there is a price to pay down the road for stimulus today. Keynesian clowns act as if there is no price down the road.

Since you cannot spend what you don’t have (without long-term negative consequences), the key to a solid recovery comes from a buildup in savings, lower taxes, and letting consumers keep more of their money (as opposed to government deciding how and when it should be spent).

In short, no amount of artificial stimulus can possibly work because government cannot allocate capital in an efficient manner (repairing roads that do not need to be repaired is proof enough). This is something that academic wonks trapped in their ivory towers apparently will never understand.

Creating a better business climate, with less government waste, will work. However, the right plan will take time and patience, traits that Government bureaucrats and academic wonks both lack. Unfortunately, but not unexpectedly, we are moving in exactly the wrong direction as noted in Obama’s “Cap and Trade” Energy Plan Will Cost Jobs.

There is a price to be paid for reckless expansion of credit and we are paying the price now. All artificial stimulus does is prolong the agony. The greater the stimulus, the greater the period of future agony, just as happened in Japan. Ironically Keynesian and Monetarist clowns shouted for more stimulus all the way, and they are doing so again now.

The reason I bring this up is that I believe that the current market rebound was a result of the stimulus efforts supported by hope that positive results will be the outcome. So far, I have not seen anything, when looking at the economic landscape that confirms that the efforts have been fruitful.

Eventually, lack of results will filter down to Wall Street and may cause the current rally come to and end. I’m not being negative here, just realistic, so investors remain cautious and open to the possibility that this market can suddenly shift into reverse.

We’ve seen sudden severe directional changes several times over the past year, so be prepared to act if it happens again.

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Comments 3

  1. Ulli,

    Sure is begining to look a lot like the 1929 thru 1933 markets all over again. It is so important that your readers understand that markets can actually go down overall for years (secular bear) just like the market in Japan has done as well as many times in our own U.S. market history. It is possible that we will have many whipsaws before we get a meaningful up trending market, that is just the way it is no matter how much we hope that it will go up it still may go down. I am hedged at the moment and should weather this storm just fine. I have 3 managed funds AMAGX AMANX FUNDX and one long ETF symbol EFA, hedged with SH (short the sp500 ETF). The trend appears to be down and I will wait for a turn around before removing my hedge. Even though I differ in my strategy somewhat from yours, I still appreciate what you do and I have learned a lot from you and appreciate very much all that you share with us your readers out here. Thank you very much.

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