Unfortunately, the Analyst leans more toward Sen. Reid’s reason being politics, rather than epiphany.
Even recession proponents suggest the recession will hit in Q1 ’08 (some even called for it in Q4 ’07, which it did not) and last through Q2 and into Q3 ’08. Therefore dumping (i.e. wasting) $161 billion that could instead be strategically and beneficially deployed elsewhere, e.g. bond insurance crisis, rather than on an economy poised to grow on its own when the package finally does take effect, is simply a failure, if not complete breakdown in fiscal judgment, by many. In fact, nothing but wasteful and costly election year folly (noise), given its underpinnings are politically, rather than U.S. national/economic security strategically motivated.
At best, the analysts think the $161 billion (House only approved) stimulus can add perhaps .5-1% improvement to GDP. So again, why bother. Particularly when compounding that (dated) assessment with the real point to be made that today’s impact from such a stimulus plan is very different than what would have been the impact 10-15 years ago with the same plan. In fact, that .5-1.0% is historically referenced, not real time based. It does not account for the dramatic change over the last 10-15 years from a producing to an import economy. So with the economy now import driven, the .5-1% impact is grossly over-inflated as there is little remaining U.S. infrastructure to stimulate. It’s been shipped to China et al.
The question really then becomes “Stimulus Package for which Economy?” The answer is of course, China, not Detroit (U.S.). In fact, it might better be called for what it really is, the “China Stimulus Plan”.
As a proxy for that statement, recall again the concentration of “Made in China” (import) products in Wal-Mart and Target et al. That is precisely where the lion share of the $600 per individual stimulus plan rebate checks will be spent. Therefore, the stimulus is not stimulating the U.S. economy, but rather further stimulating/fueling an already overheating Chinese economy. Note China’s growth rate in 2007 was a staggering 11% plus.
Therefore, some young, gutsy Senator and/or Congressman/woman with Presidential aspirations in 10-15 years might consider exercising some personal fortitude and march against the political grain now to be hailed tomorrow for a hero like Alamo-like last stand on the House and/or Senate floor, which will be roundly applauded in the years to come. As Nancy Reagan might say, just say no. Or even better, launch a new rallying cry for the American people to demand redirection of these funds to just about anything else, rather than what is being done with them now, flushing them down the toilet.
Call it the “Anything But (the Stimulus)” campaign.
That said, the stimulus package’s significant and precious financial resources should be redirected (and better invested) from treating an internal economic symptom to instead addressing the real external threat (negative causation) to the longer term economy - Commulism. Unlike the ill-conceived, unnecessary and wasteful “tactical” stimulus package, using these resources instead to thwart Commulism would be considered a prudent “strategic” investment in this country’s long term economic and national security.
For example, the vulnerability/health of the U.S. economy and therefore the ability to fend off Commulism hinges currently on a crisis of devastating proportion. The bond insurance industry, a bulwark of the U.S. finance system, stands on the precipice of collapse. If it does, the negative impact on the economy and stock market will dwarf by perhaps orders of magnitude, the meaningless short term blip in consumer spending impact from the stimulus package. A collapse more importantly weakens the U.S. finance system so seriously and for such a long time to come, that the U.S. becomes that much more vulnerable to Commulism. The choice then, give in large part, the $161 billion to China vis-a-vis Wal-Mart et al and watch the bond insurance industry collapse and devastate the U.S. economy or do the right strategic thing – use those resources to instead prudently bail or buy out the bond insurance industry, and stem a financial collapse, thereby buttressing and strengthening the U.S. economy. If the government decides to do “both”, rather than either/or, the U.S. is still wasting $161 billion, it can ill afford to.
The 2008 $161 billion (House only approved) stimulus package in historical retrospect years from now will be deemed as having thrown money down the toilet and one of the top 5 worst fiscal decisions of all time. Not only were these precious resources/funds mis-used and mis-directed, but the mis-guided decision to do so sent an undesired signal that things are much worse than previous thought, triggering a stock market sell-off and greater consumer pullback than would have occurred without the stimulus announcement. Ironically, precisely what the “brilliant” originators of the stimulus idea thought to avoid, further evidencing what a truly bad idea it is. Many argue it is simply “to little, to late”. This Analyst calls the stimulus idea “to wrong” in fact, ALL WRONG. Anyway, it is what it is and the equity markets recent sell-off, just like the recession panic, heightened with the attitude “hey, it (recession risk) must be even worse if the government has to do this”, are overblown as will be borne out in due course.
The Analyst notes however, any recession occurring, may be “ever so slightly” more pronounced than previously thought (i.e. before the thoughtless, lame and consumer scare stimulus plan idea floated). This Analyst (and urges others too) makes one final plea to promptly rescind the stimulus idea and prudently redirect these funds as noted below. Doing so would have the added benefit of triggering a 500-1000 point Dow rally. Why? Investors appreciate when bad fiscal decisions are recognized and corrected. The market rewards when that recognition and rescission takes place “before” the mistake is allowed to take root.
The bond insurance business, led by companies such as MBIA and AMBAC and others underwrite some $500 billion in coverage, with growing losses setting the stage for collapse of the entire amount. A full scale collapse if allowed to occur could yield zero cents on the dollar, devastating the banking and other industries built upon this risk transfer vehicle. As the saying goes, “no risk, no gain”. In other words, companies (must) take risk to prosper and grow. They do so when they have an insurance backstop. Without that backstop (bond insurance industry) they won’t take risk, resulting stalled and/or no progress/growth.
Here’s where Mr. Cramer is right and Mr. Bernanke could do more, in fact much more. And also where the world is looking at not necessarily the U.S. downturn but rather how the big picture U.S. economy is managed. Fair to say that every discussion at the recent World Economic Forum in Davos, Switzerland, was within 2 degrees or less separation of the topic of the U.S. economy and equity/credit markets impact on global economy and how U.S. government and corporate leaders collectively are addressing the driving issues.
So as Mr. Cramer astutely noted and the world would promptly recognize the U.S. trying to manage the right issues/problems, the bond insurance industry is teetering on collapse. A collapse would make a routine recession look like a cakewalk. Mr. Cramer to his credit, flagged the issue and the U.S. is only now beginning to explore solutions. The immediate question, is there time and the right commitment to fix it?
This is an industry that is not standalone but rather completely integrated into the U.S. financial/corporate fabric, rippling through the economy. Collapse would lead to a disastrous cascading/spiraling chain reaction, or domino effect of failures of the downstream economic underpinnings and drive the economy and stock market into the abyss.
If ever a government (NY state and/or Federal) bail-out or buy-out was necessary (and universally supported by the voting public) to preserve the good of the whole, saving the bond insurance business is it. That being Mr. Cramer’s excellent point. Government or private sector intervention averts a devastating downgrade (they are being reviewed now) of these insurers by Moody’s/S&P, and thereby avoiding a failure of confidence and collapse of the industry itself.
