How The New U.S. $600 Billion Stimulus Will Impact You

[No DUplicitous DUpe]

How The New U.S. $600 Billion Stimulus Will Impact You
posted with permission from http://sane-ramblings.blogspot.com/2010/11/what-new-us-600-billion-stimulus-means.html

Unless you are a bank, investment bank, hedge fund operator or money manager, it will mean very little at first and then it could have a major impact on you.

Over the next eight months, the U.S. Fed will buy $600 billion worth of new Treasury Bills, to flood the U.S. economy with money. In theory, this will encourage banks flush with cheap cash from the Treasury to loan to small businesses.

Those small businesses, America's job engine, will then expand and hire more employees. And with new jobs people will feel good about the economy and will go deeper into debt again buying everything in sight (most of it made overseas) and spurring economic growth.

With that economic growth, the massive pile of foreclosed homes waiting to hit the market will be absorbed at prices high enough to rescue Fannie and Freddie who are holding those foreclosures. Meanwhile, U.S. exports will boom because the dollar's value will fall and U.S. made products will be cheap in other nations.

Nice theory, but it won't happen. What will happen is the banks, hedge fund operators, etc. will take that nearly free money and invest it where they get higher rates of return. This means the world will soon be flooded with even more dollars chasing more assets like overseas bonds and real estate that pay far higher yields.

For example, if an investor views Australia, Brazil, Germany or South Korea as a safe place to buy bonds, or China and Hong Kong as safe places to make real estate investments, that money will move from the U.S. in the click of a computer keyboard.

Stock markets shot up anticipating a mountain of cheap cash. And Wall Street style money manipulators will make big fees moving that money around. In response, other major industrial nations are speaking of restricting the flow of dollars fearing bond and real estate bubbles exploding all over their economies.

In addition, these excess dollars will trigger speculation in commodities such as metals, including gold, and a wide range of foods from soybeans to pork bellies, pressuring manufacturers and distributors to raise prices.

But the situation gets worse. The U.S., the world's biggest debtor nation is already borrowing heavily just to pay its bills. So where will the Fed get the money to buy these new T-Bills? They will create it electronically out of thin air and therefore further undermine confidence in an already falling dollar.

As for selling U.S. exports overseas, try buying "made in America" even in America. It is hard to find U.S. made goods because U.S. companies have shifted production elsewhere. So what export boom is there?

In the last two years, the Fed has spent $1.7 trillion on U.S. bonds, taken trillions of dollars in toxic assets and kept interest rates at record low levels letting banks make big profits by paying savers near nothing for their money. None of this resurrected the U.S. economy. Why will $600 billion more make a difference?

How will it impact you? Brace yourself. Much of what you buy is either made overseas and/or is transported by truck. Foreign made goods will cost more, and although gas prices will fluctuate they will go up based upon rising oil prices. Higher oil prices mean you will pay more for food and electricity and many of the other products you buy. Yet with the falling dollar, your savings will decline in value.

What can you do to protect yourself? Lighten your load. Sell off assets you don't need, such as an extra car or a motorcycle gathering dust. Negotiate a reduction in your credit card debt or at least pay it down. And enhance your skills. If you can save people time or money, you have something valuable to offer.

Please understand, for the Fed this is an act of desperation to resurrect the economy. Since its announcement the Fed has been condemned by most of the industrialized world. But the U.S. is in crisis, with most of our industrial base gone, the military draining our resources and our economy based upon living on credit.

To solve these immense problems will be painful, requiring higher taxes, slashing of expenses, slashing our borrowings and restructuring our economy to become an industrial powerhouse as we used to be. It is a challenge much bigger than putting a man on the moon and will require sacrifice by all Americans.

There is no borrowing and spending our way out of this mess, nor should there be any tax cuts, nor will the Republican proposed cutting of $100 million in as yet unidentified expenses mean anything when we have a government deficit of $1.3 trillion and an equally nightmarish deficit in our trading account with other nations.

But take heart for America has faced worse and is capable of resurrecting itself once it acknowledges the depth of its problems. We just need leaders with the courage to be honest with us, who can envision bold solutions and have the will to act.

[ixion]

1. small businesses don't expand just because they can borrow money

they expand because the market demands it.

And buying our own debt just makes matters worse, as evidenced by our bond rating drop in China today, which happened as a direct result of the so-called "stimulus."

[OhioBlue]

2. We also need a grass roots movement

to raise taxes. repeal all Bush tax cuts. President Obama made it a campaign platform that he wouldn't raise taxes for those making less than $200k. The Republicans know this and they will hold us hostage to get the extension of tax cuts for their financial backers. Even in lame duck, the Republicans will obstruct a tax cut for those under $200k unless it includes all the tax cuts. We need a mass movement to give them the political cover/will to let them expire. This will allow Dems to call the R's bluff.

[No DUplicitous DUpe]

3. Thanks for all the rec's

:kick:

[roamer65]

4. I hope Bernanke puts the presses into "overdrive".

Because it pisses the flying monkey rightards off so much and it will thwart any budget cutting they may try.

[The Uncola]

5. Is there a fucking job for me in it?

Or just more and bigger bonuses for the fatcat banksters and Wall Street Robber Barons?

[Kablooie]

6. I'm afraid that until they let go and allow everything to crash we will remain in trouble.

I know nothing about economics but it seems that everything they do to fix the situation is soaked up by people that don't need help and nothing is fixed.

I fear that these artificial attempts to prevent a crash will simply prolong the problem.

It's like they are using expensive bandaids to keep up a toppling skyscraper. They may delay the inevitable but they can't prevent the collapse.

Once it does fall, even the super rich at the top will be hurt. Once they feel the pain a plan to rebuild things can begin.

The expensive bandaids will also have to be paid for so they will only make the recovery longer and more difficult.


That's my layman's view of the situation.

[billlll]

7. i prefer a new WPA to giving anything to bankers

Didn't bailout banks refuse to tell what they did with the money?

M Moore and R Reich have both called for a new WPA as the way to pull us out of this Collapse ( er.. I meant "recession"... Collapse is such an ugly word ).

Our economy collapses about every ten years. Have your parents ever discussed that around the kitchen table? They have lived long enough
to notice it.

[No DUplicitous DUpe]

11. "using expensive bandaids to keep up a toppling skyscraper."

Nice analogy.

[Hannah Bell]

8. why are they giving more money to bankers? bankers aren't lending, they're

rebuilding their balances.

give the damn money to people through government jobs & infrastructure projects.

send some to the states so they don't have to keep laying off people.

[billlll]

10. yes! good point Hannah... repair what the GOP neglected since '80

Fix bridges, end boil water alerts due to aging mains, hire back a third of our cOps, hire back food inspectors, and air traffic controllers, fix potholes, repair school buildings,resume providing free textbooks to EVERY student (and supplies as well),reopen and vastly upgrade state asylums,rehire clerks at the DMV to end these new long waits for paperwork to get done there (ditto ALL the agencies where clerk jobs were ended by the GOP ax to support tax cuts for the rich).

Clean up the GOP mess and pull us out of this GOP recession at the same time.

[4lbs]

9. There can be an export boom for some US businesses with this.

One of my clients runs a wholesale clothing distribution company. He has several brick-and-mortar stores and four online stores. He told me that when the dollar is weak, about 90% of his online sales are from international customers.

The same pair of pants that he sells for $15.99 in his actual stores, and $17.99 online, costs as much as $35 overseas in Europe, Asia, and Australia.

So what happens is that he often gets orders worth hundreds of dollars each (where people buy 6 pairs of pants, shirts, jackets, etc.) from these customers in other continents.

I've verified this by helping him process orders from time-to-time for extra money. I've printed out shipping labels for UPS, USPS, and DHL; and packaged up orders with dozens of clothing items, nearly all of which were headed outside of the U.S.

Even with the $40+ international shipping costs per order, customers are getting clothes from a U.S. distributor for at least 33% less than it would cost them if they were to buy it in their own country's stores.

He makes about $50,000 a month profit from just his online sales. He employees about a dozen people locally to work in his company.

The ironic thing is seeing a person in South America order clothes from the U.S. that were made in Mexico.

Even more ironic is seeing a person in Taiwan order clothes from the U.S. that were made in China.

[No DUplicitous DUpe]

12. The Author adds....

...."Already from the new stimulus, food prices have begun rising, as are prices for copper, cotton, oil and a broad range of other commodities. While at the same time, the value of our savings is dropping."