You may remember that little $787 billion economic stimulus bill, called the American Recovery and Reinvestment Act (ARRA). I wrote about it last January when the original proposal called for as much as $825 billion. I was disturbed back then by the size and delivery time tables. My reasoning was that if we were in such a state of emergency that we needed to drop nearly a trillion dollars to save us all, then why did the Congressional Budgetary Office indicate that approximately 30 percent of ARRA funds wouldn’t even be spent until 2011 or later?
Fast forward here to early November, and sure enough, eight months later, we have spent just somewhere around 21 percent or $168 billion of the total allotted for the ARRA. So that was the plan, right? The argument the Administration has made all along is that the New Deal failed not because it didn’t create any permanent new jobs, but because it was withdrawn too early. So paying people to dig holes and then fill them the next day, would have worked in the long run had we just given it more time. Makes sense to me. I can’t understand why you’d be scratching your head. Let me see if I can help you out here with the math.
According to CNNMoney.com and a handy little chart they created (http://money.cnn.com/news/storysupplement/economy/bailouttracker/index.html), we have spent $2.8 trillion of the $11 trillion+ allocated for all these sorts of government programs combined. Likewise, our economy normally generates an annual Gross Domestic Product (GDP) of approximately $14 trillion. So, dividing these numbers out, that investment of $2.8 trillion to save the economy is right at 20 percent of our annual GDP. And how is that investment working out, you ask? Well 4th quarter GDP in 2008 was down something like 6.2 percent. Meanwhile, this past Thursday, the Bureau of Economic Analysis (BEA) reported 3rd Quarter GDP at up 3.5%. So in a year, we borrowed and spent 20 percent of our annual GDP, to get an 9.7% percent turnaround in that same GDP. And all this without a single new permanent job created. Now you get it, right? I mean these are brilliant results really, and who could argue the need for even more of this kind of thinking?
Well, your wish for even more “investments” just like this are about to be granted, it appears. Congress has put together roughly $200 billion in new proposals for “Economic Relief.” But we are being instructed that these new programs should NOT be considered a second stimulus, even though some of them extend programs specifically included in the first stimulus. (Don’t make me report you to the government’s Web site for misinforming the public.) According to a recent Associated Press release: Nancy Pelosi said lawmakers need to hear from economists before settling on a package… “What is it that we can afford? What works the fastest?” Pelosi said. Well, I don’t know about you, but I can hardly wait for more clunker money. I missed the first one. But I won’t miss a second chance to stick my unborn grandchildren with the bill for a new car. I’m sure they will be miserable, unappreciative, little brats anyway. Serves them right!
In addition, the CNN chart does not include the $1 trillion the Federal Reserve has spent so far, buying mortgages from the big banks. (Thank goodness those trustworthy banks haven’t been grossly gouging the public, by charging nearly double the price they usually get selling mortgages.) And the Fed has also spent at least $300 billion buying U.S. treasuries to monetize some of our debt. That’s a fancy way of saying they simply printed money to buy that $300 billion dollars worth of treasuries. So we got that going for us to!
What does all that mean for mortgage rates? Well, the Fed seems committed to keeping rates down for as long as they are allowed to print our money. But with a nationwide campaign to audit the Fed looming, I wouldn’t wait much longer.
