The Fed has cut the key interest rate by ¾ of a point in order to hold off a world wide global meltdown.
Obviously minds that are far superior to mine have decided that this move along with a mammoth economic stimulus package, is the key to pushing our dollars and cents towards economic recovery.
This content writer does not claim to be an economist, or even financially brilliant, but I see both of these moves as little more than printing extra cash and dropping it into the economy.
In order for me to understand the economy I have to simplify it. I imagine the economy of the world as a Monopoly game.
This Monopoly game is different in the fact that the board is ever expanding. I like to think of this expanding Monopoly board as economic growth. The growth is achieved by more and more players participating. Each new player has the potential to create a new property that can be bought, sold and rented. On these properties you can add houses or hotels.
Ultimately these new properties are created by hard work. They are created by the equity of labor and sweat. They are created with ingenuity, and creativity. They are created by filling a need or providing a service to the people who have the paper money. This is the way it is done.
Interest rates should always be controlled by the demand to borrow money. The more people that want to borrow the higher the cost of borrowing money should be. Just like the cost of corn, the bigger the demand for corn, the higher the cost of corn.
I believe what the government is doing with this economic stimulus package is little more than opening up a new Monopoly game and handing out the money to everyone at the table and insisting that the bank charge less to lend money.
The problem with this form of stimulus is that it doesn't cure the problem at all. It only allows players to stay in the game a little longer.
The problem as I see it is that everyone has forgotten or chosen to ignore the bit of true advice that we all got from our elders when we were trying to decide if we wanted to get into the piggy bank or not. That advice is that there is no free money.
The true value of our money is the amount of goods we can exchange it for. Currency is not infinite. No matter how much of it we create, no matter how much of it we dedicate to an economic stimulus package it is not infinite.
Most Americans only have one investment and that is their homes. By giving homes away with sub-prime loans, and lending more money on homes than they are actually worth we have devalued this great American asset.
This is a hard pill to swallow but it is the only pill that will cure the cancer that is poisoning our economy.
This artificial stimulus package is nothing more than treating a brain tumor with an aspirin. We need to tighten our belts and allow the forces at work in our economy to do what they may. If we can hang on for about two more years real estate will come down enough that people will buy it again. And when they buy it I like to think they will actually qualify for the loans.
With enough time, foreclosures, and new real estate investment this problem will correct itself, the way to not correct the problem is to pretend it doesn't exist by making more money and dumping it into the economy.
Free money can not exist in our economy.
Simply put if everyone in the world has 20.00 and bread cost fifty cents per loaf and I give everyone in the world 20.00 more than the bread will now cost a dollar.
Increasing everyones spending money simply decreases the buying power of their spending money.
This is called inflation. Several people don't remember inflation. But this content producer imagines that we will all become familiar with this term.
So what will I do with my free money ?
I will not be buying a big screen TV. I think I will buy some chickens and rent a place to put them. I may buy some silver or gold. I may use it for a big garden in the spring and I believe by doing these things I will come out ahead in the long run. I'll get eggs for less that 3.00 per dozen and be able to sell all of the extras for 2.75. Hopefully with some work I can increase the value of this free money enough that it doesn't cost me anything.
This producer looks forward to very hard times, I believe that a recession can't be avoided and that a depression is inevitable.
I doubt that the economic stimulus will even hold things together until election time.
I don't despair because the economy runs in circles. We as consumers and Government have failed but it's not the end of the world. Basicly this economic stimulus package is exactly the same as selling sub-prime loans and that's what got us into this mess to begin with.