The Obama Restructuring

The US stimulus is now a reality. Some say it’s good. Some say it’s bad. But most are saying it is absolutely ridiculous.

The $787 billion dollar Obama stimulus package has been met and passed with serious scrutiny. Will the package work? What do business leaders think? What do people in the capital markets think? And most important, what do the markets think? The Dow closed this past Friday at a 6-year low, dipping well below the 7500 mark.

For businesses, investors, and financial consumers, this package appears to be nothing more than a government restructuring program designed to move the Government further into democratic socialism, not stimulate the economy. Despite the fact that much of what many are calling a “pork bill” is going towards tax relief (roughly 34%), the rest of the bill is short on incentives to get consumers spending again. The socialistic approach of this bill has in place long social goals that will most likely not stimulate economic activity.

Sure it will create some jobs in the short term. Sure people will save around $60 per month in taxes. But where is this money coming from? The federal government alone is now borrowing at an annual rate of well over $2 trillion. This does not include state and local government borrowing. For $787 billion worth of spending, how much of that is really stimulating the economy?

With most of the tax cuts given to individuals and not toward businesses and business owners, how can we expect further job creation? Already we are seeing jobs slashed at record rates as spending from consumers weaken. There are no incentives in this bill to further promote businesses or increase spending, both of which will ultimately create more jobs.

In the bill, there is what they call “discretionary spending ‘which equates to around $308 billion. In that, $48 billion goes to the Department of Transportation to repair and expand infrastructure. The remaining $260 billion “discretionary spending “goes to various federal agencies, as well as state and local governments.

Let’s cut a small chunk of this overcooked pork and have a quick taste:

  1. $300 million to buy “green cars” for federal employees and tax credits if you want to go and buy a “Neighbourhood Electric Vehicle” (NEV)
  2. $98 million towards a polar icebreaker
  3. $200 million to “design and furnish” the Department of Homeland Security Headquarters
  4. $3.4 billion to the Fossil Energy Research and Development program to achieve “clean coal.”
  5. $144 billion to state and local governments where spending is undetermined

It’s great to see that so much of what is meant to be part of an economy stimulus bill be thrown into government expansion. How do little golf carts and ice breakers stimulate the economy? What about interior decoration for security buildings? Shouldn’t that be discussed in a bill related to security? Shouldn’t clean coal be discussed in a bill related to energy? Shouldn’t there be some measure of where and how $144 billion is going to be spent to stimulate?

Obama is about to spend close to $1 trillion dollars on a bill meant to stimulate the economy but it is obvious that he chose to expand government and increase the people’s reliance on it, while the private sector, which pays the Bill, continues to shrink.

When Obama said he wanted change, he meant it.

This past week, we had the pleasure of interviewing an American CEO of a Canadian listed gold company regarding his corporation in this market and what he thinks of the recent Obama bill. The video interview will be posted next week so be sure to stay tuned.