Why the "Stimulus" Won't Do a Damn Thing

This post will show how the proposed $825 billion "stimulus" package will do absolutely nothing to help the economy and will only serve to make the existing economic problems worse.

"But wait! How could that be?" you ask yourself. All the politicians and talking heads on TV are saying that it will boost the economy and create jobs! I'll let you in on a dirty little secret - most politicians and talking heads don't have a basic understanding of economics. I'll explain it to you as simply as I can so that you can be better informed than 99% of politicians and talking heads.

First: The proposed stimulus has a price tag of $825 billion. You can view the proposed stimulus by clicking here. Let's reduce that number, because it includes $275 billion in tax cuts. Government accounting is completely different from real world accounting, so they include a tax cut in the "cost" of budget bills. This simply means that we get to keep an additional $275 billion of our own dollars. The result? The actual new spending by the government is $550 billion. So, we've already reduced the "stimulus" spending by a third.

Second: Where does this new spending money come from? The US government raises money by selling Treasury bonds. These bonds are sold to the general public. It's basically the same as taking out a loan to increase your personal spending. These bonds require the government to pay interest to those who purchased the bonds. Therefore, the money the government will spend on the stimulus will in fact be money that it borrows from other people. So in effect, for every $1 that the government spends on this stimulus, $1 was diverted from other investments. In other words, no new money or growth is being produced. It's the same as borrowing a dollar from your neighbor and lending it to another neighbor. Nothing was added to the economy and no new investments were created. The money being spent on the stimulus is money that would have been invested someplace else anyways. 

Third: Instead of that "stimulus" money being spent by private sector employers, it will be spent by politicians and bureaucrats. The transfer of wealth from potential private sector investments to the Federal Government will do absolutely nothing to create new jobs. It's simply a transfer of money. In fact, it will likely result in fewer jobs because once bureaucrats and politicians gets their hands on the money, it will be severely whittled down by bureaucratic wrangling and government ineptitude. 

Bottom line - the stimulus will do absolutely nothing to "stimulate" the economy.

Oh, but there's more. That $550 billion that's being borrowed to increase federal spending carries with it a bill for interest that the federal government must pay from either the general budget or by borrowing more money! Guess what! The federal government already spent $412 billion on interest on the national debt, just last year! This new spending will add approximately $20 billion to that amount, each year.

This is a losing game folks. It's no different than taking out a loan to pay the interest on another loan. It will eventually collapse. It's the biggest Ponzi scheme in the history of the planet. It's piling borrowing on borrowing while adding nothing net new to the economy.

Excessive borrowing and leverage got the world into this economic crunch - more borrowing will not make it better.