Federal Bailout + Stimulus = ZERO!

First, almost every consumer advisor appearing on a news show (TV and radio) and writing in newspapers and magazines has urged that we consumers get our fiscal lives in order. The message has been loud and clear. Don't spend what you don't have; pay off credit card and other debt; make sure you need what you buy.

On the other hand, banks are supposed to be encouraging people to borrow money and hence spend it.

If we follow the former approach, no amount of money dedicated to bank lending is going to work. And if the bank lending works, we will be right back to where we were before the real estate bubble burst.

Meanwhile, banks continue to lower home equity line levels (due to falling home prices) and cut credit card credit limits (due to lowered creditworthiness), both of which go against any type of credit expansion.

Consider, also, that the "handouts" to consumers in the stimulus bill (e.g., $13 per week per adult and $26 per family per week after withholding adjustments; a one-time Social Security payment of $250; a college credit of $2500 over 4 years or $625 per year) are really not large enough to make much of a difference in spending. Many of us will take that money and do anything but spend it in the ways the bailout bill would like.

Although it is too late to change the recently agreed to stimulus bill, my wife suggests that it makes more sense to have money go directly to consumers so that they can decide where to spend it. And, if consumers do this, then money will flow into local economies, tax bases and other needed revenue pools. It can also be used to make needed mortgage payments and lessen the risk of foreclosures.

I prefer a reduction in taxes for everyone (especially small businesses). This would pump money right where it affects people most directly - retaining and creating jobs in all sectors of the economy (not just public works construction, state budgets and selected pork-based projects)

This plus and minus scenario permeates almost every aspect of economics. If we have a strong dollar, that's supposed to be good. But, then foreign countries won't buy our products because they are too expensive. If we have a weak dollar, exports supposedly rise, but then the oil cartel feels that it has to raise prices to compensate for the reduced real dollar value of the petro dollars. Hence, our balance of payments shifts to a net outflow of money (further lowering the value of our currency).

Of course, all of these packages, while supposedly good for the short-term, create a long-term debt that dwarfs anything people have created themselves. It sets the stage for all Americans to be in national debt for perhaps the rest of their lives and far beyond.

I really can't see how these two packages will save the economy. Rather, I think the economy will eventually heal itself.

If I'm wrong (and I could well be because I am not an economist), then I'll be the first to admit it. But I'm going to bet that the "smoke and mirrors," "voo-doo magic" economics we are seeing will become a huge economic waste instead.