Our Leaders tell Us to $pend Our Way out of Recession

It’s official. Governments around the world what us to all spend like crazy and take on as much debt as we can. The fact that this is against our human nature is something beyond their comprehension.

If you are in government a recession means nothing to you. Your job is not at risk. So it is easy to understand their mentality as they have nothing to fear.

If you can create money out of thin air by a few strokes on a computer keyboard and send billions of dollars through the Internet into millions of consumer bank accounts at the speed of light nothing is impossible to you.

Wait a minute isn’t that what Wall Street was doing? Using the Internet to move money around faster than you can blink? Look what happened to them. It all becomes too unreal.

If you can steal your grand-children’s future by spending their future earnings what does it matter?

At least adhering to the gold standard meant Governments could only spend up to the value of the gold they had in Fort Knox or wherever.

There is no doubt that governments can stimulate economies that tip into recession – sometimes. But not all recessions are the same. This time round it looks like it is going to be the “mother of all recession” if not a depression. The whole financial system went into melt-down and needs to be de-leveraged.

When Wall Street wallies were leveraging up 10, 20 even 1030 to 1 or more, $700Bn bailout money is just loose change.

At some point in time even our fearless politicians will get frightened by the billions and billions and billions of dollars they will need to create to recover from the leveraged excesses. If they don’t the consumers surely will and will make things worse by not spending on anything but the essentials.

The great law of the parabola will surely bite them when they least expect it. There is a tipping point that is not always reached in many things in life.

As there was a bubble in the housing market, the oil market, the commodities markets so now we are likely to get a bubble in the “make money out of thin air” market. They all went “parabolic” before crashing down despite valiant attempts to keep them propped up.

Who’d have thought oil would be $40 a barrel within six months of its all time high and with a cartel “controlling prices”. There is a lesson there about trying to fight the economic cycle.

The law of diminishing returns will take effect. Each stimulus will have to be larger but is likely to make even less of an impact on restarting the economy. This will be partly because consumers will take the rational approach and cut down even more on their spending and pay of their debts..

Oh, governments might get lucky and things might turn around as they have in other recessions. But just like “buy and hold” was a bridge to nowhere during boom times for investors so is “print and spend” for governments.

In Australia some young families may get $5,000 AU or more to spend before Christmas. Our leader Mr Rudd has gone on television telling these young families, many with large debts, to go out and spend it to get the economy going again.

Is Mr Rudd going to help them if things get worse and they lose their job and can’t pay their mortgage, but they dutifully spent the government handout? I doubt it.

Surely the rational thing to do is to get consumers to save their money, reduce their debts and prepare for worse things to come. I’m not it will get worse but the probability is that it will and we should prepare for it.

If governments want to interfere in the economy then let them do it by actually producing or building something for the public good, like a bridge (not to nowhere though). Better still repair the infrastructure that has been sadly neglected for years.

Now more than ever baby boomer need to ensure they have cash on hand. There is always a chance governments will spend their way out of this mess. Baby Boomer have to plan for governments failing to resolve the problem quickly.

I am sure things will work out in the end. It will just take time. Governments may just lengthen that time and so our cash has to last us longer. Be prepared.

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