The Democrats approved yesterday what could be called the last line of defense against a total crash. Of course, they still have to pass this through the Congress, where the Republicans are strongly opposing it. And the signature of Barack Obama seems a formality, so the biggest part of the battle has been done. After the disastruous news on the jobless rate reaching new heights (see our previous blog on doitinvest.com), the mass media pressure convinced the senators to approve the $800 billion stimulus package.
Of course, this was the economic Holy Graal of the president Obama. Yet, as the approval is unveiled, other disturbing news reached the media. A big part of the previously approved stimulus package went to the bank managers in forms of bonuses. Other bought assets (from the bailed out banks) seemed to be overvalued (with hundreds of billions of dollars, which is no joke). So why are the Democrats in such a rush to throw new money in the U.S. economy?
Well, when now lobby is forbidden, the only way to protect your business in the U.S. is to get direct help from the government. Which, in the purest Keynesian tradition, the Democrat government seems more than willing to oblige. But the Democrats learned their lessons too.
The group announced the agreement was for $780 billion in spending and tax cuts, but aides said the total could be as much as $47 billion more because of tax incentives senators previously added to boost flagging home and auto sales. Democrats had hoped to vote on the measure late on Friday, but Republicans blocked such an action, saying they had not been given a chance to read the compromise. Which is indicating that, after initiating the money throwing campaign, the Republicans refuse now to support it, simply because they passed on the opposition. Which is a little bit counterproductive for any investments strategy. As we at www.doitinvest.com underlined in our previous investing blogs, the bailout tactic of buying all those toxic assets actually distorts the market. The poor investors cannot anymore distinguish between good assets and bad investment opportunities, since, some of them are hidden by the government shareholding. Let’s not talk about the fact that there is no information available on the percentage of those toxic assets from the total company value.
But the good news is that now the stimulus package will be applied more differentiated to the US economy. More than 20% will go in the form of tax cuts, which is a form of encouraging spending and thus relaunching the economic cycle. The effect still remains to be seen…