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A Second Stimulus Package?

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Government money may keep raining on markets.

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The votes have barely been tallied from Tuesday's election, and politicians are already rushing to heave more money into American's sinking economic ship.

California Democrat and Speaker of the House Nancy Pelosi is urging lawmakers to push through a second stimulus package in short order. Arguing economic conditions have deteriorated such that waiting until President-Elect Obama takes office in January would be unwise, Pelosi floated a $60 to $100 billion relief package to be passed by the end of the month.

According to the Wall Street Journal, the Speaker believes tax cuts implemented by adjusting tax-withholding tables, rather than more rebates or reductions in capital-gains taxes, would immediately inject cash into the economy.

The proposal comes in conjunction with the convening of Obama's 17-member economic advisory board, which includes such notables as Berkshire Hathaway (BRK-A) CEO Warren Buffett, Google (GOOG) CEO Eric Schmidt, former Treasury Secretary Robert Rubin, former Federal Reserve Chairman Paul Volker and others.

Pelosi is also busying herself with the troubled automakers, meeting with representatives from Ford (F), General Motors (GM) and Chrysler, LLC over their request for federal money to stay afloat. With Ford and GM burning through over $2 billion in cash every month, Pelosi has her work cut out for her to "ensure the viability of [the] industry" while "looking out for taxpayers."

President Bush's 2-month stint as a lame duck couldn't come at a more trying time for the economy, or for Americans as a whole. Stock markets have plunged, lending has all but dried up, and the financial crisis continues to come in waves.

We have now passed the point where arguing for rational, market-based solutions to our economic woes is given any credence by lawmakers. Instead, government is viewed as the only viable solution, and arguments now focus on how, not whether, politicians should step in to control the economy.

As the sage Mr. Practical wrote this week, on the nature of government intervention:

It does much more harm than good, because it operates from imperfect information and non-economic motivation. They try to "fix" one thing, and another breaks.

Eventually the government by nationalizing/socializing markets will plug all the leaks by throwing enough "money" at things. But logic tells us this has major consequences: It will significantly lower productivity and profits.


Politicians are rushing to save the system, jamming through opaque rescue plans the relief-recipients themselves don't even understand. Even if one assumes for a moment our elected officials do in fact mean well, their attempts to deftly put out economic fires mirrors that of a skilled arsonist, loping from home to home with a jug of gasoline, pockets bulging with matches.
No positions in stocks mentioned.

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