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Stimulus: Smarter Spending


More debt isn't the way out of recession.

Let's suppose I own a house worth $1 million, and have an $800,000 mortgage. There's a brand new Lexus in my garage. It's leased to own. I also have about $100,000 in credit card bills. I've borrowed money from my Dad, my cousin, my brother and all my best friends. I'm underemployed, and my vocational skill set needs upgrading.

You express concern about my future; I reply: "It's okay - I have a plan."

"What's that?" you ask, thinking perhaps I'm going to take some vocational training, return my car, or reduce my expenses.

"I'm going to renovate my house!" I tell you proudly.

You might think I was kidding.

But that's the gist of Obama's "economic stimulus package." And Wall Street is buying it. The Dow has gained 1400 points in the last 6 weeks, and financial pundits are beginning to whisper about the impending "recovery." But a chronically sick patient is unlikely to recover without an accurate diagnosis - let alone an effective treatment.

The diagnosis: Debt sank the US economy. Banks lent money to people who couldn't afford to pay it back. Consumers racked up enormous balances on their credit cards and treated their houses like ATM machines.

Let's put aside the hundreds of billions of dollars in bailouts that rewarded corporate incompetence and enabled dying businesses to stagger on. History may regard this orgy of bailouts as the moment when America lost its nerve and its soul.

But Obama's proposed treatment is also inadequate. Infrastructure spending and tax cuts aren't the right medicine for our chronic illness.

America's religion isn't Christianity. It's consumerism. That is our religion. More than two-thirds of US economic activity comes from domestic spending. To stimulate economic growth, you need to buy stuff made by your countrymen. When Americans shop, they buy foreign-made goods. Over 1 million US manufacturing jobs have disappeared in the last decade.

The stock market is built on this empty religion. When consumers shop, stocks go up. When consumers save, stocks go down. The Dow pulled back 81 points yesterday on the news that the December sales figures for Toyota (TM) were 37% lower than they were the year before.

Let's pretend for a moment that you don't own Toyota stock -- or any stocks, for that matter -- you're just a patriotic bystander who cares about this country. Wouldn't you take that to be good news? You'd think, "Great - people are finally getting it. We're in trouble, and we need to change our behaviour."

Whether you call it a "downturn," a "recession," a "crisis," or a "depression," one thing is certain: We can't spend our way out of it.

Repeat after me: America is broke. There's no one else to borrow from. The Chinese already own $1.4 trillion in US Treasury Bonds. George Bush's administration has added $40,000 to the debt load of every single American taxpayer.

Does this mean America is doomed? Of course not. It has far too many smart people. It's too resilient. Collapse just isn't in this country's DNA. But the recovery will begin when we trade in our optimism for pragmatism. And I have a feeling that process is beginning.
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