Total Failure of Bush’s “Bail-Outs” and Obama’s “Stimulus”

By: Submissions

Philip Szlyk writes: The Bush and Obama bail-outs and "stimulus" plans have been a total failure. The evidence? While "official unemployment" hovers around 9.6%, this figure excludes those formerly-employed people who, for now, have given up looking for work. It also excludes the large numbers of the formerly-employed who have opted to retire at age 62, allowing them to receive federal Social Security payments. When these two groups are included in the calculations, true unemployment has been estimated between 18% and  25%. If one further considers the large increases in government hiring (e.g., 700,000 temporary U.S. Census workers; increases in Dept of Homeland Security workers), it becomes clear that the true private-sector unemployment rate easily exceeds 25%.

Why didn't the "stimulus" work? 

1.) When proposed by Obama, stimulus funds were to go to states (and thence cities and towns) for "shovel-ready" projects to quickly hire NEW PRIVATE-SECTOR employees. In fact, the majority of stimulus money went to states and cities to help balance their budgets and prop up grossly underfunded government pension funds - and thereby RETAIN the jobs of current government employees. While Obama may rightly claim that the stimulus money "saved" these jobs, his claim of having created 3 million new private-sector jobs has been proven false.

2.) The Federal Reserve can pump all the credit it wants into U.S. banks, but it cannot force banks to lend that money! And right now U.S. banks have accumulated massive "excess reserves" (i.e., cash/credit reserves exceeding the "fractional reserve" -about 10% of assets- they are required to keep). In short, banks are NOT lending.

When a bank receives an asset (customer's cash deposit), under the "fractional reserves" policy, it must keep 10% of that money on hand, but can loan out the remaining 90%. The people who then borrow that 90% do not keep the loans as cash; instead they deposit it into banks, which can then loan out their 90%. And so it repeats. This "multiplier effect", which some economists have called a legalized "Ponzi scheme" (for the definition, Google search on "Bernie Madoff”), greatly increases the economic effect of money deposited with banks. However, even when customer deposits increase, as they have done recently, if the banks do not lend that money, then the “multiplier effect” is reversed.

3.) Even with some consumer interest rates at historical lows (e.g., mortgage rates, auto loans) and wholesale and retail prices actually dropping, the American people, including those who still have jobs, are still NOT buying. Why? First, many Americans have massive credit card debt, in addition to mortgage debt. With the steep declines in housing prices and the stock market (in which most working Americans have investment, if only through their employers), the net worth of a great many Americans has dropped into negative numbers. Even if you still have a job, potential unemployment is only a day away. What sane person is going to spend in such an economic climate?

Federal Reserve Bernanke has repeatedly "promised" (now THAT is an ironic word when used in Washington, DC circles) that the Fed will NOT "monetize debt" by printing additional dollars, thereby lowering the purchasing value of each dollar, increasing prices and making government debt easier to pay off. Unfortunately, this action may be the only arrow remaining in the Fed's quiver. And what remains in the Fed’s quiver makes most Americans think of the Carter years – and shiver!

Philip Szlyk is a former database administrator and IT specialist for U.S. Veterans Administration Medical Center, Boston, MA - primarily for the National Center for PTSD, Behavioral Science Division (NCPTSD-BSD). His background also includes: Database Specialist at Boston University Medical Center; Database/Network Specialist at the Bedford, MA Veterans Administration Medical Center; Database Specialist at the University of Massachusetts Medical Center; health research Project Director at the New England Research Institutes in Watertown, MA; and Health Research Analyst at Westat in Rockville, MD. He attended Georgetown Medical School in Washington, DC, where he subsequently engaged in basic science and clinical research.

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