I cannot understand what the government is thinking when they address bailouts. Firstly, a capitalistic system rewards those who read the market correctly and plan accordingly. The reward is income. Secondly, capitalistic systems reward those who do not read the market correctly. It is called bankruptcy. If I, a small business owner, read the market wrong, the government doesn’t bale me out; the courts force me into bankruptcy.
Big businesses are now looking at this quarter and demand a profit. Last quarter and next quarter are not even on the radar. This short sightedness is one of the reasons for the problems we face. The other reason is Exxon and the other oil companies not satisfied with record profits. The want to push the economy to the limits to see how much the public will stand. Well, they found out how much they could push the price of gas up until we finally stop driving. Unfortunately, in testing the market, they shut down then entire US economy and then shut down the world economies. I hope they are happy now with their 13B and 15B record profits for the 2nd and 3rd quarters of 2008. Not only will they pay for that idiotic trick now but for several months or possibly years to come.
Now that we are here, let’s solve the problem. The current economy is spiraling down with only a theoretical bottom in sight. One sure way to keep this downward trend is to bail out companies large or small. Giving way money just perpetuates the current trend. It is a stop gap destine to keep the status quo. Take unemployment insurance. The government gives this to keep people afloat not improve their situation. The bailout is the same concept when applied to businesses. It keeps things afloat. What is really needed and required is to get the economy going again. What makes the economy go? The movement of goods, inventory, and services. What puts people to work? The movement of inventory. It takes people to move inventory whether sales people to sell or manufacturing staff to build goods. Giving money to bail out only perpetuates the situation and insures that the inventory will not be created, inventory will not be shipped to stores, inventory will just stay put in the warehouses. What a waste of time and effort.
If you want the economy to start moving, you must move inventory. So how do you do that? Not with a bailout package! You move inventory by giving the people who use the inventory a reason to buy.
The problem has an IS and IS NOT. The problem IS NOT that businesses don’t have enough money to run. The problem is their inventory is not moving. If inventory moved, that increases the cash position of the business. It would also maintain or create jobs thus reducing unemployment and increase payroll taxes, sales taxes, real estate taxes, and corporate tax income for both the local and federal government. Now, unemployed people can not buy food and gas let alone pay taxes. Giving them a lousy $500 bucks is like pissing in the wind.
People are now afraid to buy. If they did buy what they normally would buy, we would not have a problem. The answer that everyone is looking for is to provide a mechanism where people who are sitting on the fence and not buying the goods and services the actually need, to get off the fence and start purchasing. There are enough people who need new cars, new toaster ovens, new microwaves, new HDTV’s, etc. If we provide a mechanism for them to start purchasing, that would turn the economy around and without the useless bailouts. Business has a tax credit mechanism where they write off all or a portion of an equipment or capital expenditure in 12 months. Let’s apply the same principle to individuals for the month of December 2008. When that gets the month of December going, we can think about extending it to January 2009, and if need be February, March, until we are satisfied the economy has turned around.
So how do we allocate these tax credits and where do we apply them? The answer is not giving a fixed amount across the board like those useless $500 rebates. Apply them to the specific industries where it is really needed. We can put a dollar amount on the tax credits for housing. Let’s say we allocate a $40,000 tax credit applied to new housing purchases and $20,000 for remodeling. For new automobiles, we can have a $15,000 tax credit and auto repairs a tax credit of $1,500. Travel in the US would get a $4,000 tax credit thus spurring the hospitality industry in the US. Yachts would get a $30,000 tax credit. Purchasing appliances would get up to a $2,500 tax credit. Each industry would get an amount suitable to knock someone who actually needed that product or service off the fence and buy. No tax credits would apply to anything overseas. The object is to knock the people who actually need to purchase but are not purchasing, knock them off the fence. Give them a reason to purchase. Give the tax credit for December and spike 2008. You can easily do the same for January 2009 if required.
