President Obama intends to spur hiring and attack unemployment by decreasing payroll taxes by half on the first 5 million dollars of payroll tax, eliminating the payroll tax for employers who will hire new employees or increase the pay of existing employees, and offering incentives of $5,600 for hiring a veteran who has been out of work for more than 6 months or $9,600 for hiring a veteran with a service-related disability. Essentially the President's thinking is that businesses are not hiring because their finances will not allow them to hire another employee. This is not true. Many American corporations are sitting on record levels of savings. Earnings reports are up for companies on Wall Street. If companies have more money why are they not hiring? The answer is that companies are not charities. Companies do not hire people they do not need. Companies hire people when they need more workers to fill the demand created by consumers. The problem with hiring is that consumer confidence and spending levels are low. People are not going out and spending money because they either don't have it or they are pessimistic about the future of the economy and don't want to spend themselves into a hole. With characteristic understatement Federal Reserve Board Chairman Ben Bernanke noted in his testimony before Congress on Tuesday (October 4th) that, "Consumer behavior has both reflected and contributed to the slow pace of the recovery." One would think with that statement that Chairman Bernanke was unaware that not only has the "recovery" stalled but we are in danger of a Bear Market (ie a double dip recession).
So, why the pessimism? Consumers have a lot to be concerned about. There is a very real possibility of a new wave of home foreclosures. And why wouldn't there be? Financial institutions are facing the very real possibility of default by Greece on government held bonds. There is little understanding of what a Greek default will do. Some say that Argentina was able to default on their debt in 2001 and restructure their currency and still achieve growth afterwards. The problem in Greece though is compounded by the fact that Spain, Portugal, Ireland, and most importantly Italy all potentially could default as well. This could essentially wipe lending institutions off the map in those countries. Without lending institutions to finance business operations and personal ventures these economies could face a lost decade much like Japan did in the 90's. This crisis would most likely not remain localized in the European Union.
So what do we need to do to get out of our economic quandary? Well, to start we need to shore up financial institutions. There is a serious crisis in the American lending industry. There are still over 6 million homes in America with delinquent mortgages. We also need to make the financial viability of our own government sure. Economics are based on perceptions and right now a contributing factor to American economic woes is the lack of confidence in the American economic system. People are worried about our debt levels. Congress needs to take a serious look at how to get military spending down and reform social programs such as Medicare, Medicaid and Social Security. It is unsustainable to be involved in trillion dollar wars. We should pull out of Iraq and Afghanistan. We hate accepting hopeless situations in America. America is the land of opportunity; the land of hope. But, we need to pay for our wars. Americans are literally not invested in the current wars. With previous wars there were increases in tax levels commensurate with the increases in spending for wars. It is also unsustainable to have social program spending increase faster than GDP when we are already spending more than we are bringing in in taxes. We must modify the Social Security system so it can be a legitimate resource for those who need to supplement their income later in life. Social Security was intended to be a lifeline for those without the means to pay for themselves in their old age. It was not meant to be a program for those with sufficient retirement means. Social Security should implement a form of means testing in order to limit payment to those who take advantage of the system when they do not need it. Also, we should increase the limits on taxable income. If we spend the time to make sure our fiscal future is sound we can then authorize a one time expenditure to sure up our lending institutions. Yes. A bailout. The difference this time is it is a bailout that would not cause America to need it's own bailout.
So, why the pessimism? Consumers have a lot to be concerned about. There is a very real possibility of a new wave of home foreclosures. And why wouldn't there be? Financial institutions are facing the very real possibility of default by Greece on government held bonds. There is little understanding of what a Greek default will do. Some say that Argentina was able to default on their debt in 2001 and restructure their currency and still achieve growth afterwards. The problem in Greece though is compounded by the fact that Spain, Portugal, Ireland, and most importantly Italy all potentially could default as well. This could essentially wipe lending institutions off the map in those countries. Without lending institutions to finance business operations and personal ventures these economies could face a lost decade much like Japan did in the 90's. This crisis would most likely not remain localized in the European Union.
So what do we need to do to get out of our economic quandary? Well, to start we need to shore up financial institutions. There is a serious crisis in the American lending industry. There are still over 6 million homes in America with delinquent mortgages. We also need to make the financial viability of our own government sure. Economics are based on perceptions and right now a contributing factor to American economic woes is the lack of confidence in the American economic system. People are worried about our debt levels. Congress needs to take a serious look at how to get military spending down and reform social programs such as Medicare, Medicaid and Social Security. It is unsustainable to be involved in trillion dollar wars. We should pull out of Iraq and Afghanistan. We hate accepting hopeless situations in America. America is the land of opportunity; the land of hope. But, we need to pay for our wars. Americans are literally not invested in the current wars. With previous wars there were increases in tax levels commensurate with the increases in spending for wars. It is also unsustainable to have social program spending increase faster than GDP when we are already spending more than we are bringing in in taxes. We must modify the Social Security system so it can be a legitimate resource for those who need to supplement their income later in life. Social Security was intended to be a lifeline for those without the means to pay for themselves in their old age. It was not meant to be a program for those with sufficient retirement means. Social Security should implement a form of means testing in order to limit payment to those who take advantage of the system when they do not need it. Also, we should increase the limits on taxable income. If we spend the time to make sure our fiscal future is sound we can then authorize a one time expenditure to sure up our lending institutions. Yes. A bailout. The difference this time is it is a bailout that would not cause America to need it's own bailout.
