Real Thought

Well, let’s see, first there were a bunch of banks who made mortgage loans to people who could not pay them for houses which were ridiculously overpriced.  Then, rather than let these banks either foreclose on these people, who were a bad risk to begin with, or go under as a result of their foolish decisions,  the government stepped in with a HUGE $2.8 billion dollar bail out of said banks.  As this was occurring, the Federal Reserve Bank was, in an effort to “stimulate the economy”, was lowering interest rates to 2.25% thus making investment in the United States less appealing to foreign investors.  Finally, many people are beginning to wake up and realize that many companies in the United States are simple worth less than their “stated value”.  What do I mean by this?  Simple, very little manufacturing is conducted here in the United States.  With the exception of a few companies most products which American buy, even with an “American” label, are made elsewhere.  The computer which I am composing this missive upon is from an American company (Dell) yet many of its components are manufactured and assembled elsewhere, primarily Malaysia.  As a result, Dell has no real assets in terms of manufacturing machinery, stockpiles of raw materials or even assembly plants in the United States.  As a result, the company’s real value is much less than its stated value.

How does all of this effect the economy?  Simple, people invest when the potential for gain outweighs the risk of loss.  Since interest rates are very low and most US companies are seen as the sales ventures they are, right now the risk of profit is low and the risk of loss is high.  The public has been taught a lesson with the collapse of the housing boom and are reluctant to take risks.  The government’s multi-billion dollar infusion has only forestalled the inevitable.  The simple fact is that if the economy is going to recover some banks are going to have to go bust and some people who probably shouldn’t have purchased homes will have to lose them.  Furthermore, the Fed needs to stabilize interest rates and tighten the money supply so that the dollar will regain some value.  Finally, a $600 per person “economic stimulus” tax rebate won’t do much.  All it does is show that we Americans are being overtaxed to the tune of $600 per person for the services we receive from the government.