Brighton Perspective

U.S. Competitiveness in Global Markets

I hear many people complaining that the U.S. isn't competitive any more. That we don't make anything. We've lost our leading role in global economics.

This clearly highlights one reason why. The Public Sector is not productive and not wealth creating.

Rational Expectations

An excellent article in Canada's National Post today by Terrence Corcoran regarding the current dispute between economists such as Krugman & Posner, favoring Keynesian economics, and most everyone else, favoring rational expectations.

The jist of the dispute is that Krugman and Posner believe we need a return to classical Keynesian economics with significant government involvement to ensure that market and economic participants who would not otherwise act "rationally" do so. The rational expectations side argues that participants will act rationally on their own with the information they have at that moment. Given that the information is not perfect, decisions will not always be perfect. Importantly, participants cannot be fooled for acting "rationally" as determined by the government.

To me the argument is for more government involvement because "the government knows best what is good for participants" vs less government involvement because market participants "know best" what is good for them. I'm on the side of participants.

Robert J. Barro: Stimulus Spending Doesn't Work - WSJ.com

Robert J. Barro: Stimulus Spending Doesn't Work - WSJ.com.

As someone who is not a fan on increased government spending, I appreciate the empirical analysis in this article. A related article by Nick Gillespie highlights Barro's claims about government spending increasing with GDP. To wit, total government receipts in 1950 were $39.4 billion and in 2008 were $2,524 billion yet we're still running deficits. Government spending expanded to spend the money it collected. This is what worries me - last year's spending becomes the baseline for growth of this year's spending. Thus spending continually increases. I can't confirm it empirically, but wouldn't be surprised if the 9 budget surpluses of the last 60 years were the result of unexpected increases in tax receipts and NOT the result of cuts in government outlays.

Deflation or Inflation?

From the recently released IMF report - "World Economic Outlook - Sustaining the Recovery"

c4.pdf (application/pdf Object).

"Looking ahead, the timing for the withdrawal of the extraordinary amount of monetary and fiscal stimulus that has been implemented in many countries will be important. On the one hand, a premature exit could stifle the recovery. On the other hand, delaying the withdrawal of stimulus could be inflationary."

How thinks the government will get this right?

My expectations is the government will err on the side of delaying a withdrawal, thus I continue to hedge expectations of inflation.

Fiscal Stimulus and Inflation

James Surowiecki has a commentary in the September 14 issue of the New Yorker arguing that some are over-reacting to the prospect of inflation and that we should "wait until the car is actually moving forward before we worry about applying the brakes." The problem with this statement is that Surowiecki ignores the role of expectations in economic theory.

I've noted before that expectations can be more important to economic and financial market performance than actual results. This white paper from the IMF highlights the role of expectations very well. Economic participants will adjust their current behavior to meet their expectations of future results. Many worried about inflation are worried because they expect that government spending, in the form of the fiscal stimulus, will not be curtailed in the near future when "the car" is moving. Consumers and businesses cut back on spending for a variety of reasons - lack of employment, self-preservation, and expectations of future needs for current income such as higher taxes. The current increase in government spending offsets that decline in private spending. Once the car is moving, however, it becomes difficult to "apply the brakes". The paper notes that private spending will increase if expectations are that public spending will fall in the future. That does not appear to be the case in the current environment. Instead, many among the private sector are not expecting public spending to decline. That expectation, in turn, leads to the expectation of inflation. 

Because of the lag in monetary and fiscal policy, "applying the brakes" after the "car is moving" will be too late to prevent inflation. As I see it, economic participants are expecting inflation because they don't expect government spending to fall when private sector spending increases (GDP growth turns positive again). Higher public spending + higher private spending + increased money supply + low interest rates = very high probability of inflation. Hedging inflation expectations makes sense - if I'm wrong, the hedge can be unwound. If I'm right, my portfolio will hold up better than most - especially of those waiting to apply the brakes after the car gets moving.

Housekeeping

I have added a link on the left hand side below my picture for my monthly newsletter- Brighton Bulletin. I write on 3 to 4 topics each month, trying to stay brief, which I believe are of interest to readers. I welcome new subscribers as well as suggestions on relevant topics. Feel free to subscribe!

Real Time Economics - WSJ

Real Time Economics - WSJ.

Personal income and spending exceeded expectations today and this article breaks down why. Of particular interest, almost all of the increase came from a one-time $250 stimulus related payment. That's good, right? But wait, most of it wasn't spent, thus personal savings increased to a 15 year high. Why was it not spent? Because if consumers anticipate having to pay that money back they will save it rather than spend it. Why would they anticipate having to pay it back? Because the government hasn't made it clear yet how it intends to fully pay for that payment. This suggests to me that most consumers expect to have to pay it back via higher taxes. They'll save the money so they can pay the tax later. Kinda makes it self-defeating doesn't it! Which is just what a lot of economists have been saying all along.

Op-Ed Contributor - Our Crisis of Regulation - NYTimes.com

Op-Ed Contributor - Our Crisis of Regulation - NYTimes.com.

Once again, the issue is not the need for more regulation but better enforcement of the existing regulations.

Robert J. Samuelson - Both Corporate, Public Welfare Are Endangered - washingtonpost.com

Robert J. Samuelson - Both Corporate, Public Welfare Are Endangered - washingtonpost.com.

Another well-written piece. Please read!

How to Get The Fed Out Of Its 'Box' - WSJ.com

How to Get The Fed Out Of Its 'Box' - WSJ.com. I've made the same argument for a while now here but Mishkin does an excellent job of clarifying why the stimulus is likely to be problematic.

I think Bernanke has done the best job of all of the government players in either administration but he's got a tough road ahead of him containing inflationary expectations.

Antonio Fatas and Ilian Mihov on the Global Economy: Update on the difficulty of building counterfactuals

Antonio Fatas and Ilian Mihov on the Global Economy: Update on the difficulty of building counterfactuals.

I am not a big fan of government intervention in financial markets and this post highlights one of the reasons why. Everyone makes projections (forecasts) and these forecasts are almost always inaccurate and subject to future revision. Government intervention is sold on the premise that the government forecasts somehow contain more certainty than private market forecasts.

The stimulus was presented as the "only" answer. Without it unemployment would peak at 9.0% or thereabouts, while with it, unemployment would peak at 8%. Both forecasts were wrong. Fiscal policy takes a long time to work itself into the economy and financial markets and a lot can change during that lag period. Things can get worse, as appears to be the case here, or better without any governmental assistance.

I believe the singular role of government in the financial markets is to ensure the integrity of the markets (something it failed to do over the past decade). I still believe that the economy will recover without governmental assistance and that the long-term result of the stimulus will be higher inflation.

About Those 'Speculators' . . . - WSJ.com

About Those 'Speculators' . . . - WSJ.com.

This article clearly highlights the issues surrounding the government "engineering" of the Chrysler bankruptcy packaging. The UAW was "protected" despite being a minority investor (via its pension fund) and senior creditors were burdened with more significant losses. This work-out clearly contravened bankruptcy law and will set a very negative precedent. As noted in the article, the Indiana State Police Pension Fund, Indiana Teachers Pension Fund and a state construction fund all suffered significant losses despite being "senior" debt-holders. The response from the State Treasurer, who has fiduciary responsibility to the plan and to its participants, is to refuse to invest in any secured debt of "manufacturing companies, or those insurance companies who have or will be receiving bailout funds" because "the risk is too great for any prudent investor to accept". When the federal government contravenes the rule of law in the capital markets to favor a constituent the law of unintended consequences does apply. Equality of outcome does not apply to the capital markets. They are, should be and hopefully always will be, zero sum.

Robert J. Samuelson - Obama's Dangerous Debt - washingtonpost.com

Robert J. Samuelson - Obama's Dangerous Debt - washingtonpost.com.

Please read! This article highlights the serious nature of the "stimulus" spending. We cannot afford to mortgage our future to finance a dubious agenda. We need to manage spending through this recession and be prepared to cut spending as the economy recovers from the recession. If we don't, and it appears we won't, we'll be in trouble.

The Big Picture

The Big Picture.

At some point, hopefully really, really soon, someone with authority in our federal government is going to realize that keeping semi-comatose companies on life support is a waste of taxpayer money and a tremendous risk to future taxpayer standard of living. Zombie companies do not contribute meaningfully to society, they just continue to suck the lifeblood out of our economy like so many leeches. Our economy has succeeded for the better part of 200 years by letting poorly run companies fail and their assets left to be recovered by better run competitors. We've propped up too many poorly run banks, most of which will never return to productive capacity, now we're propping up poorly run insurance companies, which as Barry Ritholtz writes in the link above, should never have been in this position. In fact, the fact they are suggests that the management of these companies grossly violated their fiduciary duty to employees, policyholders and shareholders and should be or could be criminally or civilly liable for their actions.

I was asked yesterday why no one (except now Angelo Mozilo) has been indicted for any of the multitude of potentially criminal activities in these various "bailed-out" companies. I said we lacked a Rudy Guiliani (prosecuted Michael Milkin in the 1980s) willing to pursue these individuals even on technicalities. Our governmental leaders have been seduced by the siren call of these companies into presuming our economy just can't take the hit of one of these companies actually failing.

Add to this the blatant hypocrisy of various entities. We have bankrupt newspapers blasting AIG for paying bonuses and then doing the same thing while also freezing pension obligations. We have Chrysler deciding that senior management will be Fiat employees so they don't have to abide by the compensation caps, etc. Someone, somewhere, needs to just say no. Let the markets and bankruptcy law function as they should. We'll all be better off as a result.

The Better Bankruptcy Bureau - Megan McArdle

The Better Bankruptcy Bureau - Megan McArdle.

Well said!

Rules Matter

Morningstar - Cliff Asness

The video link above is an interview with Cliff Asness of AQR Capital Management. He wrote a letter last week critical of the government handling of the Chrysler bankruptcy which has become an internet sensation.

The bottom line is that rules matter - contract law and bankruptcy law, at issue here, ensure a smooth functioning capitalist system. They help make it possible for organizations to re-organize themselves such that they become viable entities and if they can't become viable again to liquidate in an orderly process. This process ensures that those creditors with the highest priority are repaid as much of their claim as possible before moving on to lower priority creditors. All of this matters because it contributes to the flow of capital, promotes innovation and improves quality of life. If lenders cannot price risk because they cannot ascertain their priority, they won't lend. Lack of risk taking by the sources of capital crushes innovation and progress. This article by Richard Epstein further elucidates this point.

Disrupting the rules of the game for political expediency is at best, pandering, at worst, destructive. If we can't trust our government to play by the rules who can we trust. We are not Venezuela or Cuba, but if the government continues to disregard our legal heritage, it won't be long before we join their ranks.

Why is Bankruptcy a Dirty Word Now?

In the six months since Lehman failed, it's become de rigueur to claim that such and such company is "too big" to fail, that bankruptcy is not an option. We really need to put an end to this! Finally, GM is facing up to the fact that they haven't had competent upper management in decades and that the various times they've faced bankruptcy over the past 20 years have been the result of poor decision making. It is not the responsibility of the U.S. government to bailout every management team that fails to perform their duties adequately. What if we actually allowed GM or Chrysler or AIG or Citigroup or Morgan Stanley or Bank of America, etc to fail? What would happen? Would we all still wake up the next morning? My guess is yes, yes, we would. And, after the collective anticipatory shudder, we'll discover that the capital markets have a mechanism for dealing with bankruptcy and that it works well when left to its own means.
Enough with the "too big" to fail argument. Let the poor companies collapse and let the market deal with the remains. We'll survive and prosper as a result.

Dear AIG

Like most everyone, I've read the letter to the editor in the NY Times addressed to Ed Liddy. My take, for what little it's worth, is that the letter is self-serving and sanctimonious. It's an attempt by the writer to portray himself as a martyr. First, what's the point of releasing the letter to the NY Times but to call attention to yourself. However, I think he reveals his true motivations several times - "during which A.I.G. reassured us many times we would be rewarded in March 2009", "nor am I being paid to do so", "we have worked 12 months under these contracts and now deserve to be paid", "Many employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.'s assurances that the contracts would be honored". Truth be told, the writer and is associates were not motivated by a desire to rectify the mistakes others in his unit, A.I.G.-F.P, made, but to get big paydays in 2009. Further, he notes that "some might argue that the members of my profession have been overpaid, and I wouldn't disagree", then goes on to say "that is whay I have decided to donate 100% of the effective after-tax proceeds of my retention payment". This isn't an altruistic decision, this is mud-in-your-eye. The writer is essentially saying, in my opinion, 'I can't have it, damned if I'm giving it back to the government. and what a pity it'll be if what gets donated is just pennies after the big tax'.

I don't have any issues with pay for performance and don't care how much the comp is if its earned - check the competing story today on hedge fund payouts in 08 for the best performers. But when you are a member of a group and a company that damn near imploded the global economy, you don't deserve a dime no matter how well you did individually. The sentiments expressed in the letter effectively dismiss the poor performance of the rest of the group as "not my problem". AIG was notorious for an aggressive, me-first mentality and I think that's clearly on display in this letter.

I appreciate he feels maligned by the publicity and vote seeking AGs of CT and NY and sold out by his own CEO (who was brought in to clean up the mess and thus really owes no duty of loyalty to the old guard at A.I.G.) and he and his peers have been unfairly persecuted by politicians seeking to improve their popularity ratings and garner future votes. I'm sure it really bites to give back $750,000 but my guess is he's done well enough that it won't cause him to move into a cardboard box any time soon. His outrage almost matches that of Congress. Both are more than a bit hypocritical.

In fact, as I've said in other posts, it's time to let AIG fail. It's been staggering like a cartoon boxer for a year. Vultures have had plenty of time to size up which pieces they want and are just waiting for the carcas to drop. They have no incentive to overpay and A.I.G., as long as the government stands behind it, has no incentive to drop its prices. I am not as informed as the Fed Chairman or the Secretary of the Treasury but I wouldn't be surprised if the market absorbed AIG rather effortlessly if it were allowed to fail now.  It's time to move on.

Thoughts on Market Performance

The market response to the new Treasury plan yesterday was interesting. The majority of the talking heads, even Krugman, settled against it while market participants appeared to applaud it. Who's right? The cop-out answer is time will tell. From what I could gather, it has positives and negatives and whether it works or not will be dependent on which trumps the other.

I do like the intent to allow experienced managers to run the 5 PPIPs. Yes, this introduces the fox into the hen house, but frankly, that's what's needed at this point. While the Fed continues is quantitative easing strategy, which appears to be helpful, we need a better effort from Treasury. Allowing pros to determine what assets to auction and what the valuation would be is a credible approach. Obviously, in light of the AIG bonus debacle, the pro's will rightly expect Treasury to allow them to make money on the deal and to stay out of their compensation strategies. Let's not forget we're in a capitalistic Democracy still.

The downside to this approach is that there's little motivation for banks to bring their assets to the table. Keep in mind, this group wants mark-to-market eliminated because they claim they can't properly value these assets. If they bring the assets to this market and the PPIPs value the assets, now they have a fair market value at which they can reasonably be expected to mark-to-market. The problem arises when these assets are valued BELOW the bank's current assessment of the assets. Such as scenario would result in the banks marking down these assets which could create solvency issues. Hence, those banks that know their current valuations are too high will have to be dragged to the table as they won't go willingly.

As I mentioned Sunday, I think the best action so far has been taken by the Fed. I believe we need to continue to let the Fed pursue its course of action and bolster it with better action by the Treasury. This plan is superior to the "Stimulus" bill in innumerable ways. Consider the following chart,

Source: John Hussman

Clearly, there is a causal link between government spending and inflation. The stimulus bill will lead to inflation. Unless we're in a period of severe deflation when it kicks in, it won't be pretty. The Fed actions, which have many people worried as well, can be reined in more effectively and more quickly when the economy recovers. As it does, the Fed can gradually sell off its balance sheet and retire the cash it receives. Japan did this effectively and I have no reason to believe our Fed can't do so either.

Finally, the rally of the past several weeks is welcome relief. It appears we haven't had such a rally since the end of September 2001. The challenge is determining if this is truly the beginning of a market recovery or simply another step. We still have, at best, mixed economic signals. We have much good news but still appear to lack confirmation. For example, Citi, JP Morgan, BofA and Wells have all suggested 1Q09 is looking good, however, commentators such as Meredith Whitney have noted, they haven't marked-to-market yet and won't do so until 3/31. These commentators believe that that event will be decidely negative and will result in a negative surprise for market participants as these banks announce earnings in April/May. Additionally, we haven't seen a consistent pattern of good consumer related news to demonstrate that consumers are fully confident in their near futures. Continue to be cautious, continue to consider dollar-cost-averaging into equities and continue to research alternatives such as commodities and TIPS. The skies may appear to be clearing but remember the weather looks great in the eye of a hurricane while the front and back ends ain't so pretty.

Lending and Spending

An interesting post from Ilian Mihov today - "Will there be Hyperinflation?". The emphasis of their article is another topic but I think one of their charts supports Barry Ritholtz's commentary - "Humpty Dumpty". Look at the following chart:

Source: Antonio Fatas and Ilian Mihov on the Global Economy (http://fatasmihov.blogspot.com)

Essentially, Bernanke (on 60 Minutes last night) argued that the path to economic recovery begins with "fixing" the financial sector. However, as this chart shows, banks have lots of cash. They just won't lend it. They won't lend because they're concerned about their exposure to counterparty risk. That is, the potential that the borrower will default. Bottom line, as Ritholtz states, that borrowers are the issue rather than banks. I once heard someone describe a doctor's responsibility as treating the illness, not the symptoms. Focusing on "fixing" banks doesn't treat the illness - focusing on "fixing" borrowers could.

Government Spending

Geithner and Summer's demands that the world start spending are falling on deaf ears. Why? IMHO, the primary reason is because when government spending increases to replace consumer spending, consumers who, at least in the U.S., comprise 2/3rds of GDP, recognize the penalty that will be paid in the future. Government spending must be financed at some point via higher taxes or issuance of more currency. Neither is beneficial. Higher taxes reduce disposable income for consumers and increased money supply can be expected to lead to inflation. Consumers, smarter than most government officials believe, save their current after-tax dollars knowing they'll need these dollars later to either pay taxes or to pay more for common goods. Europe and most developing countries have enough problems without adding in higher taxation or higher inflation caused by U.S. demands to help us out.

Monetary Authority

Fed Chairman Ben Bernanke called for establishment of a "super" agency to "regulate the financial system as a whole". For several years I managed my investment group's relationship with the Monetary Authority of Singapore. This organization is, I believe, exactly the type of regulatory authority Bernanke has in mind. MAS has overarching responsibility for monetary policy and financial services supervision for the country. Anecdotally, MAS has done a superior job of managing its responsibilities and has contributed to Singapore maintaining its position as a premier financial center in Asia. This brochure , published in 1999, discusses MAS' responsibilities and, interestingly, highlights why the financial sector is so important to an economy.

It makes sense to combine the various regulatory authorities we have today into one group provided communication channels are established properly and utilized. For example, the Madoff debacle can be traced to two agencies - SEC and FINRA - which failed to communicate effectively with each other. Further, neither, publicly, believes it was its responsibility to oversee Madoff. An overarching regulatory authority responsible for ALL financial services could have prevented a Madoff from existing as long as the scam did. I think there' enough evidence to suggest the regulatory answer is not more supervision but better supervision. A singular organization, like MAS, could better coordinate activities and provide better supervision. Combine FINRA, OCC, SEC, and the FED (note that MAS doesn't issue currency), keep it independent of governmental (read Executive and Legislative) meddling and go from there.

Spending vs. Savings

Another excellent post from Antonio Fatas and Ilian Mihov on the Global Economy. They note that household consumption in the U.S. grew significantly from 1970 to 2006. Much faster than it should for a developed economy. Nothing new here but they do discuss some of the reasons why. The reasons, taken together, are consistent with Behavioral Finance theories on extrapolation. Everyone assumed the good times would continue - incomes would keep going up, housing prices would keep going up, etc. Now, expect everyone to assume the bad times will continue in perpetuity. This will lead to household saving increasing. That's not good but it isn't likely to change in the near future - if households assume incomes will fall (lost jobs) and/or taxes will increase and/or prices will increase (inflation), they will save to ensure they can pay these essentials. Demanding people spend, Mr. Summers, won't get people to spend when they are acutely aware of the potential bills coming due in the near future and are worried they won't have the cash to pay.

Fama & French

Eugene Fama and Ken French have posted a series of interesting Q&A's on their blog Fama/French Forum. Very good read. 

Markets look forward

Brief post for now - market participants are forward looking. Common equity holders have a claim on the future after-tax net earnings of the corporation which has issued the shares. Knowing this, common equity holders are acutely aware of any higher claims to a company's earnings and make adjustments accordingly. Higher future taxes and lower growth lead to lower after-tax earnings for common equity holders. This isn't rocket science! As such, common equity holders reduce the valuation of the common equity commensurate with their expectations of lower future claims. They may over-react and under-price these shares, in fact, they will, but the basic fact still remains. Higher taxes and lower growth contribute DIRECTLY to lower stock prices. You can draw your own conclusions from here.

Zombies!!!

Jim Baker wrote an essay yesterday reminding readers of the "Zombie" banks of Japan during the 1990's. Japan suffered a financial crisis in late 90-91 following their own real estate bubble. Zombie banks are defined as financial institutions whose liabilities outweigh their assets such that their net worth is less than zero. They continue to exist because, as in Japan, the government props them up. U.S. advice to Japan during this period was to let these banks fail and be absorbed by stronger banks. We need to take our own advice and let institutions like AIG fail and be absorbed. AIG has been staggering for nearly a year now, more than enough time, for competitors to determine what they may want to acquire of the company. However, they have no incentive to acquire anything as long as the government continues to prop AIG up. This enables AIG to demand sales prices that are unacceptable to potential buyers - hence, no one's buying. If AIG files for bankruptcy, companies can negotiate more favorable terms. This is Darwinistic - survival of the fittest, but it's the way Capitalism works. The government has a role in capital markets, creating Zombies is not one of them.

Are We or Aren't We?

Lot's of discussion today as to whether we're in a Depression or not, as to whether we're at a market bottom or not, etc. I continue to believe the fundamental issue is clarity. Government involvement in "bailout" and "stimulus" packages with undefined back-end commmitments and changing parameters for involvement have created a climate for investors in which chaos appears to rule. Markets may appear choatic but in fact are highly efficient mechanisms which thrive on information. When information is lacking, investors hedge risk. Hedging risk generally involves selling short, either individual positions or index derivatives to reduce long market exposure. So, for me, the issue isn't are we or aren't we, it's when are we going to get clear and defined information from government? We can't set firm expectations for the future from which we can take long positions without information we believe to be highly assessable.

Markets Need Clarity

There's an axiom that "you don't throw good money after bad". I get the feeling that is what the government is doing in the new Citi deal. And that's after, or if, Citi is able to convince additional private preferred holders to convert to common! I think it'll be interesting to see how many are willing to do so and on what terms. Moving down in the capital structure commands a premium - if I'm going to assume more risk I need to get paid for it.

I prefer this approach. There's been much discussion about "good bank/bad bank" strategies. Woodward & Hall's make sense, isn't complicated, and free's up lendable capital.

This is good news!

Ben Bernanke - the Fed Chairman commented today that the government has no plans to "nationalize" banks or other financial services. This is good news. I've posted before about the moral hazard involved with partially nationalizing an industry. As the article notes, he leaves open room for the government to get involved in a different capacity. This isn't necessarily a bad thing. I've heard several options considered:

1) Voucher program - essentially financial services firms are provided capital in tranches and receive the new tranche only after demonstrating that pre-conditions have been met. This would force management to take designated actions to continue to draw down funds. It's an improvement over the TARP approach which essentially skipped attaching strings.

2) Government as co-investor - this could take several roles - debtor-in-possession financing for bankrupt companies unable to secure financing elsewhere, for example. This is the pronounced fear of the auto industry - no one will lend to them in bankruptcy. The government can provide the DIP financing with stringent criteria attached.

My thought is that the government should engage an experience distressed debt manager as a lead manager and function, effectively as a distressed debt fund. I know, fox in the hen house, but this could lead to better terms for taxpayers and tighter controls on management. Essentially, we, as taxpayers, become investors in the fund and the fund manager is/should be functioning in our best interests. Taxpayers win, companies get work-outs, management takes a beating. But that would happen in a private work-out, so that's nothing new. I don't have the access to detail that Bernanke and Geithner, et al, have but I think its an interesting approach to a complex dilemma.  

So what do you think of the stimulus bill?

One of the most frequent questions I've received in the last week or so. Like most of Congress, I haven't had an opportunity to fully review the 1,000+ pages but I've read as much as possible. My academic training causes me to lean toward less government intervention and toward monetary theory. That is, I'm not a big fan of government - really, if you believe the best and brightest in the financial markets are the reason for the recession and economic/liquidity crises, why do you believe the government, the government, which does not contain the best and brightest and is not motivated by altruism, is the solution! In this case, something like less than 15% of the $800 billion will be injected into the economy in the next 18 months. Meanwhile, the economy will recover on its own as the natural sine curve takes it's course.

So if the economy recovers on its own, before most of the $800 billion is poured in, what happens? Economic growth combined with an increasing money supply leads to.....inflation! My fear is this stimulus package will in fact stimulate only inflation in our near future. That's not what anyone wants, of course, but that is a highly probable outcome. So, bottom line, I'm not so hot on the stimulus bill. I don't expect it to accomplish its intended purpose and do expect it'll fully comply with the law of unintended consequences.