Let me start by saying that this is not a partisan post, it is about the economy, about your money, and about your livelihood.

The recently passed “stimulus” package, an $800 billion dollar billd that has been marketed as the ambulance for our economy. But is it?

Some Disturbing Facts

I received an article today from Larry Levin from SecretsOfTraders.com with some disturbing facts about the significance of the economic downturn. In the letter were some astounding figures about the American public:

• Over $697 billion lost in real estate decline
• Over $900 billion lost in the stocks
• Over $650 billion lost in mutual funds

Over 2 TRILLION dollars were lost… In 2008 alone! The American public, from the top of the upper class to the bottom of the working class have taken a beating. Americans either don’t have any money or don’t have the confidence in the economy to spend money on anything but the essentials. That, to me, is the very definition of a recession. Would you agree?

So, to recap, Americans have lost trillions of dollars in the past year, and, they don’t have any extra money in their bank accounts. Most of the middle class and under are scraping by, barely able to afford their mortgage, car payments, and grocery bills. But there’s good news, right? Uncle Sam is coming to your rescue isn’t he?

Absolutely, positively, with out a shred of doubt, the answer is NO! The federal governments money is your money, and we’ve already established that most Americans are barely getting by at this point. The United States of America has a multi-trillion dollar deficit, and, our government has now worn out their goto solution in China. China clearly stated that they are not willing to continue purchasing U.S. T-bills as long as the country’s economy is in crisis.

So, the American public has no money, and the government can’t barrow any more money. Interesting, so how then do you imagine that the government is going to pay for the T.A.R.P., this spending package, and now the proposed $75 billion real estate bailout (which is a joke and I’ll explain why in a minute)? The answer is, they’re going to raise taxes and print more money. Is your blood boiling yet, because it should be! I’m telling you the government has decided that if you’re not going to spend your money that they are going to take it from you. They’ve decided to take the money of those who are responsible, follow a budget, and pay their mortgage on time, and give it to people who are irresponsible, don’t budget, and purchased a home they there is no way they could ever afford

Today, Barrack Obama said that is “we need to take responsibility:” The government needs to take responsibility to create rules and regulations to ensure the banks are lending to responsible people. He completely failed to mention that the government needs to take responsibility for getting us into this mess in the first place.

You see, in 1977 Jimmy Carter signed into law the Community Reinvestment Act, a social engineering project that aimed to eliminate discriminatory lending practices based on lower socioeconomic neighborhoods; a great idea right. Well, unfortunately, in 1993 Bill Clinton asked regulators to reform the CRA, and remove the critical checks and balances built into the system. By doing so, the CRA forced banks to write mortgages for UNQUALIFIED customers!

That’s right! After over 100 years of lending success based on using their own methods of verifying a customers ability to pay, the CRA crippled the banks ability to determine who should, and who shouldn’t receive a loan, and placed that responsibility solely on the federal government

Why The Spending Bill Will Make The Economy Worse

We’ve already established that the federal government doesn’t have any money to spend, and that they make terrible decisions when it comes to managing the economy. Now they’ve spent another 1.6 trillion dollars of money they don’t have. However, all of this information I’ve presented is all anecdotal, and, I really prefer to deal in history and facts.

The Japanese Asset Price Bubble, known as the “lost decade”, bears so many resemblances to our current situation that can not be ignored.

Prices were highest in Tokyo’s Ginza district in 1989, with choice properties fetching over 100 million yen ($1 million US dollars) per square meter ($93,000 per square foot). Prices were only marginally less in other large business districts of Tokyo. By 2004?, prime “A” property in Tokyo’s financial districts had slumped to less than 1 percent of its peak, and Tokyo’s residential homes were less than a tenth of their peak, but still managed to be listed as the most expensive in the world until being surpassed in the late 2000s by Moscow and other upstarts. Tens of trillions of dollars worth were wiped out with the combined collapse of the Tokyo stock and real estate markets. Only in 2007 had property prices begun to rise; however, they began to fall in late 2008 due to the financial crisis.

For 20 years the Japanese real estate and stock markets have floundered, and, unlike Americans, the Japanese citizens all had a great deal of savings; a very scary difference between our situations.

The shocking irony of this situation is that the Japanese government tried to “stimulate” their economy by dumping trillions upon trillions of Japanese Yen back into the market. Japanese government spending rose to 38% of their countries GDP.

Meanwhile, average Japanese annual economic growth fell from 4.1% in the ’80s to just 1% in the ’90s. From ‘92 to ‘99, industrial output grew only 0.7% compared with nearly 40% in the U.S., which spent the decade reducing government spending as a share of GDP (this was the era of a GOP Congress that took its job seriously).

So you see, the government can not help the economy by spending money, and this “Stimulus” package is no different.

What This Means For Traders

The answer is simple, keep your eye on the trend, and trade your plan. Here’s to profitable investing

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