A billion here…..a billion there…..what’s just a few bucks in a bad economy? By Christina Mae Olson, CFP®
- TARP – (Troubled Asset Relief Program) - $750,000,000,000 for banks and brokerages
- ARRA – (American Recovery and Reinvestment Act) - $787,200,000,000 for stimulus and jobs
- Auto Industry Bailout - $55,000,000,000 and growing – to keep them in business
- Bank Rescue Plan - $100,000,000,000 and growing – more for the banks
- AIG bailout - $150,000,000,000 and growing – the largest insurance company in the world
- TALF (Term Asset Backed Securities Loan Funding) - $200,000,000,000 – more for the banks
I’m just saying – that is a lot of money. I mean wow, a lot of money! And, the programs listed above represent just a portion of the federal government’s attempts to throw money at our troubled economy. President Obama is about to unveil his trillion dollar plan for health care reform. As of today (2/26/09) – the outstanding federal debt is $10,850,000,000,000 (that’s $10.85 trillion for those of you who are “zero’s impaired.”) We are adding $1.75 trillion to the federal debt in 2009 alone. Things are really bad…so let’s keep spending and going deeper into debt???
I cringe when I hear our respected and bold government leaders (I voted for them) announce so vehemently that “credit is what moves this country.” They think that fixing the credit industry will fix our economy. When banks feel like they can trust borrowers again – they will lend money. What does that mean, “trust borrowers?” What about us trusting the banks? When banks are lending – we are spending and so goes a healthy economy. Can’t a healthy economy include a little restraint? As a rather conservative and prudent financial planner – I must say that credit is what hurts us the most. We get into more trouble when we borrow money. We usually borrow money when we want something we can’t afford. The government says we must spend all this money even though we really can’t afford it. Why? Do we really need 7500 banks when 3500 will do?
Skip to the last paragraph if you are getting glassy eyed over all of these details:
The “stimulus” package (American Recovery and Reinvestment Act or ARRA) that finally passed in Congress is about to work its way into the hands of the American public. Sort of. Here are some resources and basic facts that I’ve been able to glean. First, President Obama has created a website that is supposed to track the money ($787.2 billion +/-). http://www.recovery.gov will eventually provide specific details on where the ARRA money is going and if it is being spent as intended. This website is not very detailed. For example, you can see that $90 billion is going directly to states but you can’t tell how much is coming to Wisconsin. Senator Feingold has set up a website that is a little more detailed: http://feingold.senate.gov/recovery. He says Wisconsin will add 70,000 jobs as a result of the ARRA. Wisconsin’s website: http://www.recovery.wisconsin.gov says we are getting $3.7 billion. Governor Doyle wants to use $2.1 billion of the ARRA funds to balance our budget (and not on economic stimulus – although balancing the budget will keep lots people employed). $700,000 will come to our area for Hwy 16 repairs. Another federal web resource is: http://www.cbo.gov. This is the official website of the Congressional Budget Office. There are links from this site that lead to more details about the ARRA and all the other federal spending plans.
The ARRA will not be as immediate as we’ve been led to believe. The entire amount will not be distributed until 2019 – a full 10 years from our current and emergent economic crisis. In fact, appropriations totaling just $185 billion are expected for the remainder of 2009. Actually, the “appropriations” don’t exactly amount to a grand total of $787.2 billion. This number represents the NET DIFFERENCE between expenses and revenues. Revenues? If you dig deep enough you can see phrases like “net effect” and “net impact” which implies that some money is also coming back to the government as a part of this plan. The ARRA will increase the federal deficit by $787.2 billion (they’ll be spending much more). The majority of this money will be in the form of grants and give-aways. Some of the stimulus money, however, will be in the form of loans. These loans will generate interest income when they are repaid (we hope). Some of the “revenues” will be in the form of payroll and income tax generated when people go back to work as a result of the ARRA. Certainly, we have to offset the cost of this stimulus spending with the monetary advantages it creates. New jobs means more than additional tax revenue. It’ll mean buying cars and dishwashers and solar panels. Working people build and install these things. This and other spending/borrowing is supposed to uplift our economy. The CBO estimates that a whopping $211.8 billion in “revenue” will be generated by the ARRA. If this doesn’t happen then this “stimulus package” could end up costing us $1 trillion (that’s $1,000,000,000,000). That seems like a gamble, doesn’t it? Spend $1 and hope for a return of 21 cents
What can we do as individuals? Be prudent. Save a little more than you usually do. Don’t stop spending – just spend wisely. You may be faced with loosing your job and you want to be ready if that happens. Watch and see if the federal programs I’ve addressed in this column provide the relief we need. Hunker down and wait it out. Things will get better. I’m not sure how or when but I do believe they will get better.
Chris Olson is a licensed financial planner with a fee-only practice. You can reach her at 608-525-9818 or CMOney@centurytel.net.
If you have comments on this article, please send them to Chris at the email address above, NOT to the LGBT Newsletter.