The Federal Reserve verified today what many citizens already know.  The United States economy is getting worse.  The Federal Reserve predicts that the US economy will see slower growth, higher unemployment, and higher inflation for 2008.  If you would like to read the Fed’s minutes, please click here.

In the Fed’s report, they noted that the continued deterioration of the housing market was partially to blame.  And in Cleveland, the housing problems just keep getting worse.  A recent story on MSNBC noted that many of the Homeless were breaking into foreclosed homes and living in them.

There is talk that President Bush’s second economic stimulus package will rescue our economy.  In previous posts I strongly disagreed with such beliefs.  Below I will expand on why the tax stimulus package will not help our economy in the long term.

First, our economy is falling apart because of unfair trade agreements.  Our country entered into these agreements without requiring provisions that our trade partners have similar worker rights and benefits.  Also, these trade agreements ignore the environmental cost of doing business in the United States.  Basically what we ”consume” now is mass imported goods from China, some of which are tainted with lead, metal fragments, and compounds found in date rape drugs.  Do Chinese employers pay into a national Social Security system at a rate comparable to the US?  Do Chinese employers provide health insurance, workers compensation, unemployment, and retirement benefits?  The answer is no.  From the day these trade agreements were signed, the United States of America agreed to lower its living standards for American citizens.  As it stands now, the American worker can not compete with foreign trade partners that provide little or no benefits to their workers.  Some believe that this will result in the deterioration of American worker rights and benefits, and it certainly could.

Americans do not save money, and this tax stimulus plan encourages the same.  The message with this tax rebate is to spend.  That’s part of the problem that got our economy in the position it is today.  People do not save much, and when something major happens they default on home loans, car loans, etc.  Our Government needs to encourage saving, not spending.

If people do spend this tax rebate, who will benefit from it?  I touched on this in a previous post, but let me recap.  Many US retailers will benefit from the taxpayers spending their rebates at their stores.  Unfortunately, the workers at these stores are typically low wage earners.  The true benefactors of Bush’s tax stimulus plan will be those manufacturing the goods we buy.  Yes, that means China and a handful of other countries will see manufacturing orders increase from the American consumer spending like there is no tomorrow.

There were two tax stimulus plans in two Presidential terms.  Who is going to pay for all of these taxpayer givebacks?  Our grandchildren will, of course.  And unfortunately, our grandchildren have more complex issues to deal with then we have today.  For example, Social Security, Medicare, and Medicaid are going broke.  There is no talk of reducing benefits for those already retired, but our grandchildren will pick up the most of the tab.  Then there is the fact fewer companies are offering pension plans.  Our grandchildren will have retirement accounts based on what they saved and invested, with no pension and a likely dramatically reduced Social Security benefit.  At the rate our economy is progressing, there will be far fewer job opportunities for them as well.  What I am saying is that the problems we face today pale in comparison to what future generations will endure.

Those investing their tax rebates will likely invest overseas.  I was heavily invested overseas myself in 2007 and saw a 17% return on my investments.  High growth and low risk investment opportunities are hard to find in the United States anymore.

Presently, I see an economic cycle that gives money to Americans which in turn hand over that money to our “cheap” trade partners.  These trade partners then use that money to buy more of America.  Our country is being raped and pillaged, and yet most can’t even see it happening before their eyes.  Before long, America will have little to offer and will be forced to signficantly reduce its living standards to compete in a global economy so many touted as being the road to prosperity.

The tax stimulus plan is just a tool to pacify voters and distract us from the real problems our elected officials continue to ignore.  We can’t spend our way out of the problems our economy is facing.  We need solutions that address the failures that got us here in the first place.

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