Lets Talk About Numbers

Let's start with a notion economists called The Savings Paradox. What that means is that during Contractions in the economy (like now), it is in the best interests of individuals to save money and not spend it. But if they don't spend, businesses won't have sales which they need to expand and hire new employees.

Hence the paradox. What is good for individuals is not good for the whole economy, and visa versa.

About 70% of the U.S. GDP is funded by consumer spending. However, consumers are reducing their spending (as they should now). The U.S. savings rate reached 6.1% last month and credit card debt was paid down 10.5%. Sales of existing houses are falling because people are fearful and don't won't to take on new debt. All of this behavior is perfectly logical. But this bit of real life seems to have escaped the administration.

Instead, the administration has been pointing to increased company spending as a sign the Great Recession is over. But all that was really happening was that businesses were refilling their inventories which they had allowed to run down during the worst of the Great Recession. Sales of manufactured goods fell 1.8% in May and 1.2% in June. The shelves are full again, but there are no customers.

So how do we get the economy growing again, businesses hiring and consumers hopeful again? The answer is simple. Businesses have to break the cycle and start hiring new employees.

For the last 30-40 years, about 70% of all new jobs have been created by small businesses.

In the U.S., about half (50%) of businesses employ less than 250 workers and 38% have less than 100. The loss of sales (and income) hits these businesses very hard because they have such a small margin of error.

The National Federation of Independent Businesses says the most important problem facing it members is "the lack of sales and customers".

So how does this tone deaf administration propose the get small businesses hiring again? They are offering indirect credit, e.g., coaxing banks to resume lending.
The NFIB's July survey of its members says that only 6% said their biggest problem was lack of credit.

This tone deaf administration proposes one dumb idea after another because Larry Summers (basically Obama's only source of economic information) has absolutely no idea how the economy actually works.

You can find out what government should be doing at www.scribd.com/doc/16864582/The-Great-Recession-Conspiracy for $4.95 or as a Kindle book for $9.95.

So the adminstration (Bush and Obama both) could find billions of dollars to keep Wall Street bankers in cigars, wine and huge bonuses. They could also find billions to keep GM and Chrysler plants in Michigan open. But all they can think of to assist the real engine of the U.S. economy is to encourage using the U.S. flag on their labels.

This truly tragic!!