The forty-fourth President of the United States of America, Barack Obama, is just not a very smart man when it comes to money.

That's the conclusion we draw after observing the new President's first prime-time presidential press briefing, which we combine with our previous analysis of how badly he was taken to the cleaners in the biggest single personal finance transaction of his life.

Here's the proof of that contention, as given by the President's response to a question asked by Jake Tapper of ABC News:

QUESTION: Thank you, Mr. President. My question follows Julianna's in content.

The American people have seen hundreds of billions of dollars spent already. And still the economy continues to free-fall. Beyond avoiding the national catastrophe that you've warned about, once all the legs of your stool are in place--

MR. OBAMA: Right.

QUESTION: -- how can the American people gauge whether or not your programs are working?

Can they -- should they be looking at the metric of the stock market, home foreclosures, unemployment? What metric should they use? When? And how will they know if it's working or whether or not we need to go to a Plan B?

MR. OBAMA: I think my initial measure of success is creating or saving 4 million jobs. That's bottom line number one, because if people are working, then they've got enough confidence to make purchases, to make investments. Businesses start seeing that consumers are out there with a little more confidence. And they start making investments, which means they start hiring workers.

So step number one, job creation.

Step number two, are we seeing the credit markets operate effectively? You know, I can't tell you how many businesses that I talk to that are successful businesses but just can't get credit. Part of the problem in Elkhart that I heard about today was the fact that this is the RV capital of America. You've got a bunch of RV companies that have customers who want to purchase RVs, but even though their credit is good, they can't get the loan.

Now, the businesses also can't get loans to make payments to their suppliers. But when they have consumers, consumers can't get the loans that they need. So normalizing the credit markets is, I think, step number two.

Step number three is going to be housing. Have we stabilized the housing market? Now, you know, the federal government doesn't have complete control over that. But if our plan is effective, working with the Federal Reserve Bank, working with the FDIC, I think what we can do is stem the rate of foreclosure and we can start stabilizing housing values over time.

And the most -- the biggest measure of success is whether we stop contracting and shedding jobs, and we start growing again. Now, you know, I don't have a crystal ball, and as I said, this is an unprecedented crisis. But my hope is that after a difficult year -- and this year is going to be a difficult year -- that businesses start investing again, they start making decisions that, you know, in fact, there's money to be made out there; customers -- or consumers start feeling that their jobs are stable and safe, and they start making purchases again. And if we get things right then, starting next year, we can start seeing some significant improvement.

In his response above, President Obama named three things he would use to determine if the economic spending plan he's currently promoting will have been effective:

1. Creating or "saving" four million jobs.
2. The credit markets making loans to people and to businesses.
3. The stabilization of housing prices.

Now ask yourself: Would any of these things not happen anyway? Even without such a massive spending package? And if these things would happen anyway, how is their happening proof, in any way, that the government's proposed nearly trillion dollar spending spree is what worked to make them happen?

No, President Obama just doesn't understand money. Otherwise, he would know that he would have a very easy way to demonstrate that the "investing" he wants to have happen via the so-called "stimulus package" is producing positive returns for the taxpayers of the United States. He would see the benefit of the proposed spending in the form of higher tax collections stemming from increased economic activity.

We can help the President! We're going to adapt our tool that we had recently used to work out whether it would be more profitable to buy or rent property to apply it to this situation.

To do that, we're going to rework the math behind the tool to find the increased level of revenue that the federal government should realize in order to break even on the money President Obama and the congressional leadership wants spent now, as if that money were really being invested. Here, we'll exchange the CBO's average projected rate of real GDP growth for the the next decade for the original tool's net appreciation rate, the proposed amount of the "stimulus" bill for the cost of buying and the current yield for the 30-Year Treasury to represent the interest rate. Our reworked tool below will take the value for each of these and find the increased amount of federal government tax revenue above which the "stimulus" package could be said to have genuinely "stimulated" the economy:

Doing the math, we find that in order for the spending of the stimulus package to be judged to be successful, it will need to increase federal tax collections over what they would be otherwise by at least $15,888,600,000 (just a bit under 16 billion USD).

See? Not so hard! Of course, if President Obama were smarter about money, we're sure he would have worked this out on his own! And now that he only has to have federal government tax collects rise over what they would be otherwise by just $16 billion, surely the President will be able to trumpet his grand achievement!

As for us taxpayers, well, why not have our own fun by trying out our tool with the various line items of the bill? After all, wouldn't it be nice to know how much each of the line items contributed to those higher tax collections?

Labels: economics, politics, tool

- posted by Ironman at 12:24 PM | Permalink | Home |