Standard & Poors downgraded our US Bond Rating from AAA to AA+ on Friday, August 5, 2011.  This marks a first for the United States and obviously a first then for any American President since 1917 when ratings first mattered.  The Debt Ceiling compromise did not satisfy the bond rating agency largely because there was no serious attempt to resolve the actual problem of excess US government spending.

Some see government spending as a means to encourage employment growth but government spending can only provide artificial stimulation to a  market.  Consider the Cash for Clunkers program.  Did this program encourage anyone to buy a car that was not already intent on buying one?  Sales went up, good used car trade-ins had to be destroyed and immediately following the expiration of the program car sales were abnormally depressed.  What this says is that people only accelerated their existing intent to buy a new car and all this program did was have the American taxpayer help those people buy their new car.  Well, it did do one more thing.  The destruction of the trade-ins resulted in a lower than normal supply of used cars and thus drove the price of used cars up due to lack of supply.    

In 2010 the Congress passed legislation to get people back to work.  As administered by the IRS any company hiring someone who was presently unemployed would receive forgiveness of the Employer Portion of the FICA tax and a $1,000 tax credit.   Now what business would accept this as inducement to hire a $100,000 or even a $50,000 employee if the employer had nothing for that person to do?  No, the only companies who took advantage of that program were logically employers who had already intended to add new employees. 

In July, only 125 Chevy Volts were sold in the entire US.  Obama's response: GM should increase production.  Obama believes the problem had to be supply.  Further study apparently demonstrated that there weren't a lot of Volts around the country but there were still enough that had someone been in the market for one he/she could have found one.  The problem as one might logically expect was really demand.  Electric cars may be a solution for the future but as with other new market ideas, the market demand will move at its own pace.  No intrusion by government will do anything but give artificial readings to real supply needs.  

My point, if Keynes model has any validity at all it would never be in such a plan.  If Keynes is correct, that a 4:1 multiplier exists when government spending invests in the economy it must be through the government acquiring or creating something of value.  A weapons system, a new military base, etc. would provide such a stimulus.  Cash handouts will not.  In this example we are not talking about a new Navy contract that an entire community would develop around.  This government spending has included bailouts and scattered payments and programs to put dollars back in the hands of consumers that can only be spent once and at the direction of each individual.  There would be no lasting effect.     

And I must also mention Obamacare.  This atrocity will cost the US taxpayer more than a trillion dollars as initially written.  There is an expectation in this legislation that all government needs to do is to modify one aspect of an economy and the economy will not react other than to accept this change.  But markets are dynamic.  They do react.  Doctors are retiring early and new doctors are not graduating from medical schools fast enough to keep up.  Insurers are leaving entire markets alone because they don't wish to be involved.  Others are raising premiums to meet the mandates of the law.  Just recently these mandates include paying 100% of the expense to support women's breast feeding of their babies and birth control.  Aside from all the other Constitutional issues surrounding Obamacare one should also ask by what right our federal government dictates to private companies what they must cover in their product.    

If we are to save this economy we must get government out of the way.  We need to get our house in order by structuring a solution that will work toward eliminating the debt, not simply reducing its rate of growth by a small percentage.  We must have that Balanced Budget Amendment that will bind all future Congresses and force sanity back onto the US Congress.