Friday, January 30, 2009

The right way to come out of a recession (Part I)

As we know, US and many part of the world are under recession. This is not the first time it has happened. Governments around the world are trying their best to combat it.

So far, US is trying to combat recession by lowering interest rates, stimulus package (tax rebates), bailout big banks and companies, increase government spending. Many countries around the world are doing the same.

Lowering interests means lower borrow costs. Business often need to borrow money, lower borrow cost = more profit, so it is good. The problem is right now US Fed lending rat is at 0.25%, and a CD is about 2% to 3%, you can borrow from Fed and put in a CD to get a guaranteed return. Nothing goes that easy, which means interests rats is no longer effective.

Stimulus package is good for a short shot. The $1000 will drain away fast.

Bailout will only encourage bad behavior. Big companies will think they are too big too fail, and they will suck money from tax payers/good companies and waste them on their usual ways.

The US government intended to "create" government jobs too. The problem is, each government job needs the supporting tax dollar of many people. So most likely those jobs are just tax burdens for common tax payers, the people who are helping driven the economy.

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