Will Obama's stimulus package save America?

Let us look at the population in the USA. It stands at around 305 million. 25% are under 18 and that leaves 229 million. 12.5% are over 65 and can be considered as retired. The number is now reduced to 190 million. Assume 10% of the population are mental, have a disability which prevents them from working, are in prison or unemployable for one reason or another. That leaves a total of 160 million adults.

The stimulus package is 800 billion which divided by 160 million is equivalent to giving each working adult $5,000. The average salary for an American is $45,000 . The stimulus package includes infrastructure projects and subsidies to State Governments .About $500 billion will go direct to the people. Assume the unemployment rate goes up by7.5%. Out of 160 million, that is 12 million workers and multiplied that by the average salary of $45,000, the amount comes to $540 billion that is lost because of unemployment. Thus the stimulus package is more or less roughly equal to the loss of income for those who lost their jobs.

But the key problem is that many Americans borrow to spend. The average American with a credit file is responsible for $16,635 in debt, excluding mortgages, according to Experian. (Source: U.S. News and World Report, "The End of Credit Card Consumerism," August 2008).Total U.S. consumer debt (which includes credit card debt and non-credit-card debt but not mortgage debt) reached $2.55 trillion at the end of 2007, up from $2.42 trillion at the end of 2006. (Source: Federal Reserve).Divide by 160 million working Americans, that means each working adult has an average of $16,000 consumer debt EXCLUDING HOUSE MORTAGES!

Now that the borrowing has dried up, spending will drop even with the stimulus package.The latter is just enough to counter balance the loss of income of the increased number of unemployed.There is nothing to replace the spending that dries up because of the credit crunch.
There is only one way to stop the pain and that is allowing consumer debt to start again. My friend who just returned from America was amazed to see TV commercials asking consumers to buy now and pay back two years later.Perhaps the only way is to allow easy credit and resume the borrowings of the past decades.

But now foreign countries are becoming wary of the US dollar. US Treasury bonds will be avoided once everyone sees that debt is going to balloon to even more unimaginable proportions. There are two ways to sustain debt. One is to borrow and the other is to print more money. As the former becomes more difficult, printing money becomes the only solution and the result is a colossal drop in the value of the US dollar versus gold and other more stable currencies.

If Obama risks his political capital on the stimulus package, he will definitely ends up as a one term President. The solution is very painful. Banks must fail and be taken over by corporate raiders to start anew. Bankruptcies will purge all those companies that are not competitive or in the wrong industry (eg pampering people on luxuries ). People have to downsize their homes, their cars and their life styles. People have to be so frightened that they stop borrowing to spend. US companies must start to become competitive again and Americans will have to join the rest of the world in slogging it out just to make ends meet. Thrift becomes a household word and good old fashion work and save atttitude becomes fashionable again.