Part 9 - The stimulus should buy equities

Well the stimulus package was signed to day! Also the GM, Ford, and Chrysler "Plans" are due today.

The Stockmarket has shown what it thinks of the package by almost breaking the November 2008 low.

As mentioned before, the major problem is a lack of consumer confidence in America and I do not think the stimulus will work. The Government is trying to stimulate growth by a lolly scramble. Lolly scrambles only stimulate consumption while they are being sucked and then there is nothing left for growth. The only real benefit attaches to the recipients of the 10%, or $80 billion, which will be pocketed by ticket clippers as the money is spent.

The section of the economy on continuing on welfare benefits have been about the only group unaffected by the Great Recession of 2008-2010.

Apart from this group, all other sectors of the US economy have seen their wealth eroded by 25% or more and many have lost their jobs, due to the consequent lack of consumer confidence and demand.

The $US has risen a great deal while consumer confidence has fallen. That shows a strong dollar does not generate consumer confidence.

Interest rates have fallen, but that has not worked to improve confidence either, not house prices.

The Dow has collapsed and reportedly, there is a vast amount of potential investment money waiting on the stockmarket sidelines for the market to turn upwards.

If I were President, I would not reduce taxes. The tax reductions are not enough per person to grow consumer confidence, given the amounts of their individual losses.

The President and Congress will not have the courage to do so, but I believe there is one easy way to restore US consumer confidence.

The most easily seen bell-weather for the US economy for everyone is the Dow Jones Industrial Index. Regardless of one's opinion on capitalism, and rightly or wrongly, every investor and saver is influenced by the Dow and so it affects their confidence and attitude towards the future, or their pessimism about the future.

Thus, I would carefully spend the $800 billion on selected equities via a USA Sovereign Fund. Ten things would happen.

1. All stock prices would rise from the selected extra buying, on the rule that a rising tide raises all boats.

2. It would encourage other investors off the sidelines, who did not want to miss the recovery. This would compound the positive effect on the Dow.

3. The sellers of the stocks bought by the Fund, would need to find other investments for their money and so help prime the economic pump.

4. Consumer confidence would rise as the Dow rose and retirement savings regained in value.

5. Increased consumer confidence would raise house prices and reduce the need for foreclosures.

6. Increased consumer confidence would raise consumer spending and create jobs.

7. The recovery would be much faster than the proposed drip-feed stimulus package.

8. An improved economy would increase the tax take for states and help their funding.

9. The US Government would make huge investment gains on a gradual sale of the investment, in say three to five years time.

10. The investment gains would likely balance the current Federal budget deficit.

This proposed investment action is an expansion of the comments in my Five Point Plan in Part 8, which included a recommendation for a US Sovereign Fund.