Monday, October 10, 2011

Corporations Sitting On Two Trillion Dollars

Obama and the Democrats have been making a lot of noise about the fact that corporations are sitting on an estimated $1.8 trillion in cash when they could be using that money to hire people. Some even accuse businesses of collectively not hiring because they want to make Obama look bad so he won't be reelected.

But, the simple fact is that businesses aren't hiring because there is no need to. The existing aggregate workforce is adequate enough to keep the shelves stocked with product and provide all the services that Americans are willing to buy. Supply isn't the problem. We have a demand problem in this country. The reality is that the consumer is MIA in the economy and, as long as this condition exists, hiring will remain stagnant.

Consumer spending is down because the average paycheck is being squeezed by a falling dollar and the resulting higher prices for food, clothing, and energy. Then, too, state and municipal governments are also squeezing the paychecks through higher taxes on everything and anything as they try to cope with their balloon debt. The housing market is stalled despite record low mortgage rates, because potential home buyers either don't have enough cash for a down payment of 20% or they can't move out of their existing homes because they are so far underwater on their mortgages.

If, as a country, we would solve the above issues, then our economy will grow again and hiring will resume. But, once again, the Democrats want to use corporations as scapegoats for their own inept handling of the economy. Higher food, clothing and energy prices are a direct result of excess government spending; driving the value of the dollar down and import prices up. Rising gasoline prices are also due to our lack of domestic drilling for oil. Higher state and municipal taxes are actually exacerbating the lack of state revenues because consumer spending is being retarded; resulting in less sale tax revenues and less business income tax collections.

And, then, the housing market. Lower interest and mortgage rates aren't doing it. We need a program that would relax some of the down payment requirements. While, before the housing crisis, any warm body could get a loan, today the pendulum has swung too far and loan requirements have become too restrictive. I suggest we have a federal, interest free, down payment matching program that would cut the home buyers 20% down in half. In doing so, the federal government would become a lien holder against the purchased home. Repayment would be on a 10 year basis as part of the mortgage payments; or, in total if the home is sold within the 10 year repayment period. It would also help if the mortgage lenders would rollback mortgage payment rates on Adjustable Rate Mortgages to 2007 levels; thus stemming the high rate of foreclosures.

Doing what I have pointed out will create more jobs than Obama's short-sighted and probably ineffective jobs plan. Unfortunately, Obama will probably get what he wants and, come November of next year, things will only be worse.

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