Google “consumer deleverage” and/or “business deleverage” and see how many hits you get. ‘Puter’ll wait. Many, many commentators, from the famous to the not-so-famous think, in dangerously simplified terms, that our financial house is burning in large part because we borrowed more than we can afford. The solution is for business and consumers to deleverage. That is, to pay down debt and hold onto cash until a new economic equilibrium is reached. ‘Puter agrees.

Assuming overleverage to be a cause, and that deleveraging is a required remedy, what does this mean for President Elect Obama’s plans for the economy? ‘Puter’s going to prognosticate here, which means he’ll likely be wrong and look like a schmuck, but here goes.

P.E. Obama wants to enact a stimulus package comprised of cash in pocket to consumers and tax reductions for the “middle class” (to be defined at a later date). He also has advocated in the past a moratorium on residential foreclosures. P.E. Obama’s plan will also include government created jobs and government jobs per se. He has already shown a proclivity for favored corporate bailouts (see, e.g., the auto industry). Each of these proposed acts inhibits the ability of the market to deleverage by changing consumer and business expectations, and therefore behavior.

If a consumer knows that the government is going to put more money in his pocket, in effect bailing him out, he will not change his profligate ways. If Uncle Sam’s standing by with his checkbook, why spend less? Giving tax revenue via a stimulus payment to all income tax “payers” (scare quotes because stimulus payments have gone to those who pay no income tax) does not work. It did not work when President Bush did it. It will not magically become effective policy when President Obama tries it. Better to lower tax rates across the board and let people keep their own money and spend it as they see fit. Insulating consumers from the natural consequences of their excess discourages consumer deleveraging.

If lenders are prevented from foreclosing on defaulted residential properties, it will have two effects. First, lenders will only loan to the relatively certain bets, usually those prospective mortgagors with 20% down and sterling credit. Second, home prices will not find a true market value because they will be supported by government mandated after-the-fact rewriting of consumer mortgage obligations, crammed through Congress in a misguided effort to “help” consumers.

Housing prices must find their true bottom, regardless of effect on the economy and consumers. Without an accurate market value, banks cannot value their paper and will be stingy with their credit. Consumers will continue to live under unrealistic assessments of housing values, causing consumer overborrowing to continue.

Government created jobs. What a great idea! It always works when you tax business and successful individuals at higher rates to provide jobs that create no additional wealth. It did not work for FDR. It will not work for Obama. This is redistribution of wealth at its most basic, regardless of stated intent. Government is taking money from those who have and giving it to those who do not. Let’s call it redistribution, because that’s what it is, whether for infrastructure, or for the “green economy.”

Government jobs per se have never created wealth, only prevented it. Each new government job brings with it a set of government obligations for salary, health care, pensions, etc. far into the future, which our children will be paying. Additionally, no new revenue is created on these jobs to tax. Every dollar paid to a government employee has already been taxed from someone else’s pocket at least once.

Corporate bailouts are the business equivalent of the consumer stimulus. The government is picking winners and losers, and rewarding non-productive behavior. GM and Chrysler should have been permitted to fail. It would have allowed them to emerge from bankruptcy stronger than before. Using a bailout to permit them to extend their demise is counterproductive. Better to heal painfully and qucikly than not at all.

‘Puter still wishes P.E. Obama well, but gee whiz, it sure looks like his economic policy is exactly backwards. All in all, the stated goals of the Obama Administration will likely prolong, not shorten, this economic downturn. Sometimes, short term gain (assuaging consumers) has long term pain (prolonging the recession). This is one of those times.

'Puter

Always right, unless he isn’t, the infallible Ghettoputer F. X. Gormogons claims to be an in-law of the Volgi, although no one really believes this.

’Puter carefully follows economic and financial trends, legal affairs, and serves as the Gormogons’ financial and legal advisor. He successfully defended us against a lawsuit from a liquor distributor worth hundreds of thousands of dollars in unpaid deliveries of bootleg shandies.

The Geep has an IQ so high it is untestable and attempts to measure it have resulted in dangerously unstable results as well as injuries to researchers. Coincidentally, he publishes intelligence tests as a side gig.

His sarcasm is so highly developed it borders on the psychic, and he is often able to insult a person even before meeting them. ’Puter enjoys hunting small game with 000 slugs and punt guns, correcting homilies in real time at Mass, and undermining unions. ’Puter likes to wear a hockey mask and carry an axe into public campgrounds, where he bursts into people’s tents and screams. As you might expect, he has been shot several times but remains completely undeterred.

He assures us that his obsessive fawning over news stories involving women teachers sleeping with young students is not Freudian in any way, although he admits something similar once happened to him. Uniquely, ’Puter is unable to speak, read, or write Russian, but he is able to sing it fluently.

Geep joined the order in the mid-1980s. He arrived at the Castle door with dozens of steamer trunks and an inarticulate hissing creature of astonishingly low intelligence he calls “Sleestak.” Ghettoputer appears to make his wishes known to Sleestak, although no one is sure whether this is the result of complex sign language, expert body posture reading, or simply beating Sleestak with a rubber mallet.

‘Puter suggests the Czar suck it.