I think these bailouts and stimulus packages have been, are, and will be a disaster.
Here is a video link to a cool twist the Joker from the Dark Knight has on this subject.
http://www.youtube.com/watch?v=_vKxhqSJvPk
Some food for thought on how much the government can do.
"Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. If the government doesn't have a surplus, then it must come from taxes. If taxes don't go up, then it must come from increased borrowing. If lenders won't lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value those already in circulation. Something cannot be effortlessly created from nothing."
-Peter Schiff President of EuroPacific Capital
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You seem to have a fairly good grasp on some of the economic issues currently defining American policy. I can see why you're suspicious of the bailouts, etc. But would you say that our current economic situation is also "disastrous"? Or is the doom and gloom overblown? I heard someone on the radio say that Obama was being overly dramatic because it isn't like people are lining up for bread like they did during the depression. That strikes me as a pretty laissez-faire attitude. Is there an alternative approach that ISN'T a disaster?
ReplyDeleteOur economy is currently set up like a house of cards, built on a faulty foundation. When the recession hit in 2001 and 2002, the government interfered and tried to artificially stimulate the economy by lowering interest rates, making loans easier to get. Banks, along with individuals got greedy off of this easy credit. Instead of living at our means individuals went out and bought cars, and houses they couldn't afford, and banks gave out loans to people who shouldn't have gotten them, because we thought if we ever did get in trouble, we could run to the bank to get a loan, and the bank could run to the Federal Reserve. Well this credit bubble eventually burst because the Fed could keep cutting rates once it got to 0%. Now no one can get a loan, to pay back the house they couldn't afford in the first place. Oh and they're adjustable rate mortgage is resetting to higher rate, so their mortgage payment jumped from $700 to $1300 a month.
ReplyDeleteWith housing crisis 2.0 coming up late this year and early next year, coupled with the collapsing of the retail industry because no one can buy anything, things will get a lot worse before we can think about a solution to this problem.
If the government steps out of the way and lets these sectors go bankrupt. Prices will fall, the service sector will be shrink and our economy will realize we need to save our money, and not live off of credit and become more production based. In a growing economy demand should come from increased supply. So the economy produces more goods, so the more the economy produces the more it can consume. When the government prints more money people have more money to spend on those goods. The problem with that is that the supply hasn’t gone up, so the price will. This is called inflationary demand. This causes the currency to weaken. When this happens to a currency it loses purchasing power which inhibits its ability to import foreign goods. As that happens the supply falls down even farther, causing prices to rise and the government to panic. What Americans need isn’t more money in their pockets, but another industrial revolution, because this consumption binge won’t last, and if we don’t change our course we’ll be like Germany in the 1920’s, and Latin America in the 1980’s.
If we decide as a nation enough is enough and move back to becoming the production capital of the world like we were in the early and mid 1900's we can recover in 5 to 10 years. If we try to keep this consumption binge going the outlook is very grim.