Topic: Federal Reserve Bailout
Hey Washington: Debt is Bad A fundamental concept of mankind seems to have eluded the head of the Fed, the Treasury Secretary, the President, and nearly the entire U.S. Congress.by Jeff Wrobel
(libertarian)
Thursday, September 25, 2008
According to Ben Bernanke, an enormous bailout of unprecedented proportions is necessary to save the economy. He says that buying the "impaired assets" of financial institutions is necessary to, "restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth." So Bernanke's opinion is that credit is the most important element of economic growth.
Perhaps Bernanke hasn't noticed that the whole mess we're in right now is due mainly to too much credit (mainly because of Federal Reserve policy). Perhaps he hasn't noticed that the average American is swimming in debt, and often going under. Perhaps he hasn't noticed that all the financial institutions are suffering because of bad loans. The very problem is too much debt, yet Bernanke's solution is to "expand credit".
Think of any successful company that comes to mind. You may think of Microsoft, Wal-Mart, or Google. Now ask yourself if that company is dependent on credit for its survival. The answer is probably "no". Sure, at the beginning Microsoft probably had to borrow a few bucks to buy computers for Bill Gates to hack on, but now the company is swimming in cash. This bailout is not gong to help companies that have proven their worth in the marketplace.
Now think of a company in serious trouble, like most of the financial companies (who don't produce any real goods, by the way) being discussed on Wall Street. What is their problem? Too much bad debt.
What is the main problem that Washington faces today? The national debt. Money that could be staying in citizens' pockets, or that at least could be going to pay for some government program, is instead going to pay interest on the debt. Even without bailing out any financial institutions this month, the estimated interest on the $9.5 trillion national debt this year is well over half a trillion dollars (see http://www.federalbudget.com).
What also seems to have been ignored by Washington is that everyone has a credit limit -- even the United States of America. It's very difficult to say what that limit is, but it's easy to imagine that we might be getting close to that limit. Washington is on the verge of increasing our debt by maybe 10%, 20%, or God only knows how much. Will that bring us to our credit limit? It looks like we're about to find out.
Throughout history, companies have written down debt in their ledgers in red. This is to highlight the fact that debt is bad. Almost everyone understands that it's better to not have debt. Anyone with a large mortgage or credit card bill knows this is true. It is the simplest of concepts. Most major religions teach that debt is bad. I know it's bad. You know it's bad. I'm not sure, but I think even my dog knows it's bad. But the pervasive belief in Washington is that debt is good.
There is a correction in the market that needs to take place. The propping up of failing businesses (at the expense of us ordinary citizens) can only delay the correction. As the correction is delayed, the problem will continue to grow, and the ultimate correction will be that much worse.
Will Washington pile still more debt onto our already overburdened nation and repeat every one of the mistakes of 1929, or will they remember the very simple concept that debt is bad?
Stand by, and get your soup bowls ready.
Did you like this article? If you did, Thumb It! 7 thumbs so far
The views expressed in this
article are those of Jeff Wrobel only and do not represent
the views of Nolan Chart, LLC or its affiliates. Jeff Wrobel is
solely responsible for the contents of this article and is not an
employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.
Want to comment on this
article? Leave your comment here. Your email address is
required to track your comment. However, we will neither
publish your email address nor distribute it to other
organizations or persons. The only reason we might use
it would be if we needed to contact you regarding your
comment. All comments are subject to our
terms of use policy.
