Another day, another round of bail outs.
In today’s episode, Hank Paulson told us that he was now going to back stop $200 billion of consumer loans. He also said he was going to buy $600 billion of home loans from Freddie and Fannie.
At least this time Paulson is doing what he said. He told us 2 weeks ago that he was going to buy consumer credit. He also told us he was steering clear of “toxic” mortgages which he appears to be doing.
With Paulson doing his best imitation of “The Breck Girl,” doing his bailout version of “Lather, Rinse, Repeat” on at least a weekly basis, the question arises; “How long can we keep up the bail out express?”
Interestingly, McClatchy took up that exact topic today. After asking, “Can Government keep Spending?” They answered with, “Most Economists Say Yes.”
Now, I’m not the smartest guy but I have managed to keep my family fed. How can economists not think that the spending and borrowing palooza isn’t a problem? After reading a couple of the questions and answers from McClatchy, you’ll be a believer too….or not
Q: First of all, where does the money come from?
A: The bulk of the cash has been put up by lenders buying U.S. Treasury Department securities such as bonds, notes and short-term bills.
OK, they recognize that the bulk of the bail out has been financed through debt.
Q: How much money has the U.S. government spent or loaned out since September?
Here the article falls into drivel about the original $700B and today’s $800B. They apparently haven’t kept up. Bloomberg says the number is now over $7.7 Trillion. Maybe to these economists a 500% miss is just a rounding error!
Q: How much longer can the government keep spending?
A: A lot longer, economists say. International investors will keep buying Treasury securities even though the interest rates on many of them are close to zero percent.
Based on this, if I can con multiple banks into giving me loans, regardless of whether I can pay them back, that’s a good way to “enhance my cash flow!” Huh? isn’t that the kind of thinking that got us into this situation?
Q: But should the U.S. government be spending so much money?
A: Most economists say yes. Although the federal budget deficit is projected to hit a trillion dollars next year, incurring massive debt at this point is eminently preferable to letting the U.S. economy slide into deep recession.
America can worry about cutting deficit spending when the economy starts growing at a healthy clip, economists said. The goal now is to get banks lending and consumers spending again.
Have we all missed something? Is there a magical economic formula that says that unwarranted borrowing coupled with excessive spending leads to economic bliss? Putting this thinking into the Shoebox household, we would be perfectly justified in taking the loans we had bilked banks out of and living a lifestyle that wasn’t sustainable but for the loans. Oh, and we would tell ourselves it was OK because we would pay back the loans when we “got back on our feet.”
Q: But will all this work?
A: It’s better than doing nothing.
Which leads us back to where we were two weeks ago when I chronicled Hank Paulson’s comments as:
- We didn’t know what we were doing.
- We don’t know what we’re doing now.
- We aren’t sure what we’ll do in the future.
- Trust me, I’m spending the money well!
First, we had a “consensus” of scientists saying that the debate over man made global warming was over. Now, according to McClatchy, we have “most” economists saying we should continue to borrow and spend without regard to the consequences. Is it just me or does it seem like when it comes to government, being a part of the “in crowd” almost always means your wrong?
