So yesterday evening, after I posted my first blog entry, I got a message from my friend in STL, insisting that I was taking the wrong stance on this bailout. He believes that this bailout is necessary to relieve the stock market for the time-being, considering that American families are suffering from this crash.
My response is that we've been headed towards this financial crash for years because of irresponsible military spending, corporate welfare, and incorrect monetary policy. This crash is a result of the problem, not the real problem.
Let's see...we're not only still in Iraq and the problems there still haven't subsided, but we also recently butted into the problems in South Ossetia, Georgia, when we knew we couldn't afford any more spending, basically just to try and keep Russia in check. So now we want to give $700 billion in tax payers' money to corporate America? And hope that it trickles down to help my family in Mississippi, and then naively think that we won't have to face the long-run economic consequences of inflation and extreme debt? Yeah, I don't think that's such a smart idea.
Wanna really help American taxpayers save money? Pull out of Iraq and quit trying to provoke a second Cold War with Russia.
According to Senator Ron Paul's website there are 3 main reasons why Congress should reject these bailout proposals:
"a. It is immoral - Dumping bad debt on the innocent taxpayers is an act of theft and is wrong.
b. It is unconstitutional - There is no constitutional authority to use government power to serve special interests.
c. It is bad economic policy - By refusing to address the monetary system while continuing to place the burdens of the bailout on the dollar, we can be certain that in time, we will be faced with another, more severe crisis when the market figures out that there is no magic government bailout or regulation that can make a fraudulent monetary system work" (See http://www.ronpaul.com/.)
Well put Senator.
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1 comment:
Hey Bess, how's it going over?
Anyway, before I go to crunch numbers for the next infinity hours I want to respond to to your response.
First, let me say that you're completely right in all your assessments. It is immoral to make the taxpayers pay for some corps' bad investment strategy. The bailout would cause inflation, and weaken the dollar. But I propose that this would not be an entirely bad thing. The US has racked up a hefty debt in this morally, politically and militarily misguided war. However, what is one of the ways that a government can mitigate the cost of repaying war debt? Print more money (or release it back into the economy as we do now), lower the value of currency and pay it back with less valuable pieces of paper than we borrowed. OK, maybe it didn't work out so well for the Wiemar Republic, but it has worked in the past and it can work again.
And from a political economic perspective, us free marketers are less popular than ever with Joe Sixpack. People are looking at globalization and the markets' reallocation of resources, but the people are blaming the markets for our own poor macroeconomic policies. And watching two financial giants die in one day isn't going to give anyone faith in the system.
Now as for the pure economics of it. The death of AIG really only comes with one silver lining (from a US point of view)and that's the avoiding of the "moral hazard." The idea that if people know that the gov is waiting in the background to rescue them they will make more risky decisions. However the problem the institutions made was one that people have yet to learn after 40,000 years of existence. That is if something sounds to good to be true it probably is. And this wont be the lesson that finally teaches them that.
On the other hand what we have now is the, albeit, short term problem that banks have lost faith in each other, and refuse to do business with each other. Could letting AIG fail inspire the financial world to develop new and better practices, perhaps, but I doubt it. Instead watching AIG go down will result in all these Wall Streeters to bury their heads further in the sand and wait for things to get better. And this will not cause things to get better, only worse.
Well I hope that this is taken in the spirit of open debate, and not an attack on your ideas, because I do agree with all the fundamentals that you talk about. I just stress one area over the other.
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