Here are excerpts from my story in today’s American Spectator Online on how the $700 billion bailout could actually make things worse — in terms of resulting inflation and even a further contraction in credit due to the government purchases’ interaction with the mark-to-market accounting rules. To read the piece in its entirety, click here.
“”The government has to do something to keep markets from falling and the economy from getting worse.” How many times have you heard that mantra this past week from President Bush, Treasury Secretary Hank Paulson, Democrat leaders, the news media, and even some ostensibly conservative periodicals?
But what if the bailout, as originally proposed and in its latest incarnation, would spend $700 billion of taxpayers’ money and actually make the economy worse? Believe it or not, there is good evidence this may happen. The inflationary prospects of the bailout price tag may lead to spikes in oil and crop prices that could hit ordinary Americans in their cars and on their kitchen tables. And government purchases of financial assets could ironically further constrain credit through causing write-downs on even the balance sheets of financial firms not participating in the bailout by worsening the effects of mark-to-market accounting rules.
All last week, the stock market’s plunging downward was pointed to as a sign that Washington must step up to the plate — as quickly as possible. Yet ironically last Friday — the day after the bailout talks broke down at the wild White House meeting with the presidential candidates — the Dow Jones industrial average actually went up by 120 points! This doesn’t mean that the market is opposed to the bailout, but it does show that the market volatility is probably as much due to the potential effects of a bailout as it is to a lack of one.”
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The proposed “bailout” is equivalent to forcing our grandchildren to buy shares in a salted gold mine. If two scamps like Feddie and Fannie pulled this off in Dodge City, they 'd be the principals at a necktie party, and Marshall Dillon would be unable to stop it.
Economic problem is now experiencing by the whole world. Even though US are a highly developed country, still, crisis strikes this powerful nation and as everyone is expecting, many countries affects it. I doubt that economic stability nowadays is stronger than before. Is America better off in 2008 than in 1932? It depends who you ask. In 1932, Franklin Delano Roosevelt was elected president, and took over during a time when the economy was nose diving into a recession. FDR introduced his “New Deal,†which drastically changed the government’s approach towards the U.S. economy. The government’s new role in the economy was much more involved than it had been previous to FDR. Roosevelt's “deal†revitalized the economy in the short run, but some argue the negative repercussions can still be felt today. In this Wall Street Journal article, Paul Rubin writes that although the present U.S. economy is not identical to the economy of 1932, there are many parallels: the stock market is faltering, credit markets are locking down, and a popular Democratic presidential candidate – Barack Obama – is advocating for increased government regulations in the economy. If Obama becomes president and the Senate is controlled by democrats, our country will face the most liberal agenda in its history. Free market economists are concerned with Obama’s “hands-on†policies and fear they steer the American economy off-course in the long run. Proponents of capitalism will disagree that we’re better off today than in 1932. On the contrary, they would most likely tell you that America is in for more of the same – a “New, New Deal.â€
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