Bleak Outlook After Bailout: Only Harm for the Middle Class

Ronald Reagan said, “Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it”. Even before Bush’s Big Bank Bailout Bill was passed by Congress we were in the “subsidize it” phase of the cycle. We have been told by our “leaders” that more subsidizing through the bailout legislation is in the best interest of the millions of Americans in the middle class. It was done to preserve our savings accounts, education and retirement funds and to help small business in securing the necessary loans they need to survive. It was done to rescue us from economic calamity.

In fact, the $700 billion bailout (ignoring the pork and tax breaks which make the legislation worth more than $800 billion) will only do harm to the middle class. First of all, this $700 billion dollars is in addition to nearly $1 trillion that the Federal Reserve has already pumped into the economy in just the last month. Secondly, where will the Treasury get the money called for in the bailout package? Answer: it will borrow the money from the banks. But, I thought the banks had no money, hence the need for the bailout. They don’t, so they will create the money through a system called fractional reserve. In addition, because the banks are a cartel headed by the Federal Reserve they can also fire up the printing press to produce dollars. The banks will loan these new dollars to us, with interest, so we can then give the money back to them. The nearly $1 trillion already pumped into the economy by the Fed and the new funds called for by the bailout package are an artificial increase in dollars. Of course, the banks will get to use the new money first before inflation sets in and then the rest of us can borrow the money back (again) from banks at higher rates because of the inflation. The banks can’t lose. If you think this is a good deal for middle class Americans then you probably own one of the subprime mortgages that got us into this mess in the first place.

In addition to the government using our money to get us into an insane financial arrangement with the banking industry, the bailout will not solve our economic problems and indeed make them worst. How does throwing borrowed money at bad assets make any sense? It is equivalent to borrowing money and then flushing it down the toilet. If the bad loans that the bailout is going to purchase had any value they would have been bought on the open market at some price. They have not been bought so it is safe to assume that they lack any value. Consequently, the bailout will simply relieve the banks of the ramifications of their bad behavior and leave taxpayers holding a bag of worthless assets. When the Treasury writes off these assets, the loss to the federal treasury will be well over a trillion dollars (this includes bureaucratic costs, opportunity costs and interest costs on the $700 billion). Folks, Uncle Sam already owes over $9 trillion dollars with at least another $50 trillion of future obligations through entitlements. It is only a matter of time before these debt obligations have to be met. Because foreigners will be unwilling to lend us any more money and the Federal Reserve will be unable to print more because of hyperinflation, the politicians will have to raise taxes. High taxes in recessionary times will be the death knell for our economy.

And don’t think that future misallocations of resources won’t be encouraged by this federal largess. It has already begun to happen. Bank of America probably bought Merrill Lynch with its bad assets to ensure that it was “too big to fail”. Citigroup and Wells Fargo will fight to the death for the right to buy Wachovia and its $74 billion of bad assets because they both know that the Treasury will now offload those bad assets onto the taxpayer. Once these bad assets are removed from the balance sheets of the banks what guarantees are there that they won’t turn around and make more high risk, bad loans? Aren’t the banks still under the federal mandate through the Community Reinvestment Act to make loans to high risk debtors? By passing the bailout package hasn’t Congress shown that it will be there for the banks when they fail?

The bailout package will prove to be harmful for the middle class. It will cause inflation, burden taxpayers with hundreds of billions of dollars in bad assets, and encourage irresponsible economic decisions. Someone also once said, “the more you subsidize something, you more you get of it”. By subsidizing the bad decisions of Wall Street we can only expect more of the same bad decisions.

God help us all,

DD

Thanks Darth

Submitted by skyspy on Tue, 10/07/2008 - 4:54pm.

Sad but true. Kudos to the politicans that voted against it.

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Finally!

Submitted by FayetteFlyer on Tue, 10/07/2008 - 4:49pm.

Now if the rest of the country can figure out how this really does affect them, we may realized how badly we've been duped by this so called "bailout"!

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The Socialist U.S. Republic

Submitted by DragNet on Tue, 10/07/2008 - 11:10pm.

It just means that, thanks to George Bush and Wall St cronies, we are now a socialist country, from an economic perspective. The government is now in charge of sustaining the financial and credit component of our "free" market and the decider on how to direct the $700 Billions.
Sad day for our country, I do not get tired of announcing that THIS HAS BEEN THE WORST ADMINISTRATION IN U.S. HISTORY EVER. Mc Cain is more of the same. Can we or do we want to afford it?

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Making you think twice......

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