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THE TRILLION DOLLAR BAILOUT EPIDEMIC

Dec 8th, 2008 by James Breedlove | 0

The annual flu epidemic has a potent new rival that is infectingAmerica’s economic system and is on the verge of causing irreparable harm throughout the nation.  The new malady is commonly known as BAILOUTITIS.

It is instantly identified by severe economic pain resulting from egregious private sector mismanagement, aided and abetted by overt government regulatory collusion, that requires capricious spending of unspecified billions of taxpayer dollars with no assurance that the malady will be cured.

According to the San Francisco Chronicle the government has committed $8.5 trillion dollars to various bailout programs of which $3.2 trillion has been spent.  While the $700 billion Troubled Asset Relief Program (TARP) –initially promoted by Treasury Secretary Paulson as the cure for America’s economic crisis– has been in the public spotlight for weeks little attention has been focused on the stealth bailouts that are consuming outrageous billions of additional dollars.

These confusing and conflicting rescue funds are packaged into 15 separate Federal Reserve programs that total $5.5 trillion dollars; three Federal Deposit Insurance programs for $1.5 trillion dollars; three Treasury Department programs for $1.1 trillion dollars; and a $300 billion dollar program directed by the Federal Housing Administration.

All of these programs have (with Congress’ blessing) committed taxpayer funds for loans, credit guarantees, mortgage renegotiations, and outright subsidies in an attempt to undo the damage done by Washington’s laissez-faire regulatory policies that encouraged private sector companies to take unwarranted business risks in the quest for short term profitability.

 

There is an interesting side note buried in the Chronicle’s article that warrants attention.  The $5.5 trillion which is the largest slice of the $8.5 trillion bailout pie comes from the Federal Reserve which as an independent entity does not need congressional approval to disburse the funds or provide public accountability for the funds.  So much for the official public statements that bailouts would be transparent.

This is just another reminder that the private Federal Reserve can print money at will in order to bailout Wall Street and the big banks while the millions of average homeowners and middle class workers who will ultimately pay the price for this financial boondoggle are victimized as their savings accounts and pensions shrink away leaving them bound to an indefinite term of indentured servitude.

Are the $8.5 trillion in equity injections, loans, and guarantees committed thus far merely perpetuating a fundamentally flawed economic model?   What are average Americans getting for the trillions of dollars in rescue funds?  Only the rich seem to be benefiting.

None of the bailout programs have even begun to address the underlying structural problems that are causing economic power to shift away from the United States to other countries.  If we are merely keeping a fatally flawed economic system on life support possibly these dollars should be invested elsewhere.

The current economic system that depends on bailouts and subsidies nurtures several weaknesses that prevent the system from healing itself.

The nation’s trade deficit has ballooned from about $100 billion to more than $700 billion annually over the past decade and the federal deficit has increased to approximately one trillion dollars. These twin deficits keep America dependent on foreign-capital infusions (borrowing) that could diminish as other nations struggle to shore up their own faltering economies.

America’s household savings rate has been close to zero—and even negative in some years—not permitting the long-term capital accumulation required for the investments we need.  China, by comparison, which is one of the countries that we borrow from, has a savings rate of 30 percent of household income.

The intellectual advantage America has had could turn into a deficit as hundreds of thousands of technicians, engineers, and scientists are being produced annually in China, India, and other developing countries.  Meanwhile the service sector jobs such as investment banking are migrating to the centers of wealth overseas.

The nation’s governors who recently met in Philadelphia addressed the issue of their states confronting budget shortfalls this year because of the slowing economy and decreased tax revenue.  They indicated a preference for direct job creation through immediate infrastructure spending programs instead of government bailouts.

Democratic Gov. Ed Rendell of Pennsylvania, the chairman of the National Governors Association, stated that infrastructure spending is the best remedy for getting America back to work. Forty thousand new jobs can be created for every one billion dollars of infrastructure spending.  None of the bailout programs have created one new job.

So the debate continues.  Should we support big businesses and bailouts or smaller businesses and a true free market system?  The current concentration of power in a few gigantic institutions has made it virtually impossible to do anything but use bailouts.  But the continued rewarding of the imprudent behavior of the private sector is preventing the orderly process of permitting the systematic recreation of vibrant new businesses from the ashes of the old.

 It is time to allow the free market system to work.  This means true competition with winners and losers; inefficient companies that disappear; shareholders and CEOs who can lose as well as win; and government investment in the long-range competitiveness of our nation, not in a failed business model that creates “too big to fail” businesses that holds nobody accountable.

 

James W. Breedlove

Comments or opinions may be sent to the writer at:jaydubub@swbell.net

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