The Truth About Bailouts

[w¡n9Nµ7 §£@¥€r 123]

As the Federal bailout bonanza prepares to spread beyond the mortgage and financial sectors to fill Detroit's depleted coffers, few economic or policy analysts have spared a thought for the destitution of the U.S. government itself. Put simply, our government doesn't have enough spare cash to bailout a lemonade stand let alone a bloated and failing industry that is losing tens of billions of dollars per month. Washington can only offer funds that it has borrowed from abroad or printed. Unfortunately, the nation is in the grips of a delusion that money derived from these sources has the power to heal. But history has clearly shown that borrowed or printed money only has the power to destroy.

The argument that energizes the pro-Detroit camp is that the government should extend the same courtesy to the rank and file auto workers that it lavished upon the fat cats of Wall Street. While two wrongs certainly do not make a right, the fact remains that the Wall Street firms are still floundering despite the bailouts. What's worse, the money spent was either printed or borrowed from abroad. Both options are destructive to America.

When it comes to bailouts, the real discussions are not centered in Washington but rather in Beijing, Tokyo, and Riyadh. With no money of our own, our ability to bailout our own citizens is completely dependent on the world's willingness to foot the bill. While I am sure that Bush and Paulson are doing their best to convince the world that open ended financing of the United States is in the global interest, my guess is that, unlike Congress, our foreign creditors will see through the self-serving nature of our plea.

Like any bailout, our foreign creditors should consider the moral hazard of rewarding bad behavior, and the old investment adage of not throwing good money after bad. By continuing to "lend" us money, the world is merely delaying the necessary rebalancing of our upside down economy. By continuing to subsidize our reckless and outsized consumption, the world merely delays the inevitable re-balancing and exacerbates the underlying problem at the root of the current global financial crisis.

If Washington bails out General Motors (GM), the funds will never be recovered. GM will simply burn through the bailout money and then be back for more. Talk of designing a new fleet of "green" cars that will pave the way to profitability by spurring a new buying spree is simply delusional. Given the staggering "legacy" costs of health care and pensions for millions of current and former workers, Detroit cannot produce cars profitably. Unless these costs are seriously brought down, and there is very little chance that they will be, Detroit will remain a bottomless money pit.

Similarly any money that the world lends to America to finance more consumption will never be repaid. We will simply blow through it, and be back, hat in hand, begging for more. As we painfully learned in the housing bust, lending people money that they cannot pay back makes no sense. This applies equally to foreign central banks lending to America as it does to commercial banks lending to homeowners.

So for the same reasons that Washington should not bail out General Motors, the world should not bailout America. Like GM, our economy is in desperate need of a restructuring. Spending must be replaced with savings, and consumption with production. The service sector must shrink and manufacturing must expand to fill the void. The dollar must fall, wages in America must be brought down to a competitive level, and hopefully government spending and burdensome regulation can be reduced.

This transformation will not be fun, but it is necessary. Our standard of living must decline to reflect years of reckless consumption and the disintegration of our industrial base. Only by swallowing this tough medicine now will our sick economy ever recover. By accepting a lower standard of living today, we will eventually be rewarded with a higher one tomorrow.

http://seekingalpha.com/article/107408-the...-about-bailouts

[Pooky 3,786]

Don't let the anti-deregulationists see this. They'll have a fit.

[one...two...tree 2,762]

Don't let the anti-deregulationists see this. They'll have a fit.

How do you figure?

[one...two...tree 2,762]

The truth.

[Pooky 3,786]

Don't let the anti-deregulationists see this. They'll have a fit.

How do you figure?

So for the same reasons that Washington should not bail out General Motors, the world should not bailout America. Like GM, our economy is in desperate need of a restructuring. Spending must be replaced with savings, and consumption with production. The service sector must shrink and manufacturing must expand to fill the void. The dollar must fall, wages in America must be brought down to a competitive level, and hopefully government spending and burdensome regulation can be reduced.

I just read the article.

[Pooky 3,786]

The truth.

............. is missing the biggest collective culprit of all - the combined House of Representatives and the Senate, all parties included, without whose complicity, either knowing or the result of incompetent ignorance, this could not have happened.

[one...two...tree 2,762]

Don't let the anti-deregulationists see this. They'll have a fit.

How do you figure?

So for the same reasons that Washington should not bail out General Motors, the world should not bailout America. Like GM, our economy is in desperate need of a restructuring. Spending must be replaced with savings, and consumption with production. The service sector must shrink and manufacturing must expand to fill the void. The dollar must fall, wages in America must be brought down to a competitive level, and hopefully government spending and burdensome regulation can be reduced.

I just read the article.

Where's the persuasive argument that regulation is what got us into this mess?

Although the war cry for more regulations may sound rhetorical, it is in fact the direction we need to go. This financial collapse can be reduced to down to one single word - deregulation....and I'm not just pulling that out of my #######. I have yet to read anything of substance that makes a convincing argument otherwise. When you have people like Alan Greenspan - the Oracle even recognizing that there should have been more oversight and regulation, there really is no valid argument against more regulation.

[dalegg 143]

As the Federal bailout bonanza prepares to spread beyond the mortgage and financial sectors to fill Detroit's depleted coffers, few economic or policy analysts have spared a thought for the destitution of the U.S. government itself. Put simply, our government doesn't have enough spare cash to bailout a lemonade stand let alone a bloated and failing industry that is losing tens of billions of dollars per month. Washington can only offer funds that it has borrowed from abroad or printed. Unfortunately, the nation is in the grips of a delusion that money derived from these sources has the power to heal. But history has clearly shown that borrowed or printed money only has the power to destroy.

I don't know what the hell your talking about. There are still hundreds of checks available in the checkbook.

[Pooky 3,786]

Don't let the anti-deregulationists see this. They'll have a fit.

How do you figure?

So for the same reasons that Washington should not bail out General Motors, the world should not bailout America. Like GM, our economy is in desperate need of a restructuring. Spending must be replaced with savings, and consumption with production. The service sector must shrink and manufacturing must expand to fill the void. The dollar must fall, wages in America must be brought down to a competitive level, and hopefully government spending and burdensome regulation can be reduced.

I just read the article.

Where's the persuasive argument that regulation is what got us into this mess?

Although the war cry for more regulations may sound rhetorical, it is in fact the direction we need to go. This financial collapse can be reduced to down to one single word - deregulation....and I'm not just pulling that out of my #######. I have yet to read anything of substance that makes a convincing argument otherwise. When you have people like Alan Greenspan - the Oracle even recognizing that there should have been more oversight and regulation, there really is no valid argument against more regulation.

Why have a go at me? I never passed comment, agreeing or otherwise with the article. I merely pointed out a paragraph that I thought would get jumped on by a few people who regularly post here. Pardon me for being right.

[one...two...tree 2,762]

Don't let the anti-deregulationists see this. They'll have a fit.

How do you figure?

So for the same reasons that Washington should not bail out General Motors, the world should not bailout America. Like GM, our economy is in desperate need of a restructuring. Spending must be replaced with savings, and consumption with production. The service sector must shrink and manufacturing must expand to fill the void. The dollar must fall, wages in America must be brought down to a competitive level, and hopefully government spending and burdensome regulation can be reduced.

I just read the article.

Where's the persuasive argument that regulation is what got us into this mess?

Although the war cry for more regulations may sound rhetorical, it is in fact the direction we need to go. This financial collapse can be reduced to down to one single word - deregulation....and I'm not just pulling that out of my #######. I have yet to read anything of substance that makes a convincing argument otherwise. When you have people like Alan Greenspan - the Oracle even recognizing that there should have been more oversight and regulation, there really is no valid argument against more regulation.

Why have a go at me? I never passed comment, agreeing or otherwise with the article. I merely pointed out a paragraph that I thought would get jumped on by a few people who regularly post here. Pardon me for being right.

Pardon me for assuming you were in favor of deregulation and felt that one little segment of the article made a case for it.

[Heracles 417]

Government spending is not the issue. What you spend it on is. Funny how so many of my fellow conservatives cry about government spending yet don't shed a tear on the trillion we just wasted in Iraq. Or the $550,000,000,000 we waste annually in areas such as having bases in Italy, Germany and South Korea. I am all for defense spending on R&D and building the latest technology, a must actually, but am totally against the billions wasted by the military simply because they can. Like purchasing a $45,000 value which cost $50 to buy at lowes. Not only are such common wastes a disgrace, as they rip off the American tax payer, but also extremely unpatriotic.

I was watching fox news and saw Rove mention how we should not spend money on infrastructure projects but should lower the business taxes. Would that happen to be for the same businesses which will shut down an operation and ship it to another nation with lower costs in a heart beat. Certain Republicans in this country have lost the plot. They need to get out of their #### hole state and travel a little. God forbid go to a country which is doing things much better.

Edited November 25, 2008 by Aficionado

[Pooky 3,786]

Government spending is not the issue. What you spend it on is. Funny how so many of my fellow conservatives cry about government spending yet don't shed a tear on the trillion we just wasted in Iraq. Or the $550,000,000,000 we waste annually in areas such as having bases in Italy, Germany and South Korea. I am all for defense spending on R&D and building the latest technology, a must actually, but am totally against the billions wasted by the military simply because they can. Like purchasing a $45,000 value which cost $50 to buy at Lowes. Not only are such common wastes a disgrace, as they rip off the American tax payer, but also extremely unpatriotic.

I was watching fox news and saw Rove mention how we should not spend money on infrastructure projects but should lower the business taxes. Would that happen to be for the same businesses which will shut down an operation and ship it to another nation with lower costs in a heart beat. Certain Republicans in this country have lost the plot. They need to get out of their #### hole state and travel a little. God forbid go to a country which is doing things much better.

There's R&D that you can see, and there's the convenient hole that the conspiracy freaks like to call "black projects", the ever-so-secret stuff that you don't see until it's been around a while. How do you fund that? Simple, cost overruns and overpayments.

As for the overseas bases, the ones in Europe are a holdover from the Cold War and the US military can probably do without a great number of them. The UK is still the biggest aircraft carrier in the US Navy, though. The bases in SE Asia, on the other hand, are a deterrent and still have an operational use. Better to be there and not fight, than to join a fight already in progress. Remember, states like N.Korea, China and Indonesia have a different perspective on territorial issues than the USA. Better to show force now and not use it. The alternative costs a lot more, in human lives and money.

[mRx 16]

Where's the persuasive argument that regulation is what got us into this mess?

Although the war cry for more regulations may sound rhetorical, it is in fact the direction we need to go. This financial collapse can be reduced to down to one single word - deregulation....and I'm not just pulling that out of my #######. I have yet to read anything of substance that makes a convincing argument otherwise. When you have people like Alan Greenspan - the Oracle even recognizing that there should have been more oversight and regulation, there really is no valid argument against more regulation.

When the money trail is followed to it's origin, it'll lead you straight to the doorstep of the Federal Reserve. No way around it. Look at a dollar bill, or Federal Reserve Note. The Fed controls, or regulates, the economy through fiat money issuance, and interest rate control. The money was pumped to Fannie and Freddie, which was allowed pretty much unlimited credit and little oversight (this is far from deregulation and laissez-faire economics, this is just not supervising and overseeing existing regulation. Big difference.) Fannie and Freddie were then able to make extremely low interest loans possible. This artificial wealth created the housing boom. As in every regulated business cycle, the bust follows the boom. Because somebody's got to pay. Infinite boom would bankrupt us. The bust is the recovery phase, it's necessary.

But the free-market will always be the scapegoat. That's because the economic view of the modern world rests with one theory, the Keynesian theory. It's been the Bible of the Economy since the '30s. No surprise that our currency has devalued over 90 percent since then.

As for Alan Greenspan, he wasn't always senseless.

http://www.constitution.org/mon/greenspan_gold.htm

[mRx 16]

Funny how so many of my fellow conservatives cry about government spending yet don't shed a tear on the trillion we just wasted in Iraq.

The conservative party has truly lost it's way. Bush's "compassionate conservatism" nearly doubled our National Debt.

And the best the GOP could put out this election was John McCain??!!

You should jump ship while you still can.

[Hilarious Clinton 452]

The solution is to print more money. Problem solved.