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Bailout-a-Go-Go
Peter Schiff
Gold
Seek
Tuesday, Dec 02, 2008
Keeping track of the ever mutating bailout debate
is becoming increasingly difficult. With the Federal money spigots
now thrown wide open, and with no one of influence advising restraint,
the only debate is where to direct the torrent. During the past
week, the talk began with Detroit and Citigroup, but by Friday
had shifted to a massive "stimulus package" to bail
out consumers. The early buzz includes some very large figures.
But first, a bit of a recap:
On Monday, the $300 billion Citigroup bailout took center stage.
Once again Henry Paulson decided to throw taxpayer funds into
a bottomless Wall Street money pit. Shockingly the Citigroup plan
did not seem to demand any serious curtailment of lavish salaries
and bonuses. Paulson's shameless largesse to his Wall Street friends
has elevated financial industry bonuses to entitlement status.
"Remember Lehman" now seems to be the rallying cry
to justify any and all financial bailouts. But Lehman's demise
is in no way responsible for our current problems, and the decision
to let them fail is the only bright spot in otherwise consistent
record of policy mistakes. We bailed out Bear Sterns and AIG,
and what did that get us?
(ARTICLE CONTINUES BELOW)
The Citi bailout greatly increases the chances for a similarly
misguided auto industry bailout. After all, if taxpayers ensure
multi-million dollar bonuses for Citi executives, how can they
refuse similar help for eight-figure auto executives and $70 per
hour unionized auto workers?
It was inevitable that the size of these bailouts would up the
ante for an economic stimulus package aimed at consumers. Not
missing a beat, Barack Obama announced a $700 billion dollar fast-tracked
package that will likely exceed $1 trillion before passage. (Trillions
are the new billions.) The plan must be sending shivers down the
spines of our foreign creditors who are expected to foot the bill.
Add this cost to the hundreds of billions of prior stimulus and
bailout packages, and the cost to our creditors is quickly heading
into the multi-trillion dollar range. It can't be long before
they cry uncle and repeat the words of prizefighter Roberto Doran
"No Mas."
With so many familiar faces on his new economic team, Obama signaled
his intention to "hit the ground running." With the
possible exception of Paul Volcker, all of his top appointees
share the view of the Bush administration that the root causes
of our economic problems lie in the reluctance of banks and other
financial institutions to lend. As a result, we can expect a virtual
continuance of current policy.
It is no surprise therefore that both Democrats and Republicans
offered healthy "huzzahs" to Henry Paulson's latest
bazooka: $200 billion to purchase securities backed by auto, student,
and credit card loans. It is hoped that with this transference
of risk to taxpayers, lending institutions won't be so cautious,
and the credit-fueled American economy can thrive anew. This is
unalloyed insanity that can only lead to total ruin.
Paulson stated clearly that he would like the Fed to print as
much money as it takes to revive the economy. Unfortunately the
only industry likely to be revived by such policies is printing
itself. But even this will not help the United States as the majority
of our printing equipment is imported from Switzerland.
But what if the root of our financial problem is that American
consumers have already taken on too much debt? By trying to force
feed even more credit down the throats of already overly indebted
Americans, Paulson's plan will only weaken the economy further.
Building on the groundwork laid by Paulson, the massive stimuli
that will likely be pushed through by Obama and an overly eager
Democratic Congress will further impede any real recovery. By
swallowing up all available capital, spending to create government
jobs will destroy far more private sector jobs. Rather than expanding
government and increasing the national debt, policy makers should
be thinking about doing the opposite.
The brutal truth that no one in Washington dares acknowledge
is that our systemic economic problems can only be solved by a
reduction in consumer borrowing and an increase in savings. We
must repair our national balance sheet and a painful recession
is the only path to achieve this. By interfering with the market's
attempts to bring this necessary change about, all the proposals
currently coming from Washington or bubbling up from think tanks
and Nobel prize-winning economists, will only exacerbate the imbalances
and lay the foundation for even greater losses and a larger crisis.
A short-run reduction in GDP is a sacrifice we must be willing
to accept. If we swallow this medicine now, in the long run we
will have a sustainable rise in GDP as higher savings leads to
increased capital investment, greater productivity, and eventually
a lasting increase in consumption.
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INFOWARS:
BECAUSE THERE'S A WAR ON FOR YOUR MIND
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