Let the Good Times Roll (Again)

Good morning! As I drink my first cup of coffee and fire up my laptop, the first news is from the overseas stockmarkets, which have responded very positively to U.S. government intervention by the Fed and the Treasury. One therefore expects the U.S. stockmarket to follow suit. But who knows? I saw this quote from the NYT:

“It is hard to see whether it will bring back the confidence in the long term,” Mr. Popper said “We had so many false recovery beginnings already. One has to be prepared for some storms ahead. I don’t think this is the turning point. We still have the restructuring of the entire industry ahead of us.”

My concern is this: the proposal seems to be to create a new government-owned corporation that would buy distressed mortgages from banks and and other financial institutions. In other words, this is an enormous bailout, the biggest yet, whose burden will fall upon the American taxpayer.

Now, we American taxpayers won't actually be asked to pay more taxes. No, that's taboo in our political culture. So, it just goes 'on the tab', that accumulation of fiscal liabilities in the trillions of dollars. When will we actually pay that tab? When inflation wipes us out (one of the results of financial irresponsibility), or when America truly goes bankrupt and no foreign countries come to our aid with foreign capital by buying our Treasury Bonds. That will then be the true repayment, because you and I know that we're not going to be asked to sacrifice to pay back all of that debt. We probably couldn't do it even if we were asked and agreed. But believe me, no politician will ever ask us to do that, because they wouldn't get elected or reelected (just ask Jimmy Carter).

When inflation or bankruptcy (or both) eventually wipes us out, then we'll be essentially a very large banana republic, with one exception: we'll have the largest military machine in the world. A poor but militarily powerful country. Let's see: who does that remind me of? Which, if I were the rest of the world, would scare me very much.

But until then, it looks like we might be able to go back to our old ways for awhile: spending more than we make, borrowing more than we save, consuming more than we produce, and putting the debt on our descendents to pay when we're no longer on the scene. No sacrifice required, no change in our bad habits, still in denial. Let the good times roll (again).

I guess I'm not that impressed with the plan. Hmmm, this is very good coffee.