People shouldn't think that this $700 Billion bailout bill will solve all our problems. Last week we were told that the economy was in grave danger of locking up and causing a financial disaster similar in size to the Great Depression of the 1930s, and that this $700 Billion bailout bill was our only hope of avoiding it. If it doesn't work, apparently we're in big trouble. But if it DOES work, I'm concerned that people will say: "Whew, we dodged THAT bullet!", and then go back to business as usual. But can't be like that. I'm waiting for our leaders to tell us the truth: unless we as a nation voluntarily make drastic, uncomfortable changes, there will be some other crisis in the on the same scale in the near future which we WON'T be able to avoid, even for $700 Billion.
Consider the ongoing cost of this $700 Billion package. Of course the government has to borrow the money. Even at 1% interest, this is $7 Billion a year, or $23 per person per year. So, just to cover the interest (at this low rate), taxes on a family of four would need to rise by almost $100 per year, forever. Interest rates on government bonds are low right now, because investors want the 'safety' of government bonds compared to the uncertainty of stocks right now. But if interest rates rise, the ongoing cost of the bailout increases, too. Say interest rates go to 5%. Then the burden per four-person family goes to $460 per year. And that's just for the bailout itself!
Part of the draft bailout bill was raising the ceiling on the national debt to $11.3 Trillion. At 1% interest, that's $113 Billion per year, or $1500 per family of four, per year. That's just to pay the interest on the debt. And if the interest rate rises to 5%, the figure goes to $7500 per family, per year, just to pay the INTEREST on the federal debt, before providing ANY government services.
But you might ask "why all the doom and gloom? The Treasury doesn't have to pay anything like 5% on bonds." Here's the big reason: inflation causes interest rates to rise, and the simplest way to cause inflation is to print a lot of new currency with nothing to back it up. And we're about to 'print up' about $700 Billion in new currency.
So the cost of the $700 Billion bailout plan will clearly push us closer to the disaster we face with higher interest rates. Even if the bailout does what it's supposed to do, we're in trouble.
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5 comments:
Ned,
I hate Google blogger. I write a long response and then I can't get into the account. It doesn't accept the things I see on the screen. I may be the only person in the United States that can't use it effectively, but I can't.
I wrote a long response to your blog and it went away because it wouldn't accept my password. I don't have time to do it again.
Bottom line is that Ron Paul addressed lots of these issues in the primary and he got less than 10%. Nobody wants to hear. We will have to fall. It's kind of like gravity. You can't repeal such laws.
The one comment that I want to lift up from my "disappeared post" is that the plan give power to the Sec. of the Treasury, NOT TO THE PRESIDENT. It makes the SecTres responsible directly to Congress. Does that cut the Chief Executive out of the cycle? Seems to be really a strain on the Constitution.
Secondly, the NPR reported yesterday that this would be "created money" not a loan. Their expert also said that the money would be removed from the system by the Fed when it was no longer needed. As Bethany sometimes says, "Sounds like they've been smoking crack."
Certainly, there have been people who argue for such a system in which the money supply is adjusted interest free, but I don't think anybody (in the US) has done it. Keynes argued for such a system. THe New Dealers tried the first half (with loans) but we've never had the discipline to pull back and repay the loans in good times (with two exceptional periods).
THe other issue that no one's talking about is that interest has traditionally run between 3 and 5 percent. If interest rates go up to 5% on a 10 trillion dollar debt, our system is finished. The only way out is hyper inflation, as per Germany in the 1920s.
Walt -
Re: Ron Paul -
I recall hearing him say a lot of things that were right on target. But there were other things he said that, to me, were totally off the wall, and that made me write him off. I wish I could be more specific. My memory was that I disagreed with him on so many things that he stated very bluntly (during debates and interviews I saw; not things I heard second-hand) that I knew I didn't want to vote for him.
I wouldn't bet against your statement 'We will have to fall'. I hope that how hard we fall is still dependent on what we do from this point on.
- Ned
Re: SecTreas reporting to Congress
I do think our leaders need to go back to the Constitution before they settle on a plan in these tumultuous times. It's my impression that if President Bush himself asked to be put in charge of $700 Billion in new funds he'd be laughed out of town. So they're trying to do an end-run.
Re: 'created money'
Huh? It's amazing that they've come up with a problem that might NOT be 'solvable' by creating $700 Billion. That has always been an option. It's just that, before, people always paid attention to the problem that 'creating' $700 Billion would cause.
Re: hyperinflation, Weimar Germany-style
I fear that's what we face. I know our father wouldn't be surprised by it, but he would have been astonished to learn that we could get $10 Trillion in debt before it occurred. I recall, back in the late 1970s, having conversations about impending collapse, and at that time (I recall) the debt was less than $1 Trillion.
I agree with you that some of what Ron Paul says would not work, immigration being one of those areas.
The biggest strike against Ron Paul is that he's a Republican. I am convinced that there is no change of reforming the system, unless we have multiple viable parties.
There is nothing in the Constitution about a two party system. All of the rules of the House and Senate are tied to two party rules. Until there is no majority and we have a coalition that can break down if anyone gets high handed, things won't change.
We are in a perpetual election cycle. FIfty.one percent is a mandate. Campaigns hinge on "lipstick on pigs" instead of issues. Candidates are focused on not saying anything that mighty offend some group. I still don't know what Obama and McCain want to do, and how they think the office of the President can address their ideas. Saying you want universal health care doesn't mean a thing, unless Congress will pass it.
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