In his recent column “Congress bailout patriotic for ailing American economy”, Matthew Kirchner puts forth a host of fallacious claims in defense of the possible $700 billion bailout package for the financial industry.
Kirchner stated that “many of us find ourselves ignorant of the machinery at work.” For educational purposes, I would like to refer Kirchner to an opinion piece I wrote for the Daily Forty-Niner on Sept. 7, 2004.
I stated in the article that the combination of consumer and government deficits would eventually cause “interest rates to rise, forcing scores of people to default on their mortgages,” which was very likely to “cause widespread panic in the international financial markets, leading the holders of U.S. debt to sell it off.”
There is very little support for Kirchner’s contention that “the fundamentals of our economy remain strong”. For more than a decade, America has been amassing an obscene amount of debt, both public and private. This has financed such largesse as “McMansions” for the middle class, the Iraq war and Social Security.
Someone is required to finance our spending and for many years we have relied upon the “generosity” of foreigners. The rest of the world is basically paying us to use their oil, drive their cars and watch their televisions. The world has never seen such massive international subsidization of a single nation.
What we are witnessing is the beginning of the end for this unusual arrangement.
As for the bailout package, it is absolutely ridiculous to assert that the government and the central bankers who got us into this mess are the ones who will come in to save the day. It was reckless spending and artificially low interest rates that begat this crisis, so the solution is more reckless spending and even lower interest rates?
With a whopping budget deficit of $12 trillion, there is only one way that the central bank can integrate additional expenditures: monetize. Money will be printed, making each and every penny already in circulation worth less and less. A crushing tax burden is certainly in the works, and will likely hamper any type of economic recovery.
A household should only be allowed to spend what it earns, or that which it can pay back with interest. Nations should not be any exception. But unfortunately, the free market does not determine the supply of money. There seems to be a belief that the Federal Reserve can conjure up money out of thin air.
Of course, the only thing that our central bankers are doing is diluting our savings and fomenting future crises. Economic pain is unavoidable at this point. The only choice we have is whether we want to put off the suffering to some later date which will invariably make it much worse.
Sterling Harris is a senior chemical engineering major and a contributing writer for the Daily Forty-Niner.
