$700 Billion is Small Change

It seems that the deflationary effect of banks and other lenders pulling in their margins was too much for the Keynesians at Treasury to handle. Typical for Keynesians they will massively inflate the dollar in response. They have already done so to the tune of $3.18 Trillion, which is in addition to the $700 Billion Troubled Assets Rescue Plan, or TARP. Today, the Fed promised to make more than $7.76 Trillion available to keep the financial bubble inflated instead of letting it pop. This financial bubble certainly would be painful if it popped. But imagine how big the next bubble will be. The housing and credit bubble we’re dealing with now was created by keeping the Fed’s discount rate at 1% for two years after the combined hit of the dot-com bubble failing and 9/11. Add in Fannie Mae’s and Freddie Mac’s misbehavior and the perverse incentives of the Community Reinvestment Act (CRA) and it’s easy to understand why the real estate markets have become so toxic to the greater economy.

What else is going on? Obama wants to give another trillion or so in stimulus plans to slow down the inevitable collapse and make it last longer. The TV networks are going to ask for a bailout. The government bailed out Citibank. The Fed has a secret $893 Billion loan portfolio. Look at the pieces of the $7.7 Billion bailout, or is it $7.4 Billion. Sheila Blair plans to spend $24.4 Billion to bailout homeowners who haven’t been making their payments.

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2 thoughts on “$700 Billion is Small Change

  1. If things continue this way, it is going to get ugly. It doesn’t all have to be bad news, though. If some of the underlying problems were addressed, we could conceivably pull ourselves out of the bubble. This would require our lawmakers to stop pandering to public opinion and make some hard choices (e.g. supporting a restructured deal with the UAW rather than just demanding greener cars).

  2. There is another monster coming down the pike that I ran out of time to put into that post. I’m planning to hit Social Security and Medicare’s $54 Trillion in unfunded obligations sometime soon. Obviously that will break the bank, since even if the gubmint taxed 100% of GDP it would take four years to pay that off. Even hyperinflation won’t cure that ill. I think it would take something like a Constitutional balanced budget amendment with a hard 10% or 25% of GDP limit on gubmint spending to generate the growth necessary to fix that.

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