“He that goes a-borrowing goes a-sorrowing”

Here is another maligned minority ready to blame others for its own actions, and expecting the taxpayer to foot the bill: “FORECLOSURE VICTIMS INVADE BEAR STEARNS HQ, PICKET JP MORGAN.” It’s not that our hearts do not go out to those people, but why should those not in foreclosure pay for another person’s poor judgment or even avarice?

Lost in the recent high stakes financial shenanigans are the savers, people who did not avail themselves of “easy money,” to buy homes beyond their economic reach. Or those who refused to be seduced by home equity loans to buy into the American dream of vacations, new cars, the easy, beautiful life which assaults us in an continuous loop on the media. Or those in retirement who are dependent on their savings and social security to see them through. They are everything our government is not: responsible, truthful, balancing their budgets at all costs.

How can we punish savers? Let’s start by giving them investment options based on chimerical ratings that are established by rating agencies paid by the very institutions they are rating. Then let’s ratchet down their income from CDs as we try to bail out an economy of credit excesses. Let helicopter dollars rain down on all [http://lacunaemusing.blogspot.com/2008/02/tautological-economics.html] to encourage more spending! But, that’s not enough; let their government take an unprecedented $29 billion dollar risk, ultimately at the taxpayer’s expense, to bail out the bond and equity holders of Bear Stearns (an action rationalized as needed to save our entire financial system). Let’s also talk about eliminating a more progressive graduated income tax in favor of a flat tax so, when savers spend their savings, which have already been taxed once when they were first earned, let’s tax them again via a national sales tax. While we’re at it, let’s also undermine the dollar and introduce inflation so their savings buy less. Then, finally, as social security benefits are adjusted by inflation, let’s artificially understate the real inflation rate to further erode their benefits!

What would Ben Franklin say today, “he that goes a-saving goes a-slaving?”

Tautological Economics

After the Federal Reserve successfully contributed to a real estate bubble which has yet been allowed to completely unwind, Congress could not resist scoring political points, approving a $168 billion economic “rescue” package, the majority of which will be given to taxpayers as rebate checks. The political tag team of President Bush and House Speaker Nancy Pelosi said the following:

Bush: “This plan is robust, broad based, timely, and it will be effective.”
Pelosi: “We are making history. What has passed the Congress in record time is a gift to the middle class and those who aspire to it in our country.”

While the part of the package that increases the level of expenses that businesses can immediately write off would seem to make sense, as this incentive is almost certain to guarantee investments in new capital equipment and is sure to stimulate job creation, the “gift” part is tantamount to handing a drunk a cheap bottle of wine.

True, it is in keeping with Keynesian economics, the theory being that this handout will be spent by the consumer and will reverberate throughout the economy. As noted in a footnote in a speech given by Ben Bernanke in 2002 before he was Chairman of the Federal Reserve, “Keynes once semi-seriously proposed, as an anti-deflationary measure, that the government fill bottles with currency and bury them in mine shafts to be dug up by the public.” Of course, that was before helicopters so we now have a better method of distributing money to the masses without having to haul our sorry butts off to a mine shaft.

At least Keynes might have been referring to currency already earned, but where is this $168 billion coming from? We’re going to print it or borrow it at the expense of future generations. We will simply increase the deficit. Where will the money go? Maybe we’ll buy some plasma TVs or other electronics at our local Wal-Mart, most of which is made in China, the country that will be lending us the money so we can make those purchases. This would seem to be a form of tautological economics but if it works, why not borrow $1.68 trillion instead of a mere $168 billion? We can use the larger refund as down payments on new mortgages to buy some depressed real estate. Everybody wins!

But getting back to reality, most of the money will probably go to pay off debt, but given the extent of sub prime and foreclosure issues, the rebates will only briefly push back the inevitable. In the 1980s we were able to deal with The Savings and Loan Crisis through the formation of the Resolution Trust Corporation. Shouldn’t Congress be busy addressing our fragile economic system with a more permanent solution than just throwing money at the problem, a temporary fix at best?