I was reading a Reuters story yesterday, when the paragraph below caught my eye:
WASHINGTON (Reuters) – President Barack Obama’s top economic adviser would not rule out on Sunday that more money may be needed to stabilize the U.S. financial system as a deep recession increases banks’ losses.
This brought to mind a magazine story I read some years ago, on the marketing strategies of heroin dealers in the Cabrini-Green development in Chicago’s North side, where the interior walkways were completely fenced off in an attempt at reducing the number of people being thrown to their deaths from the buildings. The magazine spoke about the deadly efficiency of the pusher’s simple marketing scheme: give away the heroin until the individual becomes hooked, then take everything from them as they attempt to feed their ever-increasing need for the drug.
Question…how are heroin and government bailouts similar?
Answer…the more of either that you get, the more you need.
I guess the best description for the Obama plan is “Junkie Economics.”
The Reuters story goes on:
Lawrence Summers, head of the National Economic Council, also said there was no question that tax cuts passed under former President George W. Bush needed to be repealed, though he would not be pinned down on exactly when.
So, the plan to overcome this recession is to repeal the tax cuts and increase government spending?
The government will borrow more, and the people will have less cash to spend on stuff.
Money Week’s Editor John Stepek piped in on this idea months ago:
You’d think that the message might be getting through by now.
If you spend too much money today, you’ll have to pay for it tomorrow. Or next week. Or next year. But at some point, you will have to pay it back.
This isn’t a moral point, or some sort of puritanical finger-wagging. It’s just the way the system works. People who lend you money tend to want it back at some point in the future. If they’ve been careless with their credit-checking, and you can’t pay it back, then they will lose money, no doubt hurting their creditors in turn.
Consumers are starting to get it. They’re spending less than they did. But the government seems to be having difficulty getting to grips with the concept…
What we DO know is that the government has no money, so they’ll have to borrow money, raise taxes, or both, but Mr. Stepek serves up a dose of reality in his article:
the bigger issue is that the choice between raising taxes and borrowing more money is in fact an illusion. Borrowed money has to be paid back at some point in the future – whether that’s in the standard way, or via an inflationary currency crisis. So all government spending ultimately comes from the taxpayer.
So when and if the private sector returns to health, it immediately faces the prospect of higher taxes or higher inflation to pay for all the government “deficit spending”.
Yes we can…slide into another Great Depression.