Even though it has not worked in the past, we are repeating over and over the policy that has led to our present economic recession.
Our political leaders are following the same script that will entail, not a solution to our woes, but merely are a postponement of the necessary changes.
Some have been encouraged by the initial response to the recent $1-trillion bailout package, but that enthusiasm surely will vanish once it becomes clear that it will not accomplish its purpose.
The symptoms of distress may be alleviated, but by perpetuating the strategy that put the economy into the mess, there will be an inevitable, further crisis that will be worse than this one.
Until we face up to the chronic problems, a destabilized economy is unavoidable.
It should be recognized first of all that we are “financing” this bailout by literally printing the money, and that has disastrous consequences. Every nation that has debased its currency in this way has faced catastrophe. Germany in the 1920s, many Latin American nations, and currently Zimbabwe, are prime examples of that.
Several years ago when a recession appeared, interest rates were cut, consumers responded and the economy rebounded. Nations that exported to North America jumped on the bandwagon and increased their exports to this part of the world.
Our economy answered the consumption binge by incurring record debt burdens and dropped the savings rate to nearly zero. The crisis was put off for the time being. Our trading partners re-oriented their economy to meet the demands of the consuming public. Those exporters ran up huge surpluses that they invested primarily in U.S. bonds, which helped keep interest rates subdued. It all seemed to work like a charm.
As consumer spending reached unprecedented levels, the public financed that by borrowing against the nominally rising value of their houses. People bought things that they could not afford. Then house prices and consumer spending collapsed.
Nowadays our political leaders are eager to restart borrowing by overextended consumers, and prevent any correction in the grossly inflated housing market. They just want to be doing something. The debt implications are being overlooked, perhaps as in the old French saying, “After me, the deluge.”
By over stimulating internal private consumption and ignoring the indebtedness of consumers, there may be a short-lived economic recovery that will be followed by an even greater economic downdraft. Clearly, we should withhold applause for present economic policies.
More of the same old program simply will not work.