Propping up bad credit with more debt
There seems to me to be a fundamental flaw in the bailout plan recently defeated. At its very heart, our current financial problems are a crisis in the confidence in credit, and yet the government’s proposed response is to prop up bad credit with even more debt.
A restoration in confidence in credit is not going to come from the borrowing of more money but through an infusion of capital. That is why proposals like cutting the capital gains tax and the corporate tax rate make inherently more sense than the additional borrowing of the equivalent of the entire GDP of the Netherlands.
