American consumers are awash in debt, drowning in it. This is the fundamental issue with the stimulus proposal. We’re trying to borrow our way out of debt. Unfortunately, we need a recession. That is, consumption must decline because for some time we have been consuming more than we produce or have reasonable prospects of producing. Monetary policy has been used to inflate a series of bubbles to avoid the consequences of excess debt, and the more we try to hold it off, the worse it’s going to be. Bourbon works as a hangover cure, but only for a while.
This isn’t from Heritage or Cato or National Review. This bit of common sense is from the Atlantic Monthly. There is large bipartisan agreement on the fact that all the machinations in Washington are doomed. Stimulus, bailout, whatever you want to call it, it will fail to stimulate anything but debt, or bailout anyone but well-connected cronies. No one else will benefit and a lot of innocent people (taxpayers) will ultimately lose even more if we don’t confront reality.
The reality is that we’re bankrupt–all of us: households whose debts grossly exceed assets, banks whose balance sheets include vast real estate holdings that on paper still have inflated values, car companies whose only “profitable revenue” for years has come from forcing their own distributors to “buy” their products financed by loans from themselves, and governments whose obligations cannot be met. From shuffling credit cards to flipping houses to GMAC to Social Security, it’s all a Ponzi scheme.
We are not going to heal until we expose the wound to air. Mark to market for mortgage backed securities is not the enemy, it’s the solution to finally giving banks a bottom. GM and Chrysler both need to fail. Now. Actually, that’s wrong; Chrysler needed to fail thirty years ago when it was bailed out the first time. Houses need to be foreclosed on those who aren’t meeting payments. Entire regions of the country are overpriced. My own neighborhood was priced at more than a half million dollars an acre for a vacant lot not too long ago. In Tennessee! How stupid is that? The real value is a fraction of that. As for SS and Medicare, they are insolvent. They must reduce benefits that kick in later in life. That’s reality; it’s time we deal with it.
Read the whole thing.
Even more depressing is learning who will pay what to afford the “stimulus” bill. It averages to only $6,700 per household. But wait, not all households pay taxes. Broken down by income levels the result is pretty depressing. The good news, however, is that we will probably never have to pay the nearly trillion dollar bill back. Not directly. Instead it will be taken from all of us–even the non taxpayers–in the form of inflation.
An alternative view: Inflation is a good thing. I joked a few weeks ago to some friends that those who bought houses they couldn’t afford might end up having made a wise investment. If they can survive past the next few months and years, the coming inflation might bring down the real cost of their mortgages to where they actually become affordable. Meanwhile, those of us who saved instead of spent, may find the value of our savings depleted.
Since I mentioned the National Review, Heritage, and Cato earlier, here’s a good resource full of links. The money quote likens the stimulus bill to “trying to cure dysentery with Ex-Lax.”