Shocker: Government Attempts To Rescue Economy May Prolong Recession
If only someone had seen this coming…
WASHINGTON (Reuters) – U.S. companies, consumers and communities may grow so addicted to government financial help that cutting them off could trigger another recession soon after the current one ends.
Between the U.S. Federal Reserve’s trillions of dollars in lending programs, the $787 billion stimulus package and $700 billion — and counting — in bank bailout funds, no one can accuse officials of soft-pedaling their crisis response.
But there is increasing concern that when the flow of public money subsides — beginning next year when much of that stimulus package is spent — the economy still won’t be strong enough to stand on its own.
“The stuttering attempts to repair the banking and lending mechanisms so far by the new administration suggests that by late 2010, the specter of a second dip into recession will be looming large,” said Merrill Lynch economist Sheryl King.
The post-”stimulus” recession is likely to be exacerbated once state governments have to shoulder the expense of all the government the “stimulus” created. Somebody will have to pay for the on-going government programs and expanded entitlements created by that legislation, and unless the federal government somehow ponies up more money it doesn’t have (meaning more debt and eventually more taxes) the states are going to have to pay for it. That means more budget short falls, more taxes, and ultimately more economic stagnation.
I and a lot of other commentators as well have said time and again that simply throwing government money at the economy isn’t likely to fix anything. Sending federal money to state governments that have overrun their budgets doesn’t fix the problems that caused those budget overruns in the first place. Bailing out insolvent financial companies doesn’t fix why those companies are insolvent in the first place. Bailing out people who can’t pay their mortgages doesn’t fix why those people can’t pay those mortgages in the first place.
And bailouts create an expectation for more bailouts.
As long as we keep throwing money at all these troubled areas of the economy we’re just going prop up the status quo instead of fixing it. It’s like painting a rotted fence. You can prime it and paint it and make it look really nice from a superficial perspective, but the fence is still going to be rotten under all that paint. To fix the fence you have to rip it down and build again.
That needs to happen in our economy. The insolvent companies need to fail. The people who can’t pay their mortgages need to default. The state that can’t balance their budgets need to elect new leadership who will cut back on the spending that’s driving the problem.
Will it hurt to have banks and individuals declaring bankruptcy? Sure. But it’ll hurt a heck of a lot less than trillions in new government debt that we must pay off with big new taxes at some point, whether it’s we Americans alive now who pay it or our children and grandchildren.
