Stop! Don't Pass That Bail-Out!
"A trillion here, a trillion there and next thing you know, you're talking real money."
Time is short. Congress is getting set to act, possibly this week. We need to stop them.
First, do we want to have this crash now or later? One way or another, we will have it.
Our choice is to have this financial crash now, or to postpone the very same crash until later. Having it later will be even more painful. That is because the pain will be extended over a long time. Either way, the system must work its way through taking the losses it must take, now or later. A bail-out just moves part of the business losses to us, the taxpayers. The down-turn will continue until until the transferred losses are hammered out of tax-payers. Then the economy can move into recovery.
Which is better, now or later? Having it now would make a sharp "V-shaped" downturn. Having it later would lengthen it into an "L-shaped" downturn. A "V" goes sharply down, then sharply up afterward. An "L" goes sharply down, then stays near the bottom a long time, until all the losses are finally taken and out of the system, than goes into recovery. Whether it is V or L depends on how fast we take our losses. We need to "bottom out" as fast as possible, to recover as fast as possible.
Banking-system crashes have come to both Japan and to West Asia. In the West Asian case, they took their losses on the chin, fast, not trying to save anybody. Recovery was swift - a "V."
Japan, on the other hand, bailed out every financial company at risk. It's downturn lasted at least 10 years before recovery began. It was a long, long recession.
It's our choice. Same pain. Fast? Or Extended?
We also have not grasped how big this is. In the last few weeks, the federal government has already bailed out one outfit after another. Even before Congress acts on the current bail-out, we have already spent something over $2 trillion in a few weeks. (Yes, trillion. Are we talking real money yet??) Now Congress has a $700 billion bill on its plate. If it is its old self, it could raise that $700 billion to another $1 trillion before they pass it.
Probably no taxpayers, anywhere, realize how much that will mean in new taxes.
Probably we are already on the hook for the $2 trillion already handed out. Do we want to add another $1 trillion to that, for a total of $3 trillion? Over and above our regular budget?
Second: There's more. Even worse downturns are ahead. Postponing this one could make it overlap with the next one. Even the next two.
In this downturn, there are at least some physical assets underneath the bad loans: buildings. They are worth something more than zero. That money can be re-couped sometime, somehow, at least in part. There are no such assets behind the next two downturns.
One downturn will come from Social Security/pension plans. There are no physical assets there. Still, there is at least a very inadequate income stream from payroll taxes.
The other downturn will come if or when we decide to have socialized medicine, more or less. There are no physical assets there, and no significant income stream, so the impact will be even greater.
Boomers started to retire this year. They are a huge generation. They did not replace themselves with a generation at least their size. So there will not be enough workers to support them. (Had they lived, the 40 million aborted kids would have made the number of supporting workers come out a lot better for Boomers.) The retirement problem is also aggravated by our longer life spans. The worldwide problem of declining birthrates combined with longer life spans for elders.is generally worse than ours, and will further aggravate the U.S. retirement problem.
The cost to taxpayers will be huge, from increases in both taxes and inflation, just from Social Security. Adding the costs of more or less socialized medicine could cost even more than Social Security. Taxes to support both would be toxic for non-retirees and for the economy. (Inflation is one way to reduce the tax burden paid by workers to support elders. Elders will have mostly fixed incomes. Workers will not.)
Do we waht to add another huge tax increase from this present financial crash to those new taxes that are also coming? We need to get this present crisis one over with, now! Take our losses now, and hopefully have a breather before the next crises hit. This present crisis is the only one where we even have that choice.
(For more, see Spengler at http://www.atimes.com/atimes/Global_Economy/JI23Dj06.html)
Time is short. Congress is getting set to act, possibly this week. We need to stop them.
First, do we want to have this crash now or later? One way or another, we will have it.
Our choice is to have this financial crash now, or to postpone the very same crash until later. Having it later will be even more painful. That is because the pain will be extended over a long time. Either way, the system must work its way through taking the losses it must take, now or later. A bail-out just moves part of the business losses to us, the taxpayers. The down-turn will continue until until the transferred losses are hammered out of tax-payers. Then the economy can move into recovery.
Which is better, now or later? Having it now would make a sharp "V-shaped" downturn. Having it later would lengthen it into an "L-shaped" downturn. A "V" goes sharply down, then sharply up afterward. An "L" goes sharply down, then stays near the bottom a long time, until all the losses are finally taken and out of the system, than goes into recovery. Whether it is V or L depends on how fast we take our losses. We need to "bottom out" as fast as possible, to recover as fast as possible.
Banking-system crashes have come to both Japan and to West Asia. In the West Asian case, they took their losses on the chin, fast, not trying to save anybody. Recovery was swift - a "V."
Japan, on the other hand, bailed out every financial company at risk. It's downturn lasted at least 10 years before recovery began. It was a long, long recession.
It's our choice. Same pain. Fast? Or Extended?
We also have not grasped how big this is. In the last few weeks, the federal government has already bailed out one outfit after another. Even before Congress acts on the current bail-out, we have already spent something over $2 trillion in a few weeks. (Yes, trillion. Are we talking real money yet??) Now Congress has a $700 billion bill on its plate. If it is its old self, it could raise that $700 billion to another $1 trillion before they pass it.
Probably no taxpayers, anywhere, realize how much that will mean in new taxes.
Probably we are already on the hook for the $2 trillion already handed out. Do we want to add another $1 trillion to that, for a total of $3 trillion? Over and above our regular budget?
Second: There's more. Even worse downturns are ahead. Postponing this one could make it overlap with the next one. Even the next two.
In this downturn, there are at least some physical assets underneath the bad loans: buildings. They are worth something more than zero. That money can be re-couped sometime, somehow, at least in part. There are no such assets behind the next two downturns.
One downturn will come from Social Security/pension plans. There are no physical assets there. Still, there is at least a very inadequate income stream from payroll taxes.
The other downturn will come if or when we decide to have socialized medicine, more or less. There are no physical assets there, and no significant income stream, so the impact will be even greater.
Boomers started to retire this year. They are a huge generation. They did not replace themselves with a generation at least their size. So there will not be enough workers to support them. (Had they lived, the 40 million aborted kids would have made the number of supporting workers come out a lot better for Boomers.) The retirement problem is also aggravated by our longer life spans. The worldwide problem of declining birthrates combined with longer life spans for elders.is generally worse than ours, and will further aggravate the U.S. retirement problem.
The cost to taxpayers will be huge, from increases in both taxes and inflation, just from Social Security. Adding the costs of more or less socialized medicine could cost even more than Social Security. Taxes to support both would be toxic for non-retirees and for the economy. (Inflation is one way to reduce the tax burden paid by workers to support elders. Elders will have mostly fixed incomes. Workers will not.)
Do we waht to add another huge tax increase from this present financial crash to those new taxes that are also coming? We need to get this present crisis one over with, now! Take our losses now, and hopefully have a breather before the next crises hit. This present crisis is the only one where we even have that choice.
(For more, see Spengler at http://www.atimes.com/atimes/Global_Economy/JI23Dj06.html)
posted by Old Neocon at 12:57 PM
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