What is the Long Term Economic Impact of the Bailouts and other Federal Spending?

Several months ago, the United States economy struggled through weeks of turmoil as corporate giant Lehman Brothers followed Bear Stearns in closing shop due to ill advised investment strategies. Mammoth organizations, once thought unshakable, were suddenly becoming unviable as they became insolvent. But when organizations seen as critical to the U.S. economy began to buckle, such as AIG and The Hartford, panic set in.

In response to this crisis the federal government issued over a trillion dollars to banks, insurance companies and other qualified institutions within specific industries. The rational behind the feds effort to “inject liquidity” into the economy was to solidify institutions that were “too big to fail.” In other words: let’s delay painful economic consequences by engaging in the same activity which caused the problems. The crisis was caused by pretending value exists when in fact it didn’t – printing more dollar bills at the Fed doesn’t create value, it only dilutes the dollar and creates inflation.

As the national debt’s stratospheric amount equals near a dollar amount close to the entire US gross domestic product, it’s apparently a “perfect” time to initiate health reform which carries a price tag in the trillions of dollars. Like the opinion reflected in the article sets forth below – this spending is not only economically irresponsible, it’s reckless. Perhaps somebody can give me hope that notwithstanding the aforementioned facts that America can remain an economic power going forward. The article referred to in this blog can be found here: www.americanbankingnews.com/2009/08/30/will-business-and-banking-bailouts-kill-the-american-economy/


Dr. Tufte said...

Daniel: this is the sort of post I don't want to see in this class. I'll give you credit for it, and it is no doubt interesting, but I want these posts tied back to the text. Bottom line: timely, but not right for this venue.

Jonathan said...

It is a very interesting post that you made. It's sad to see what has happened in our economy because of big fallouts of big corporations. And yes, some argue that diluting the system to bail them out has hurt us even more. I would like to show the big companies like AIG, Lehman Brothers, and Bear Stearns tough love and not help them out because they put themselves out on the line with all the bad investments, but our government felt they were of such importance fiscally that there needed to be a bail out. I think to answer the title of your post, in the future we will see the long-term impact of the bailout but my question to you is similar to the one you posed: What is the long-term economic impact of not bailing these companies out and other federal spending?

Rebecca said...
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