Wednesday, October 8, 2008

Old school economics 101

It's hard to imagine the federal government's recently enacted $700 billion corporate welfare program offers a real rescue to our struggling economy. The government's solution operates on the premise that borrowing is the way in which problems are solved; it's spending money it does not have, and resorting to borrowing and printing more currency to do it. The swiftness with which this "corporate rescue" legislation passed Congress and signed into law by the President is indirect taxation without representation since most Americans do not approve of it. Enactment means higher taxes for generations to come.

In my opinion, it's no different than a drunk waking up with a hangover and solving the problem by having a morning drink to relieve his pain with the "drunk" being our economy. The "hangover" is our current financial crisis from years of fake economic prosperity fueled by sub-prime lending and people spending money they didn't have by borrowing. Finally, "solving the problem" is our federal government's deficit spending financed by more borrowing, saddling future generations of taxpayers with the responsibility to service the debt.

Just like a drunk who finally hits rock bottom and decides to change for the good with a lifetime of sobriety, our drunken economy needs to quit being intoxicated with borrowing as the means by which the good life is pursued. It needs to hit rock bottom with a recession or depression if needed as painful as it may be, then commit to financial sobriety economic principles, those that pave the way for real and sustained economic prosperity by stimulating productivity and personal savings with less government just like the "good old days".

I'm disappointed that our current political leaders and both major party Presidential and Vice Presidential candidates have lacked the courage to also point the blame finger at borrowers who obtained loans by overstating their income on loan applications, using the loan proceeds to buy overpriced homes, then defaulted on those loans when the going got tough. It's a safer soundbite to blame the financial institutions that made those loans.

If tightening credit markets makes borrowing more difficult so that only those with excellent credit qualify, then so be it. Isn't that the way it should be, just like the "old days"? The old days when people saved for major purchases and bought only when the cash was in hand.

That's how our parents and their parents did it generations ago, and that's what I learned as a kid and young man growing up. There's nothing fancy about it, just good old school economics 101.

Pax Domini sit semper vobiscum

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