I think we have to do something to prevent the US financial system from self-destructing. Therefore, I support doing something along the lines recommended by Sec. Paulson and Fed chief Bernanke. However, it seemed to me from their testimony this morning that their plan is to have the US government buy mortgage-backed securities from troubled firms for much more than their current market value in order to keep the banks solvent. So, I expect the US to lose a lot of money and the banks to make a lot of money. It is welfare for rich people, but the alternative is poverty for everyone.
Nevertheless, the $700 billion plan is highly inflationary. Bernanke has apparently given up worrying about inflation, which is understandable. It’s sort of like saving someone’s life today by giving them a drug that will kill them in a year or two. Most people would choose to live until tomorrow.
We know the solution for inflation – high interest rates and high taxes. We can’t institute those now, but we should promise to institute them as soon as the recession/depression ends. I would recommend that as a down payment you get Bernanke to promise to raise the Fed rate by 0.25% now and that you raise income tax rates by 1% now, just to remind people that there is a huge bill coming due.
You should not ignore the fact that Paulson was CEO of Goldman Sachs, the troublemaking institution (by dealing in these questionable securities) that has so far come out smelling like a rose. This goes double because Pres. Bush lied to us about WMD in order to get the US to invade Iraq. As a politician, you should remember that Sen. Clinton probably lost the Democratic presidential nomination because she was duped by Bush’s war justification. Although I don’t trust Bush, I think that Paulson and Bernanke are patriots and not purposefully misleading the American people, although these issues are so complex that probably no one understands them completely.
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