Monday, April 27, 2009

Obama Says Debt is Good

In a speech at Georgetown University recently, President Obama explained why it was more important to bail out banks than it was to bail out the American people directly:

The president also defended the massive and unpopular government programs enacted under the Bush administration and expanded under Obama to bail out banks
and other financial institutions. He acknowledged that sending money directly to taxpayers might be more palatable — but said it wouldn't be as effective.

"The truth is that a dollar of capital in a bank can actually result in eight or ten dollars of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth," Obama said.

I have two counterpoints for Obama's statement.

1) It's true that there is a multiplier effect by capitalizing banks. However, instead of just handing a bunch of money to the banks, it would have been just as effective to use the bailout funds to pay down the mortgages held by these banks, which would be a huge benefit to the American people.

2) The economy is in free fall mode because it was over-leveraged. In other words, consumers, businesses, and banks racked up too much debt. Now that credit is not as readily available, people are spending less and living more within their means. Another term for the multiplier effect mentioned by Obama is leverage. So rather than let the economy find a new natural balance with less debt, our president wants us to increase our debt levels again!! And he's starting with the banks, the cause of the entire problem in the first place!!!

Don't fall for it. Beware of the debt trap. It sounds as if our government is out to enslave us financially.

Questioning Politics