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Rupert Murdoch (NASDAQ:NWS) has joined the choir of somewhat rational voices trying to get heard over the Treasury's printing presses. In an interview before Fox Business Network, the media tycoon claims the stimulus package is sensible, however the danger comes from the government's set up of "long-term, big permanent programs", that will raise deficits (TD: not to mention that the entanglement of the government's bailout programs from financial "assets" will take decades if not centuries), and observes that the banking system internationally is still very "fragile."

Interview excerpts:

On the government’s role going forward:

“Whether we like it or not, there’s going to be increased regulation, and the government inserting a lot of taxpayer money into business. It’s inevitable that they’re going to play a bigger part. We have to accept it. On the other hand, we also have to agree that outside of that, we want to avoid over-regulating. We’ve got to stay believing in the free market system.”

On whether there should be more regulation since free markets haven’t worked:

“I wouldn’t agree with that. It’s very easy to blame the free market but how did we get the housing bubble? We got it because of Congress pushing Fannie Mae and Freddie Mac into lending money to people who couldn’t afford it and blowing up the price of housing; a Fed which was too loose with the money. It just led to this very naturally. When you get a bubble, it has to be lanced and it’s painful. That’s what we’re going through.”

“I do [think we’re overreacting to the bursting of the bubble]. If we let things take their course, we’ll come through this a lot better.”

On the idea that private capital doesn’t exist on the level needed to create jobs:

“It [private capital] won’t if the government is borrowing $2 trillion. It will suck any spare private capital out of the market. That is another great danger.”

On whether private capital cannot compete with the government:

“No, I don’t think so. The government has to borrow money, whether it’s borrowing from the Chinese or from you and I, when you buy T-bills. Those rates will go up as they find it harder and harder to borrow. The danger is we’re going to have great inflation.”

On the overall U.S. economy:

“It’s weak. People are frightened. People have seen their net worth has decreased a lot so they’re tightening their belts and starting to save money – not a bad thing in itself but of course it takes demand out of the High Street which is painful on a lot of industries. It’s also painful on a lot of people who export to us so it’s not all felt here.”

On whether we could get out of this without big government involvement:

“No. It’s such a globalized situation with the banks, some of it of their own making but some of it by non-banking situations. Something had to be done there but beyond that, no; I think the stimulus package in itself is okay to add some stimulus perhaps but it should be just spend it once, but instead its setting up long-term, big permanent programs that are going to leave us with a deficit of over a trillion dollars a year as far as the eye can see, certainly for ten or fifteen years.”

“Our kids and our grandkids are going to be paying taxes just to pay the interest on that, forever. Even those figures are based on optimistic assumptions about how growth will return.”

On whether the bank stress tests will prove anything we don’t already know:

“They may. They will get confidential figures from the banks. The government feels, the Fed feels, and the Treasury Department, that the banking system internationally is still very fragile. They want to know what they’re facing. That’s why they are having these stress tests.”

[Video here]

Source: Rupert Murdoch Interview: 'Economy Weak; Danger of Inflation Great'