byrnemm

Why Did Bernanke Say What He Said?

Like AIG, America is too big and too interconnected to fail... for now. Patterns such as China's new treasury bill shift foreshadow that this wont always be the case. As we treat our wounded economy with gauze for band aids, will there be enough gauze left when we finally realize we need to surgery?

The Treasury is spending astronomical sums trying to avoid sending the economy into a flat spin, but they were not the ones who placed us on our shaky pedestal of debt. It was Congress who acted to satisfy the want of entitlements their consitutancy demanded. Now we realize the hole they dug to satisfy their voters came from right underneath our feet.

The Founding Fathers must be given credit for creating a government that truly is a reflection of its people; individuals cannot control their spending and neither can the government. Sure, debt is necessarily a bad thing. Mortgages are good debt (usually). Credit cards aren't (usually). The government has used debt for good purpose before, but the effect of financing has been experience diminishing returns on the GDP since the 50s, and those dimishing returns are getting much worse.

I've heard many people talk about the Chinese having funded the War on Terror. Perhaps this is true, and if so it's probably one of the better uses of debt we've seen in the last few decades. When people leverage themselves to buy flat screen TVs it is an indicator of culture, and we have developed a culture of poor use of leverage. Unlike China, where the very few in power make the decisions (like long term, low risk investment), our political system demanded the vast system of entitlements it created. Just like an individual leverages to afford flat screens we dont need, the government leverages to keep failing companies afloat. Rather than saving money or buying a smaller, older TV; rather than letting a fundamentally flawed company fail and letting smaller company take its place with a new business model. Yet we criticize a lack of innovation while we bail out those least likely to change.

If every old man has learned one lesson in his life, it is this: life goes on. From the grade school humiliation we thought we could never live through, from the financial woes we thought we could never dig ourselves out of, to the despairs from which we doubted our ability to recover, life goes on. "Tomorrow is another day," "Time heals all wounds," are the lessons we took from our experiences. Right now, no one wants to listen to suggestions to let these institutions and entitlements be razed to the ground. The prospect of going through the painful task of rebuilding our economy and job market is just as daunting as it was to face our parents with that bad report card we got in 3rd grade. But if we really want to heal the economic woes of the country we've got to start using our gauze for surgery and not just bandaids.