The Financial Bailout Bill: A Band-aide for Cancer!
Following is an attempt by a learned-layperson’s to offer an overview of a dysfunctioning-economy and the inept Government action that was taken in order to deal with this awesome quandary.
By signing the Bailout bill, Presidential candidates of both major political parties betrayed their constituents!
McCain who vowed that when President he would veto any legislation with “pork” in it, and Obama who promised not to allow anything to get by him that is not a change from the way Washington does business, both approved the Bailout Bill, pork, and all.
Today’s economic calamity is of Biblical proportions. The problem is so severe that it demands immediate and decisive measures, measures to keep irreparable damage from happening to the Global economy. The October 3, 2008 Congressional Financial Bailout Bill does not qualify as such a measure.
The Congressional Bailout Bill is paramount to covering an open wound with a band-aide, and hoping that it will go away; it seldom does. Understanding the root-cause of the ulcer is a pre-requisite for effective treatment. Managing the wound requires that the cause, not the symptoms, be eliminated.
The most important element that drives modern economies is energy. Energy is the lifeline of human existence, be it for individual use, industry, or government. For many years the United States did not need to worry about a sufficient supply of energy to drive its highly complex economy. The US has a robust domestic production, and until the emergence of the Organization of the Petroleum Exporting Countries (OPEC,) had an uninterrupted supply of Middle East oil.
Dealing with the Geo-Political implication would require a very lengthy work on its own; suffice it to say that it is an integral part of the US economic well being. It goes without saying that adjustments to US foreign policy will be required if in the short-term energy problems are to be solved. The Presidential candidates must start to demonstrate their understanding and willingness to address this issue.
The Congressional Financial Bailout Bill is not a positive measure. The Bill’s reception by Stock Markets in the United States and around the globe was less than enthusiastic in spite of United States Administration attempts to convince whoever would listen that the bill, if not a panacea, would prevent a disaster of untold proportions. That notwithstanding, the Congressional Bailout Bill will likely create more problems than those that it may solve. The bill represents a sad day for a lame duck Administration, and for the many legislators who signed it.
Efforts to shore-up the bill by the powers-to-be in the US were reminiscence to those by handlers of the Emperor in Hans Christen Andersen novel: “The Emperor’s New Cloth.” Just like in the Andersen’s novel, everyone accepted the Bailout Package until those more naïve of us who cried out and said that the Bill is naked of value, void of meaningful content.
The primary reason for the bill is to develop confidence in the financial institutions of the United States. Confidence in financial institutions could get the public to spend more, and that in turn should drive the economy forward. At this time, driving the economy forward may not be the right thing to do.
In the case of a recession economic stimulation is normally the acceptable remedy, but the US economy is beyond that stage. Recession may be a contributor to today’s economic tribulations; it is not the primary cause. The malaise of today’s economy suggests that it is a Dysfunctional Economy. In contrast to a recession that requires stimulation in order to be defeated, a dysfunction worsens if it is encouraged to move forward.
A dysfunction requires a remedy at its root-causes, not at the symptoms. To help a dyslexic person, for example, the person is not forced to read more but rather to deal with the root-cause of the [learning] malfunction. Remedies for a dysfunction must be at the source, not at the symptom of the situation.
After the present financial crises began, the loss of consumer confidence caused demands for energy to decline, oil reserves to increase, and prices to fall. Increased confidence, and the spending it should encourage, will tax the capacity of United States energy resources, and cause prices to rise again.
There are industries that are solely dependent on the price of oil for their survival. To many in these industries there is not much price elasticity for energy when it relates to their survival. An airline CEO recently suggested that airline companies could not survive beyond $200.00 a barrel cost of crude oil. Even if there is some price flexibility, it is not infinitely elastic and could reach a point of no return in a very short time.
There is the trucking industry and the consumer who buys products that it delivers. There are the shipping lines, industries that use a great deal of electricity, and other services that have to transfer the cost of fuel to their customers.
Giving the public more confidence in economic institutions, which will result in more spending to stimulate the economy, could be like pouring gasoline on a ranging fire. The added need for energy, for example, will be more than enough to exacerbate the situation and perhaps push the system to its breaking point. Without provisions in the Bailout Bill to either reduce the need for, or improve the supply of energy, the bill would only serve to make a bad situation worse.
The Congressional Financial Bailout Bill was ill conceived, poorly written, and opens the doors to an economic disaster beyond what presently exists. To add salt to the wounds, the bill includes pork barrel spending, an authorization to spend taxpayers’ money for politicians’ pet projects.
Some highlights:
· Bailout package will stimulate public spending and as a byproduct will cause an increase in the cost of energy.
o Endanger trucking industry and increase cost of all products that they transport
o Endanger the already shaky airline industry
§ Increase level of unemployment
o Endanger all shipping business and increase cost of products it transports
§ Increase inflation due to all items in this segment
· Will not relieve individual mortgage holders, especially those with ARM loans
o Foreclosures will continue to rise
o Real estate values will continue to decline
· Reduce the value of the US Dollar and the US global completeness
o Increase inflation in the US
o Increase business failures for those companies participating in the global market
Much more can be said, but it is sufficient to say that the United States Administration and the United States Congress MUST return to work and bring-about responsible action to deal with a rapidly declining US (and with it,) global economy.