My take on the bailout

November 25th, 2008 by Ken

I’m not an economist nor an accountant, so my take on the bailout is strictly from a novice man on the street. viewpoint.

The entire bailout package, as recently announced by President-elect Barack Obama is $1.5 trillion.   That’s one trillion, five hundred billion dollars.

Some of that has already been spent.  As much as $350 billion has gone to bailout the banks and mortgage houses where the problems originated.  There is still $350 billion left to spend.  If, as expected, the congress goes along with the president-elects call for another $800 billion, we still have $1.15 trillion left to spend.

Some of the money will go to the Big Three auto manufacturers.   Their less than stellar performance before congress just postponed the auto bailout.  It will come.  Unions were big supporters of the Democrats and will expect a return on their investment.

What’s needed from the Big 3 is a game plan on how the money will be spent.  The 1970’s bailout of Chrysler is a good example although we’re only talking about a little more than $1 billion.  In that bailout agreement, the car company agreed to cutbacks in costs and the unions also gave back wages and fringe benefits.   That’s what’s needed this time around.

President-elect Obama has said the remaining money will go towards creating jobs, and to that end has specified schools, bridges, and other infrastructure improvements around the country.  He has also said that the money will go towards getting “green” industries up and running.

Obama wants to pump that money into the economy through the states, which have infrastructure plans on the drawing board and can be started in a short period of time.  Our governor Christine Gregoire has in her hand a list of projects that Washington state can start quickly.

The states are also looking at receiving money from the feds to help them overcome their projected budget shortfalls.  There is very little  in shortfalls yet.  The amount of money Washington State can expect next year is more than it got this year.  It’s that the amount of money they expected to get is less. and won’t meet the needs of their expansive programs enacted the last couple of years.

So, where does this money come from?  China already holds more than $3 trillion worth of American dollars and can’t hold any more.   That means we have to look elsewhere for this $1.5 trillion bailout plan.

Of course, it comes from you and me through taxes.  But it also comes from another source.   The government has the authority to print money and that’s just what they’re going to do.  They’re going to keeping the printing presses turning out new bills on a 24-hour a day basis. 

That new money coming into the economy should reach down to you and me and make us feel like we have more money in our pocket.   Experts say this will work.  That new money is needed to free up old money being held by the banks and other financial institutions.

The problem comes further down the road, when the inflationary cycle once again rears its head.  Too much money in circulation always results in inflation which makes your dollar of less value.

It’s a lot easier to print money than it is to take it out of circulation.  But that’s the problem down the road for the next president after Obama.  Right now, all of the experts say printing more money is the answer, even if it is a wild animal which will come back to bite you.

That’s my take.  For those of us older Americans, I say, enjoy the ride.  Enjoy the new money and spend it when you get it.  For those younger Americans, I say buy gold, silver, precious metals, anything that will retain its value, because in a decade inflation will eat your very heart.

Mark my words.

Posted in Business, Government, History, Informational, The Real News

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