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Posted by D Sherman on Saturday, November 29, 2008 at 12:52:31 :
In Reply to: OT - Bailout posted by Jim Sanders on Saturday, November 29, 2008 at 10:31:48 :
Long term, we'll have a socialized economy in which the government decides what products we should want and who will make them. Whether anyone buys the products won't matter if the 5-year plan orders the nationalized companies to produce them. If they're lucky, all these countries all around the world throwing gobs of money at their own particular bailout programs will get things going again, but the one question nobody's asking is "Where will the money come from?" Right now, it's easy for the government to borrow money at low interest rates because people with money would rather buy government bonds than anything else, even though the interest rates are next to nothing.
If they keep this up for a few years, however, and the economy doesn't turn around, it'll get to the point where even the government's credit isn't looking so good. If you think we have a financial crisis now, just see what happens when the federal government misses an interest payment. Everybody says it can't happen, but that's what they also said about a .com crash and a housing bubble collapse. As soon as there's even the slightest hint that the government might have trouble repaying the $trillions that it borrowed for all these bailouts, treasury bond prices will start to drop (interest rates going up). As soon as that happens, the percentage of revenue that has to be used for interest will rise. If the government is already maxed out just paying for its current budget, there will be no money for higher interest rates. Essentially, the government will get into the same position that a home buyer with an adjustable rate mortgage is in when their interest rate adjusts upward and their income, which was already maxed out at the old interest rate, stays the same.
This whole business of the government being the borrower of last resort is a huge gamble. The government is doing exactly the same thing that got so many individuals and companies in trouble -- trying to borrow their way out of debt. If the government is much bigger than the problems, it will work. If not, in a few years people will be using pictures of George Washington for toilet paper. It's happened to a lot of other countries.
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