Tuesday, November 25, 2008

Paulson Playing Whackamole With Economy

Michelle calls it "Borrow. Spend. Panic. Repeat."

There is no clear policy, and seemingly no rhyme nor reason to the decision over which institutions are bailed out, which ones are forced into sale, and which ones are left to their own resources.

In the absence of a clear policy, or even a murky policy, or even a vague pattern of behavior, people (meaning the banks) are putting their money in the proverbial sock drawer, holding on to it until such a time as conditions are more stable.

And that's a good thing. When borrowing individuals, families, companies, or governmental units realize themselves vulnerable to debt risk, the prudent thing for them is to pay down that debt, not to incur more. Similarly, when lenders realize that they are vulnerable to too much of the wrong kind of debt, the prudent thing is not to lend. The signs are that most people are working to limit the amount of debt they have.

It should be remembered that all of this Nanny State pain avoidance is being done with money we don't have.

And by bailing out companies in this erratic fashion, no one knows which companies are at risk and which ones are safe. The current practice merely prolongs the inevitable pain.

Paulson's borrow-and-loan game is killing the credit market in the short term, and by ballooning government debt it will destroy the economy in the long run.

And nowhere does this kind of power appear in the Constitution.

I would call for Henry Paulson to resign, effective immediately, but his clever boss appears to be even more clueless as to the danger his actions pose to the economy, and the republic itself.

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