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The Bailout And A Failing Economy

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The Bailout And A Failing Economy

In the coming weeks the U.S. and the world are going to begin feeling further effects of a failing American economy. Wall Street is currently struggling due to issues involving a lack of confidence in the market which could help pave the road to a much quicker recession. This is also the case with the consumer market for if consumer spending keeps falling we will be seeing much more dramatic effects as well. Chairman of the treasury Alan Greenspan has predicted a 33% chance that we will enter into recession. Other economists are saying this is to conservative of an estimate due to the amount of debt we are already facing. One thing is for sure, businesses of all sizes will be feeling these effects shortly with the individual not far behind.

We live in a world of liquid assets and credit lines, there are many people such as myself who believe that credit is not being properly addressed in the bailout plan nor are they trying to save more houses from foreclosure. This probably is due to old schools of thought, such as economic policies derived after the Great Depression. It seems they are only trying to save big firms who were perhaps already doomed from the stress of a growing world market, a shrinking U.S. job market, and a declining U.S. dollar. According to the associated press, “This is the ninth month of straight job loss this year,” which no doubt helps account for lowered consumer spending. With so much paranoia in the marketplace this of course effects lending as well. If no one can borrow money the economy is not being stimulated and leads to a whole new slew of problems.

Symbiosis in the marketplace

The U.S. economy is based on a free market system which is a symbiotic system. It takes little to cause a chain reaction in the market and that is what the Bailout Plan is supposed to stop. As President Bush said, “We are trying to stop the infection.” Many economists believe the bailout might soften the blow to the economy but that it’s also going to get worse regardless. It doesn’t matter what the size of your business is in the end, everything will be effected just as it was during the beginning and throughout the Great Depression. We are already seeing major effects in the foreign market, look to the declining dollar, the EU and UK bailout plans, and of course the amount of debt the U.S. already has accumulated. The Bailout Plan might provide a little cushioning for foreign markets with mostly international banks in mind but it’s not a fix for the underlying problems in the U.S. economy.

This legislation will have little to no effect on small and medium businesses. The thought instead is to stop this trickle effect from making it from Wall Street into the general market being mostly big business. The Bailout Plan is perhaps as bad as the plan in1930 when the federal government bought securities. That plan failed because it was to little money too late, and a very narrow plan of action. It only ended up helping temporarily by lowering interest rates slightly and had no real effect on the individual or smaller business model. This time they’re putting a lot more money in to prevent everyone from bankrupting the banks by taking their money out and bank hoarding (includes banks freezing credit). So far none of the money in the Bailout Plan is to be offered to local banks, which once again displays very narrow thinking. The bottom line, a short term effect might be felt because of boosted confidence in the marketplace but in the long term this might just send the U.S. further into the arms of a deep recession.

Output From Bailout

The bill will not help with the already slowed growth for small to medium sized businesses. There is no legislation to support anything but big business and a further separation between economic extremes. Furthermore it does not guarantee any kind of aid to businesses whom need to borrow money because of the already stunted economy. That being said, there is also no guarantee that the banks who will be reaping the rewards will be under much oversight when it comes to whom they lend money to. Taxpayers are instead left to trust in these international banks and conglomerates at the insistence of U.S. Treasury Secretary Henry Paulson. Mr. Paulson was quoted as saying, “These are healthy institutions, and they have taken this step for the good of the U.S. economy.” It might be added that Henry Paulson is the former CEO of Goldman Sachs who is receiving $10 billion from the treasury under the Bailout Plan. All in all this is not very reassuring to boost morale for a country who already has a 6% unemployment rate which is higher then it was at the beginning of the Great Depression.

One last thought

Billions of dollars and no one could come up with anything close to a solution to fix the problems. Instead they will now be feeding the companies that helped cause these problems and will continue to steroids, in the form of about a trillion dollars.

 

Source materials and other opinions-

http://www.bloomberg.com/apps/news?pid=20601087&sid=a4N8DULfg0Sw&refe...
http://www.huppi.com/kangaroo/Timeline.htm
http://money.cnn.com/2008/09/26/news/economy/bailout_impact/index.htm?cnn=yes
http://www.msnbc.msn.com/id/27011002/page/2/
http://www.wgrz.com/news/local/story.aspx?storyid=61046&catid=13
http://www.charlottesvillenewsplex.tv/home/headlines/29961994.html
http://www.baltimoresun.com/news/nation/bal-te.working29sep29,0,4023147.story
http://www.economicshelp.org/2007/03/is-us-economy-heading-into-recession.html
http://www2.hernandotoday.com/content/2008/oct/14/ha-why-the-second-bailout-b...

Filed under  //   Bailout   Economy   Great Depression