U.S. Bets on Cheap Fed Credit to Revive Consumer Lending, says the continuation headline of yesterday’s Wall Street Journal feature on the new Federal Reserve/Treasury Department Term Asset-Backed Securities Loan Facility (TALF).
Isn’t our collective debt load bad enough? Why compound the problem with gambling? This is pathological, not beneficial.
Those promoting “paradox of thrift,” the macroeconomic idea that spending is the only way to revive a deflating economy, are ignoring the economic interests of average citizens. As one commenter below notes, they are elevating the interests of the political system above individual citizens.
From an archived post on Redfin’s Los Angeles real estate blog, October 1, 2008, just as Redfin laid off its entire marketing department and the first $700 billion of the (continuing) bailouts was proposed:
If we break out the strategic reserves, $700 billion may keep the engine running…but for how long? Where will the fuel for debt come from after that?
I understand that businesses rely on banks from time to time for short-term funds to keep operations going and people employed. But why are American consumers (with “consumer” a synonym for “citizen”) constantly encouraged to go into debt?
Whether it is a new pickup truck, a home entertainment system, or a major appliance, your retailer has a financing plan for it. The product of this strategy is debt. The engine of our economy is debt.
The strategy is a failure and the engine is sputtering as home equity plummets and and easy credit dries up.
Why, if people are losing overpriced homes to foreclosure, should the government try to game the system? Shouldn’t home prices fall to affordable levels, allowing buyers to assume less debt? Why is our government’s solution a plan to rescue debt holders and provide more debt?
That was five months ago. Hundreds of billions more have been pumped in to keep the engine running, but it keeps stalling nonetheless. Most people won’t drive to auto dealerships and buy a new cars these days if they don’t have to, as a related Wall Street Journal Wednesday feature also noted.
Most main stream news reports and media endorse “paradox of thrift” policy arguments. Here are a few dissenters:
Now this is all very strange from the standpoint of an individual who is in debt — which most of us are right now. We’re all hearing, and correctly I think, that we have borrowed too much. But then, when we try to make up for it by paying off our debts, some very smart politicians come along and say, “Oh no, you’re just paying off debt. What we need is more spending. No tax cuts for you lot of irresponsible debt-repayers!”
Now yes, I know that paying off debt isn’t going to lead to overnight job creation. (Arguably stimulus spending won’t either, but that’s another story, one I’ve already covered at length.) Yet savings and debt repayment will certainly produce long-term job creation, because every dollar saved or used to pay down debt is another dollar of credit for a business to get started with. We hear, rightly, that there is a credit crunch, and it’s far from clear how additional government borrowing is going to help here. Maybe a round of debt repayment is where the economy actually needs to be, and where it just so happens that nearly every individual wants to go anyway.
Will it put people out of work, short-term? Perhaps. But I have no moral duty to spend myself into bankruptcy, or to let the politicians spend my government into bankruptcy, so that these people will not be out of work. If I want to save the money that I’ve earned, this isn’t immoral. It’s prudent. If I want to pay off my debt, then it should be considered a good thing — and my choice to make as well, not someone else’s. Debt, after all, got us into this mess in the first place.
Istriliyn on The Daily Paul comments:
Activities can be:
1) Bad for the economy, bad for people (earthquake).
2) Good for the economy, bad for people (unemployed go dig ‘n fill holes).
3) Bad for the economy, good for people (everybody party this week).
4) Good for the economy, good for people (new profitable enterprise starting).
Usually governments only think in terms of what’s good for the economy. You hardly ever hear any politician talk about the happiness of people. So it is no wonder Washington is often more burden then anything else! And stimulus packages usually don’t mean starting profitable enterprises, for that no one needs it.
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