Irony at its Best
The saying goes "history repeats itself." Sadly this seems to be the case when it comes to the economy. What got the United States into the crisis that it's in now is too much government spending and too much government intervention. During the George W. Bush years, the president and congress both increased the deficit in a dramatic fashion greatly devaluing the dollar. Obama seems to have taken the same strategy.
President Barack Obama's budget would produce $9.3 trillion in deficits over the next decade, more than four times the deficits of Republican George W. Bush's presidency, congressional auditors said Friday.
This will do nothing to relieve the economic situation that the United States has found itself in. This will only prolong it. The government cannot spend itself out of this mess.
In addition to the enormous government spending proposed by the Obama administration, they have caused the government to interfere even more in the economy. The government now owns 80% of AIG. This is the same government which owns the United States Postal Service and cannot generate a profit out of it. The government bailing out the companies creates two major problems along with hundreds of others. The first being that the government is not allowing toxic assets to disappear. They are throwing money at bad assets in hope that they will suddenly turn solid. This is extrememly expensive and it simply will not work. Second, when companies fail it is usually due mismanagement by the executives. In the case of AIG, none of the executives who put the company in the terrible position that it is in today have been fired. In fact, they have been given bonuses. When a company fails, it allows new people with new ideas to emerge as the dominant force in the market and keep a company competitive. The government is now allowing this to happen. They are sticking with the status quo. This will not make AIG or any other bailed out company competitive on the world market. These companies are going to mirror the government almost precisely. Government does not change and now that government has bought up companies, these companies will not change either.
I am afraid that policymakers today have not learned the lesson that prices must adjust to economic reality. The bailout of Fannie and Freddie, the purchase of AIG, and the latest multi-hundred billion dollar Treasury scheme all have one thing in common: They seek to prevent the liquidation of bad debt and worthless assets at market prices, and instead try to prop up those markets and keep those assets trading at prices far in excess of what any buyer would be willing to pay.