Will the Economic Bailouts Fail?

The economic bailout

Doug Muder pointed out that if you add up all of the recent economic bailout packages for our nation, including loans, guarantees, and direct investments, you wind up with something in the $5-$10 trillion range. To get a good perspective of what we just did, keep in mind that the total federal debt run up from the beginning of our nation to the end of the Clinton administration was about $5.7 trillion. Look at what we’ve added to that in just the last 2 months. It's hard to comprehend the enormity of what just happened.

Admittedly we may not have to pay all of this economic bailout package. Hopefully we won’t have to pay out on most of the loan guarantees, and hopefully we can get back most of the value of our direct investments at some point. It’s a big risk we’re taking to boost the economy. Unfortunately, it looks uncomfortably like a gambler who’s deep in the hole with debts he can’t pay off, deciding to “doubling up” on his bets in a desperate attempt to get out of the hole by placing ever larger bets. The desperate gambler adopts this approach because he doesn’t know what else to do. The end result is usually very very tragic.

The real concern I have is that this bailout package, as huge as it is, won’t work. It does little to address the fundamental problems in the economy. We will still have an enormous trade deficit with the rest of the world. We will still be spending more than we earn. Our dependency on foreign oil will still be increasing. We will still have an enormous obligation to social security and Medicare payments in the coming years that we can’t afford. Our manufacturing base will still be in decline. And the unsustainable federal deficit will not only still be there, it will be made considerably worse.

Our family has run up our own personal debt in the last few years. A major chunk of that is from investing in our children’s education. It’s an investment that we expect will pay off in a major way in the future with increased earning potential and quality of life. I don’t mind our nation also incurring a temporary increase in debt to invest in a major economic stimulus package if it really enables increase economic well being in the future. This would include investing in our infrastructure, reducing our dependency on foreign oil, other research and development, helping new business start or current ones expand. I don’t see any of that happening with the economic bailout package. There seems to be no focus on investing to improve our economy in the future. I’m afraid that we’ll see little long term benefit from the enormous gamble we’re taking. And like the desperate gambler deep in the hole, the end result will not be pleasant.