Green Street Cafe

Borrowing Ourselves Out of Debt

Okay. I saw the President as he gave his sales pitch for the $700B bailout (aka HR 3221 being debated as I write). The gist of his speech was thus:

“We need this bill. We are spending $700B that will buy mortgage packages, taking the devalued debt load off of banking institutions. That will free up banking institutions so that they can loan money to businesses and individuals so that the economy doesn’t bog down.”

Excuse me?

To pass this bill we first have to increase our federal debt limit to $10.6 Trillion dollars. So now we are borrowing the $700B (from who? China? Japan? Saudi Arabia?) so that we can save overextended financial entities (who have been under-regulated) so that they, in turn, can extend more credit to more people to finance their homes, and businesses…. and give banks the ability to loan money to each other for a day or two. This should lead to that golden nirvana: keeping people employed.

I’m sorry, but I still don’t get it. This is a solution? I understand the need to do something now. And this bill does have benefits. There is language in the bill to help our vets, our communities, and our primary homeowners (not speculators). More importantly, it establishes an independent regulator – The Federal Housing Finance Agency – to oversee Freddie Mac, Fannie Mae and the Federal Home Loan Banks. This is all good, yet that I have this uneasy feeling.

Now, my parents, married in 1931, had a different view on money. My Dad gave me a lesson that I still struggle with today. “Pay cash for everything.”

I was taken aback when he told me this and responded as only a self-confident teen could, “Oh, right… you didn’t pay cash for the car.”

“Well… yeah. I did.” Okay… I stood corrected.

Now let me attach a little nugget from Economics 101: “You can never borrow yourself out of debt.” Never.

I’m in a quandary. If HR 3221 is supposed to be the solution, I’m not seeing how it ultimately solves the problem. That problem? Somebody, sometime has to pay for all this borrowing. At some point someone has to work just to pay off our personal and institutional debt – first. We managed to do it during the Clinton administration; I can only imagine what it will take to do it in the next.

As this bill is being finalized in preparation for the President’s signature, I have only one question, “Just how long is $700B in borrowed money supposed to last?

After all, it is only a loan.

HR 3221 Summary and full text

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This entry was published on September 29, 2008 at 8:57 pm. It’s filed under Politics and tagged , . Bookmark the permalink. Follow any comments here with the RSS feed for this post.

2 thoughts on “Borrowing Ourselves Out of Debt

  1. I just stopped by your blog and thought I would say hello. I like your site design. Looking forward to reading more down the road.

  2. Muskyrose on said:

    Ok,this may sound dumb but why, if wall street is in such debt isn’t the govt looking at where ALL exactally the money went. If certainly didn’t go all go to bad loans and stuff like that? The money went somewhere and all this hullaballoo is crap. Follow the real money and you will find the real problem. Then start fixing it instead of blaming those who fell victim to shady sheisters of wall street. Those guys at the top aren’t suffering, it’s the middle class and the poor that are hurting. The ones who screwed everyone else are doing fine. Find them and make them pay and stop the blame game. OK rant is over…so much for my economics theory…peace out!

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