Financial bail-out becomes another public trough
The Emergency Economic Stabilization Act of 2008 provides $700 billion for American banks, savings associations, credit unions, security brokers and dealers, and insurance companies. They’re wallowing up to the trough, and other US firms are covetously eyeing the prize. Robert Higgs of the Independent Institute is following the action.
As the financial crisis deepens and widens, a horde of supplicants is converging on the Treasury. Each of them has a story to tell, and although the details differ from one upscale beggar to the next, each one’s tale of woe shares a common theme: help me or systemic risk will bring down the whole economy, with painful losses and injuries to one and all.
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As the recession worsens, we can expect more and more firms and industries to plead for a rescue operation at taxpayer expense. The auto companies have already received a promise of $25 billion from a compassionate Congress, whose members are ever ready to injure the general public interest in the service of a well-healed campaign contributor, especially if the beneficiary can demonstrate that he has dreadfully mismanaged a big business.
In an earlier column, Dr Higgs called the bail-out “a gigantic armed robbery”.
What we have before us now is a systematic redistribution from the prudent and the responsible to the imprudent and the irresponsible. Did you make your mortgage payments in full when they were due? Were you careful to avoid investing in incomprehensible derivatives whose failure might lead to your bankruptcy? Very good, sir: you are therefore entitled to relinquish substantial amounts of your wealth […]
Higgs also notes that the US money supply, as measured by the monetary base, surged 7.2 percent from August to September. See chart below from the Federal Reserve Bank of St Louis.
If a huge increase in the inflation rate is to be avoided, that spike must be reserved in short order. The financial bail-out, however, will probably obligate the US Federal Reserve to continued disproportionate increases in the money supply.
Stagflation could be just around the corner.
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