The Treasury Secretary Henry Paulson, this Keynesian economist of the 21st century, is ready again for a blow under the America’s tight belt. His theory is simple – if people lost too much weight, we should give them a fist of amphetamines and the promise of a wonderful land after the crisis will pass. Amphetamines will give them the sensation of light in the darkness of the financial crisis, whereas the promises show that Treasury is trying to do something for the nation. And according to the principle that “any action is better than sitting and waiting”, Treasury has launched itself into water. As we noticed few months back on doitinvest.com…
Their plan is simple, but not brilliant, since any high-school drop-out felllow could tell. Throw money into the banks and something will happen. Mr. Paulson thinks that putting at work a big chunk of the $700 billion they have in their pockets might cheer up the sour Christmas about to fall on the retailers. Such big plans have been previously shown not to work on doitinvest.com and by many commentators. In fact, what’s the big deal of giving a couple of hundreds of billions of taxpayer’s money to a personal jet-lagged bunch of tired (of partying executives) so they can lend it further to the battered consumer?
Well, it is a big deal. of waste. The US government has already pumped roughly more than $300 billion into the banks and insurance companies and has been trying to push them to use these money for further lendings. The logic looks simple – if you make money grant easier loans, people will take them, consumption will rise and the economy will jump-start shortly. A logic very similar to Keynes’s one, whereby the state was encouraged to print money, hire an army of workers to borrow them and then to dig them out, and then use those money to pay them out. Keynes was right in the 1930’s (almost one century ago), since at that time the civilised world’s only problem was the unemployment. But then 90 years passed and the economists found out that their measures created (besides unemployment) inflation, and then some nasty budget deficits, and the long term demand was not really boosted, so what’s the deal?
The lonas should be targeted towards two main areas – housing and auto loans. So people will be able to get loans at lower interest rates to buy luxury/long term goods. What treasury forgets is that when the belt is stuck to your spine then you don’t care anymore about the car type you drive or about having a mansion with 20 rooms. No sir, what you think is how are you going to pay the bills in the next weeks – and then amphetamines don’t work anymore. Article originally writted and published by doitinvest.com