US Bailout Propaganda

April 16th, 2012

So the US treasury is claiming they'll make money from the bailouts and the BBC are floating the story with no critique to ensure we all think our own bailouts were a good thing. What a ludicrous situation. I have no doubt that some money will be "made" from the bailouts but the real cost far outweighs any nominal, apparent gains.

First of all, as debts are paid currency is destroyed and the currency supply shrinks, which will eventually result in its increased purchasing power, so it sounds great on the surface. But actually , our money supply is being increased all the time - so that benefit is moot.

The key to economics is to understand what is not seen. If governments spend taxes to create jobs, it's easy to see those jobs and give them credit for it. But what about the jobs that were destroyed or prevented from being created by redirecting resources away from the private sector? Government spending is simply organising the economy around political motives, not how the individuals who make up society would choose to spend their money. After all, if peoples' desires were aligned with these political motives in the first place, there would be no need for government spending.

The bailouts have been a unmitigated disaster. They've attempted to arrest the liquidation of debt which is desperately needed, they've engineered a frightening massive moral hazard with implicit bailouts and perhaps, most disturbingly, they've mis-priced risk for market participants AGAIN... one of the major causes of the crisis. Governments and central banking got us in this mess and they are making things worse by preventing the correction. They can only delay its onset or slow down the correction and make it drag on for years. My feeling is they are setting us up for a day when interventions will no longer work, and the sudden crash will be far worse than what would have occurred had they not interfered. But what do we expect? If they hadn't interfered we wouldn't be in this mess in the first place. Doing nothing doesn't sell well to the public, who for the most part have no idea what's really going on with irredeemable paper money.

Once again, governments and their mainstream mouthpieces show how little they know about economics. There could not be a more striking example of faulty logic, enshrined in Bastiat's broken window fallacy, than this...