Are We Running Out Of Money?
With the $700 billion here, $75 billion there numbers that we’ve been constantly bombarded with as consumers, eventually it all just sort of passes over us like “oh, that’s a lot o money,” without anyone real concern as to where the money is coming from and the potential ramifications of introducing said money into the economy. The source of all these bailouts, aid packages, stimulus, and so on is primarily funded by one thing: borrowing. Here’s what I found when perusing through the headlines today:
- Fannie taps lifeline after $59B in losses: The now government owned institution bled another $25 billion last quarter. Unsurprisingly, it needs more money.
- Bank failures may cost FDIC $80 billion: The FDIC is predicting that banks will continue to fail from now until 2013. This number doesn’t take into account 2008 failures.
- Is Citi the next AIG?: Uncle Sam will be taking up to a 36% stake in a bank that most consider insolvent.
So as you can see, it’s a tough sell to feel bullish or..really, remotely hopeful at this point. The one optimistic I can find right now (and I’m an optimist by nature) is that things are shaping up to be much worse over in Europe. Not really all that comforting since the area buys a lot of our stuff, but it makes me feel a little better to know that we’re not the only part of the world’s that’s heading into the dumper.
Which brings us of course to where all that money is coming from, and the recently released budget plan did answer some questions. It even provided some encouraging steps, such as setting a 10-year budget projection and aiming to reduce the deficit and supporting a pay-as-you-go rule. Yet the nation’s debt in the coming years may end up rising to dangerous levels. According to the budget results, we’re looking at a total debt-to-GDP ratio of 96% by 2010. That’s not a good place to be.
Of course even if the budget is eventually brought under control and balanced, it’s going to take quite a long time to pay all of this new found debt back. If rule number one of personal finance is living below your means, shouldn’t the government be able to do so as well? Just because Uncle Sam has the borrowing power (a chip that may not always be there) doesn’t mean that we should exercise it. We’d all like a speedy recovery from this economic crisis and gut-wrenching housing market, but we need to be aware of the future ramifications of borrowing to do so.