The economy is still sinking as the housing market is still setting record declines, unemployment is still moving up and inflation is in hot pursuit of the middle class.
When elected officials run out of money, bad things happen. Chairman of the Federal Reserve, Ben Bernanke understands the economic battle we are in. But he is running out of ammo. The dropping value of the dollar and the rising inflation are taking away his influence of low interest rates and tax rebates.
Bailouts are Dangerous
The bailout of Bear Stearns has created a sense of insurance behind all banks, with the Fed as the support system. Yet everyone knows that the Fed doesn’t have any money. It’s like if I gave my 6 year old son my house insurance payment each month in the hope that he could insure my home. In the event of a disaster, the only way my son could pay for the damage is if he printed the money to cover the costs. The decision to bailout Bear Stearns could possibly be the most dangerous decision that the Fed has undertaken during this economic crisis.
Reference Article: When Elected Officials Run Out of Money – Trouble Follows
The Next Wave
What else can the Fed do? Rising food costs are starting to cause nations protect their food supplies by halting exports, but this will only push prices higher as it further reduces global supplies. The reaction by neighboring nations will likely cause them to ration their exports, which could lead to additional tariffs, price controls, wage freezes, etc. Historically, government controls have never worked, but elected officials are bound to try as the public cries out for help. These things lead to wars.
Career Ending Decisions
The government cannot bailout everyone. How are they going to choose who to bailout and who to let go bankrupt? There are going to be so many people looking for a bailout like; the banks, the bond-insurers, the homeowners, the mortgage companies like Freddy Mac and Fannie Mai, Wall Street, foreign banks, etc. The more the Fed bails out with printed money, the more they reduce the value of the dollar and the longer they delay the coming recession.
The next round of leaders will need to make career ending decisions, as they will more than likely not get re-elected for the decisions they make. Eventually, the government will have to stop the bailouts and let the chips fall. They will have to let businesses go bankrupt, let millions lose their jobs while inflation chews up everyone else’s savings and retirement funds.