Let them fail; let everybody fail! I made my fortune when I had nothing to start with, by myself and my own ideas. Let other people do the same thing. If I lose everything in the collapse of our financial structure, I will start in at the beginning and build it up again.
— Henry Ford, 11 Feb 1934
OK, I need help understanding the current state of the economy and how the proposed bailout will help make things better. Once again I freely admit to being an engineer and a theologian, not a politician nor an economist…with that in mind, I have been mulling over the following thoughts and am looking for an education. Here goes:
First, my summary of the present economic situation:
- Both the original and current bailout plans have been all about jump-starting the economy by jump-starting the credit market in one way or another
- A major contributor to the economic mess is Americans living well beyond their means and wracking up huge amounts of credit debt (either via ARMs or credit cards) on which many are finding it impossible to make payments (esp. ARMs)
- A consequence of the current mess is that creditors are unable to continue lending money (despite the fact that I’m still getting multiple credit card offers in the mail each week)
- Since lendors cannot lend, consumers cannot consume…end result, the economy slows
Now, my understanding of the proposed solution:
- Dumping $700 billion + into various areas of our financial system will allow banks, etc. to begin offering credit and lending opportunities again
- Increased lending and credit will allow consumers to increase spending, reviving the slowed economy
Assuming my understanding of the problem and proposed solution is correct, I have two questions, that I hope someone can answer:
- How will extending additional credit to people who are presently unable to pay off the debt they owe provide a long-term fix to the economy? Won’t this actually make things worse in the long run when they are then unable to make payments on a larger amount of debt?
- Philosophically, isn’t the whole idea of economic growth through the encouragement of our citizens to bear increased levels of debt irresponsible and/or immoral, especially given the fact that this crisis was caused or at least worsened by people defaulting on current debts?
I’m having a really hard time understanding how the proposed bailout plan is anything other than a poorly crafted band-aid fix that will ultimately leave us worse off than we are now. Please, will someone with some economic and political savvy provide understandable answers to my questions?