I picked up some debt on Friday. Until now, I've been debt-free. Too frequently, I treat myself to Kaldi's coffee, Indian take-out and retail therapy. But, ultimately, I stay in the black.
Last week, however, Congress nationalized hundreds of thousands of dollars of mortgage-related debt, using tax dollars to bail out financial firms. Essentially, the federal government will borrow $700 billion from taxpayers to buy assets from Wall Street banks.
The bailout is simply "a straight-up transfer of $700 billion - and counting! - from the taxpayers to a few big financial institutions," economist Robert Murphy writes in his Mises Economics Blog.
By scooping up impaired assets from banks, credit unions and pension funds, the bailout aims to help firms rebuild capital and to restore confidence in the financial system and credit markets, the lifeblood of the economy. But 700 billion tax dollars could also buy 2,200 apple pies from McDonald's for every person in the U.S., Newsweek reported.
With $700 billion, Congress could give $2,300 to every American, buy 16 month's worth of gasoline for every car in the nation or pay the income taxes of every American who earns up to $500,000 a year.
Debt -- it's as American as apple pie.
Many lawmakers argue that we, the American people, need the bailout. Without it, they say America could slip into a "financial panic." The stock market would drop, President George Bush warned in his Sept. 24 address on financial markets. Retirement accounts will be worth less. Housing prices could plummet and foreclosures would rise. Obtaining loans would become difficult.
But the value of the dollar could decline with or without the bailout. In addition to taxing and borrowing to fund the bailout, America can produce credit and money out of thin air, or at least out of the Federal Reserve. With open operations, the Fed can increase the creation of money. Fundamentally, an increased money supply leads to a decline in the value of the dollar. Bailout or no bailout, a weaker dollar might cause retirement accounts to be worth less anyway.
Some Americans, politicians and constituents alike believe that, with our tax dollars, we must serve as a brace for the fragile, failing backbone of the economy. Why should we do that? Individuals and businesses make mistakes and lose money every day. For some reason, many Americans fear that, without banks, nobody can borrow and the economy grinds to a halt, economist Steven Landsburg stated in The Atlantic.
Not necessarily. Banks don't lend their own money, Landsburg said. Banks lend money from other people, such as depositors and stockholders.
"Just because the banks disappear doesn't mean the lenders will," Landsburg said. "Borrowers will still want to borrow, and lenders will still want to lend. The only question is whether they'll be able to find each other."
Besides, he said, "As any user of match.com can tell you, the technology for finding partners has improved...When a firm wants to raise capital, why can't it just sell bonds over the Web? Or issue new stock? Or approach one of the hedge funds that seem to be swimming in cash? Or borrow abroad?"
Landsburg's innovative alternatives emphasize the value of a free market economy, where demand eventually meets equilibrium with supply and where property is voluntarily and satisfactorily exchanged, or not exchanged at all.
As the national debt soars and the value of the dollar soars downward, Americans will shoulder the effects of the $700 billion bailout for years and years to come. Too bad I can't drown my sorrows in more than 2,000 apple pies.