Howard Rich's Blog

February 9, 2009

Government Band Aids

Filed under: Howard Rich's Weekly Column — howierich @ 5:27 pm
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Do you remember the book: Men Are From Mars, Women Are From Venus? Women generally talk about a problem and seek empathy from others. Men want to solve a problem before they even know what it is.

Superimpose that on the high time preference of politicians and you get a bunch of career, male politicians “solving” today’s economic problems.

Debt implosion, aka de-leveraging, has a major negative effect on the economy. It’s obviously the opposite of new equity investments with new debt which tends to create jobs and build the economy.

There’s something like $10 to 15 trillion of debt which has to implode. There’s been tremendous malinvestment caused by two government creations: Fannie Mae and Freddie Mac. Lowering interest rates to one percent after the dotcom debacle didn’t help either.

So what do politicians do? They use band-aids which have never worked and will not work to “solve the problem”

The bottom line is that this is one problem which cannot be solved by government band-aids. The economy has to take a hit and there has to be considerable pain. All of these actions by government will not solve the problem; in fact, they’ll just prolong the economic downturn.

here is a link to the Tom Coburn article from last Tuesday’s Wall Street Journal

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