In a recent conversation, my dad summed up the current financial crisis better than I could have: We’re trying to figure out how to engineer a controlled crash landing instead of allowing an all-out nosedive into the ground.
I believe he’s right. The situation is that serious. Democrats and Republicans alike, in their words and actions, have indicated that the collapse of
In an age before globalization, that depression was worldwide. Today, such a depression would have catastrophic effects in our interconnected world. Some third-world governments would literally collapse into chaos.
Who knows what will happen in
So what’s this crash landing going to look like? To survive this mess, I believe we have to pay down debt with increased taxes and reduced spending. And we’re going to have to dramatically change or perhaps even increase regulation to put an end to the practices that led us down this path. But there’s apparently another step that is going to precede those.
The crash landing starts with the $700 billion bailout plan being negotiated by the Bush Administration and congressional leaders. Regardless of my mixed feelings about bailing out banks, Congress appears poised to do this in the coming days. Under the plan, the federal government (you and me) will apparently be buying up mortgages that are dragging on the financial well being of banks. I saw one analyst on television characterizing it as purging banks of toxic debt.
That’s an interesting analogy, because it accurately characterizes the situation: We, the American people, will be swallowing the banks’ toxic debt for them.
Raising taxes, cutting spending
But the debt will still exist, so if we’re going to head down this path, we have to come up with a way to pay for it. We can do that by printing more money or by raising taxes. Printing more money isn’t really an option. It would lead to extreme inflation, perhaps even hyperinflation, and would be disastrous.
So we’ll have to raise taxes. Get ready for it. This bailout plan isn’t really leaving the next president much choice in the matter, regardless of what the candidates say.
There’s more we’re going to have to do to get out of this mess.
To do that, we’re going to have to tighten our belts — individuals, local and state governments and the federal government. In addition to raising taxes, the next president is going to have to make painful cuts to the federal budget. Many local and state governments will also have to make cuts.
That’s going to make for some rough times. Unemployment will likely increase before it begins dropping again. The economy will stagnate. Times are going to get more difficult before they get better.
But it’s clear we can’t just spend our way out of this mess. We tried that earlier this year with a tax rebate that did little or nothing to stimulate the economy and was followed by the current crisis. Few
Washington and Wall Street have led us to the brink
I’m admittedly not an economist. I’m no financial expert. But when I wrote about the economy back in March, I held back and intentionally didn’t reveal the extent of my concern because the so-called experts were saying the situation wasn’t grim. In fact, U.S. Rep. Heather Wilson, one of the more intelligent members of Congress, told me on the day that column was published that there was some reason to be concerned, but that media hype was blowing the situation out of proportion. She said there would be an “economic slowdown,” but that it should be “short and shallow.”
The point is that most in
Chris Dodd, D-Conn. and chairman of the Senate banking committee, admitted as much after a Thursday meet at which he said those leaders were told by the top financial people in government “that we’re literally maybe days away from a complete meltdown of our financial system.”
We’re crashing. Can we figure out a way to land safely? Time will tell.