I can justify bailouts when the "bailer" gets something from the "bailee". With financial institutions the concessions should include restructuring, as in a bankruptcy, with capital and debt positions taking haircuts or even liquidation when necessary.
That has not happened so the past and continuing bailout mentality is not on my acceptable list. We have gotten to this situation with wealth concentration by oligarchy and the bailouts are simply enabling the further transfer of wealth from the bulk of the citizenry to the oligarchy.
The problem is structural. The problem is "oligarchical". The problem is growing bigger with each passing day.
William Jennings Bryan could not gain traction with his populism approach to the problem 110+ years ago, but, with the McKinley assassination, Teddy Roosevelt entered the presidency through the back door and addressed the problem of oligarchy (aka trusts) of that previous era.
The broken political system in the U.S. is arguing debt reduction facing the crowd while getting bigger shovels to work to load the money into the oligarchy money wagons hidden behind the speakers' platform.
I repeat your final paragraph which is the most important thing you wrote:
<<<All of which means that sovereign debt is going to continue to go up rather than down: at heart, bailouts are a way of moving indebtedness from the bailed-out entity to the government doing the bailing out. With yet another debt reduction task force reporting today, it might be time to start asking how and whether crisis-related bailouts can ever be accounted for in long-term sovereign debt planning.>>
I have read many of the excellent comments in this thread, but decided to come back to yours to make a couple of additional points because you most directly address the areas I want to expand.
A. You wrote:
<<This means for the US economy that lower interest rates and government incentives aimed at boosting consumption work as pure poison. Instead of more consumption, more savings, less consumption and fewer imports are needed.>>
A dollar spent on consumption is "one and done". A dollar invested for future utility has a multiplication factor.
High taxes in the post WWII years served two purposes: (1) pay down the high debt levels from WW II and Korea and (2) fund infrastructure at home and abroad.
Lower taxes in the past thirty years have not had a long lasting economic benefit because tax revenues have increasingly been spent on consumption. Infrastructure has decayed. The future has been ignored.
See seekingalpha.com/artic... for a graphical representation of the declining multiplicative factor for debt over recent decades.
Borrowing for consumption instead of for production is a cousin to the practice of lending to someone who won't repay in order to receive a commission for the transaction when you personally won't suffer the default loss because you sell the loan to a third party.
B. The final paragraph above brings me to a second point: The incentives that have developed for compensation at the top levels today are perverse. Those in the positions with the most economic power are richly compensated for taking risks, even reckless risk, and suffer no economic loss when the operation fails. We can not hope to build a structurally sound financial and economic system until those who reap the outsized rewards of risk personally bear the consequences of failure.
I left a more lengthy comment today on this topic on an Instablog by Elliott Morss seekingalpha.com/insta... and will not repeat it here.
Bailout Economics [View article]
I can justify bailouts when the "bailer" gets something from the "bailee". With financial institutions the concessions should include restructuring, as in a bankruptcy, with capital and debt positions taking haircuts or even liquidation when necessary.
That has not happened so the past and continuing bailout mentality is not on my acceptable list. We have gotten to this situation with wealth concentration by oligarchy and the bailouts are simply enabling the further transfer of wealth from the bulk of the citizenry to the oligarchy.
The problem is structural. The problem is "oligarchical". The problem is growing bigger with each passing day.
William Jennings Bryan could not gain traction with his populism approach to the problem 110+ years ago, but, with the McKinley assassination, Teddy Roosevelt entered the presidency through the back door and addressed the problem of oligarchy (aka trusts) of that previous era.
The broken political system in the U.S. is arguing debt reduction facing the crowd while getting bigger shovels to work to load the money into the oligarchy money wagons hidden behind the speakers' platform.
I repeat your final paragraph which is the most important thing you wrote:
<<<All of which means that sovereign debt is going to
continue to go up rather than down: at heart, bailouts are a way of moving indebtedness from the bailed-out entity to the government doing the bailing out. With yet another debt reduction task force reporting today, it might be time to start asking how and whether crisis-related bailouts can ever be accounted for in long-term sovereign debt planning.>>
The Third Depression? [View article]
I have read many of the excellent comments in this thread, but decided to come back to yours to make a couple of additional points because you most directly address the areas I want to expand.
A. You wrote:
<<This means for the US economy that lower interest rates and government incentives aimed at boosting consumption work as pure poison. Instead of more consumption, more savings, less consumption and fewer imports are needed.>>
A dollar spent on consumption is "one and done". A dollar invested for future utility has a multiplication factor.
High taxes in the post WWII years served two purposes: (1) pay down the high debt levels from WW II and Korea and (2) fund infrastructure at home and abroad.
Lower taxes in the past thirty years have not had a long lasting economic benefit because tax revenues have increasingly been spent on consumption. Infrastructure has decayed. The future has been ignored.
See seekingalpha.com/artic... for a graphical representation of the declining multiplicative factor for debt over recent decades.
Borrowing for consumption instead of for production is a cousin to the practice of lending to someone who won't repay in order to receive a commission for the transaction when you personally won't suffer the default loss because you sell the loan to a third party.
B. The final paragraph above brings me to a second point: The incentives that have developed for compensation at the top levels today are perverse. Those in the positions with the most economic power are richly compensated for taking risks, even reckless risk, and suffer no economic loss when the operation fails. We can not hope to build a structurally sound financial and economic system until those who reap the outsized rewards of risk personally bear the consequences of failure.
I left a more lengthy comment today on this topic on an Instablog by Elliott Morss seekingalpha.com/insta... and will not repeat it here.