Monday, August 23, 2010

Bailouts Saved America From 1930s-like Depression

Alan Blinder, former vice-chairman of the Federal Reserve, and Mark Zandi, chief economist at Moody’s Analytics and former advisor to Republican presidential candidate John McCain, have reported that econometric models confirm that the bailouts and stimulus packages saved America from suffering through another 1930s-like Great Depression. That is, the bailouts and stimulus packages worked!

Without the bailouts of the five “too big to fail” financial institutions, followed by the stimulus packages, they predict the real gross domestic product would have fallen a stunning 12 percent instead of the actual decline of only 4 percent. Twice as many jobs (some 17 million) would have disappeared, instead of the job loss actually suffered. Unemployment would have reached 16.5 percent instead of the 9.5 percent it did.

Furthermore, while the current deficit in fiscal year 2010 will hit $1.4 trillion, this amount is considerably LESS that what it would have been without the bailouts/stimulus packages. With no bailouts/stimuli, there would have been a severe lowering of tax revenue coupled with increased social spending requirements. Without the government spending that was done, they project that the 2010 deficit would have been over $2 trillion, the 2011 deficit would have reached $2.6 trillion, and the 2012 deficit would have been $2.25 trillion. Obama’s and the Democrats’ spending actually has resulted in lowering the deficit compared to what it would have been without this spending!

I have long maintained that history will show that the Republican administration of Bush/Cheney was a financial disaster of epic proportions for the American economy. They came into office with a yearly budget surplus under Clinton and ran it into a $1.1 trillion yearly deficit when they left office, if the costs of their two wars are included as rightly they should be (instead of keeping them as “special appropriations” outside the formal budget). They more than doubled the total federal deficit from $5 trillion to more than $10 trillion. Their policies let corporate greed run wild, causing the housing crisis, followed by the Wall Street derivatives crisis. They brought the American economy to the brink of national bankruptcy (a fact few Americans seem to fully comprehend!), endangering the world economy as a result. Please recall before he left office Bush began the bailouts with a $400 billion bailout to try to save the country’s economy.

Anyone who came after Bush/Cheney would have been faced with this choice:
Do nothing and watch America slide into a Great Depression with millions bankrupted, with 17 million jobs being lost, with every American who had a mortgage or credit card balance held by one of the endangered banks having to pay off their balance in cash on the spot or declare bankruptcy as those banks fought desperately to avoid going under, see the deficit soar by trillions more than it has, watch the American dollar fall in the world market and be replaced as the world monetary standard by the Euro, driving up the cost of all imports (say oil), etc OR Try to save the economy by bailing out the five “too big to fail” financial institutions and passing stimulus bills to shore up the economy. Obama did what anyone who was president in 2008 would have had to do. Yes, even McCain and Palin! History will blame the previous Republican administration for causing this disaster and will credit the Obama Democratic administration with saving the country. Ask any economist.

How can Republicans keep getting away with fooling their tea-baggers that Obama is at fault for running up the deficit and causing the economic crisis? Are they really so ill-informed that they don’t see what happened to the economy under Bush/Cheney and how Obama has done what was necessary to save America? Is Fox Entertainment (not really News) that effective in brainwashing them? I just don’t understand Republicans. And those ‘gentlemen’ will most likely succeed in regaining power to have another go at ruining America while transferring more wealth from the middle class to the elite rich class. Will the blind never ‘see’ how the Republican Party is duping them and playing them for fools? If you don’t make at least $300,000 a year and you vote Republican, you just flunked your IQ test!

Source: Newspaper column entitled "Washington saved America's economic hide" in The Shreveport Times, editorial page on Monday, 23 August 2010, by Froma Harrop, of the Creators Syndicate, Los Angeles, CA.

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