Keep those goodies coming

by Russ Roberts on September 24, 2009

in Other People's Money, Politics

The post office will be taking a few billion dollars of money.

The Fed is going to keep propping up the price of houses.

Is there any budget constraint? They act as if it’s a free lunch. How can this end well?

Remember your Bastiat:

Everybody wishes to live at the expense of the state, but they forget that the state lives at the expense of everybody.

The state is the great fiction by which everybody tries to live at the expense of everybody else.

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Mcwop September 24, 2009 at 4:51 pm

During the last 20 years, “Greenspan and Bernanke introduced crony capitalism to the West, which is leading to a lost decade(s),” Rogers writes.

“Market fundamentals are that failures should collapse and be replaced by creative new forces rather than being propped up as zombies. Financial institutions have been failing for centuries and the world has survived.”

If the Federal Reserve had allowed hedge fund Long Term Capital Management to fail 11 years ago, “Lehman, Bear Stearns, et al would still be here,” Rogers argues.

“Everyone would have lost so much capital and fired so many incompetents that the madness of serial bubbles (dotcoms, housing, consumption etc.) would never have occurred. … Would that governments stop interfering with fundamental principles and let the market clean out mistakes!

“Letting Lehman fail was perhaps the only thing governments have done right during this whole drama,”

Jim Rogers

Ike Pigott September 24, 2009 at 4:59 pm

I will ponder this in a few moments while eating my free lunch.

(My wife packed a brown bag for me this morning, and since I didn’t pay for it, it’s free to me…)

Anonymous September 24, 2009 at 5:04 pm

Yes and there is this; “Volcker: Obama Plans Maintain ‘Too Big To Fail’.

I don’t get it. Certainly a better and more thoughtful administration then the last but not really enough change for me.

I can only assume it’s the power of too much “money-is-free-speech”. Corporations and concentrated wealth own the rest of us.

matt September 24, 2009 at 5:16 pm

If corporations owned you they would find a much better use for your parts…

RedSt8r September 25, 2009 at 1:21 am

@matt: I thought this was funny in an ironic sort of way

Anonymous September 24, 2009 at 6:25 pm

You need to think more like you are a successful politician. To be a successful politician one must have wanted to win enough to beat out the competition. Thus think like someone thinking, how do I keep winning elections. With such a mind the risk of an election loss due to not bailing out and things going wrong is greater than the risk of loss due people being angry because you bailed out. Also bailing out can win you some contributions from the bailed out.

Anonymous September 24, 2009 at 9:10 pm

Don’t worry my little pet, your change is coming.

Anonymous September 24, 2009 at 5:53 pm

What an epic blog post. Bastiat for the win (as the kids say).

Anonymous September 24, 2009 at 5:58 pm

It is good politically to keep home prices high and thus hurt big savers those starting out because most voters are already home owners and are not big savers but IMO in net it is a bad thing to do. A quick and complete correction would be better.

Milton Recht September 24, 2009 at 8:44 pm

US borrowing is near its debt ceiling limit and needs Congressional authorization to increase the limit. One of the reasons FDIC is looking to borrow (or prepayment) from banks instead of Treasury. See Bloomberg,

Given the anti US debt voter sentiment, it will be interesting to see how politicians and media respond to the need to increase the ceiling. My guess is it will be a non-event and the ceiling will rise, but surprises do happen.

The post officer is underfunding its pension, a future liability, but the US is on a cash basis system so that the pension costs is not part of the US borrowing costs until retirees actually need to be paid.

Not only is the US taking on an enormous amount of debt, but it is at great financial risk because most of the debt is short term and cannot be inflated away. About 32 percent of US debt has a maturity under a year and 50 percent matures in one to ten years. Another 8 percent will reset because it is inflation protected (TIPS). This 90 percent of US debt will have its interest rate reset upon refunding (or resetting) to a higher interest rate if inflation occurs. A total of 90 percent of the US debt has an interest rate resetting risk.

Plus short term debt (bills) under year and less do not pay interest. Instead, they are sold at a discount and redeemed at a higher price. The (interest) expense is deferred until maturity, and those that mature next year become part of next year’s budget due to US accounting. When short term debt levels increase, next year’s expense increases.

Housing is a smokescreen used by Geithner and Bernanke to keep funding costs low. There is about $7.5 trillion of US debt in public hands. (About another $5 trillion in US agencies). Every one percent interest rate increase in rates of the debt in public hands subject to near term rate resetting is about $67.5 billion, and about a 25 to 30 percent increase in US interest expense. Additionally, the one percent increase is about 2-3 percent of the US government budget, which further increases the deficit, by a significant amount, and the debt.

The public is right to be apprehensive about the amount of US debt because the current cost of interest payments is artificially and unsustainably low. Bernanke and Geithner are using teaser rates to keep the current budget expense low and to avoid tax increase or program budget cuts until the President’s second term or later.

If there were any truth in government borrowing, the government would use a realistic average expected interest rate to show what the true cost of the current debt is to the American public.

louh September 24, 2009 at 9:36 pm

Remember in the long run we are all dead. That should be the mantra for this administration, oh I’m sorry it already is.

Methinks September 24, 2009 at 10:34 pm

It doesn’t matter if it ends well, as long as we can indoctrinate everyone into thinking that whatever pile of dung we live in constitutes living “well”. It’s already starting:

Boy, this brings back memories of “papa Lenin” and “grandpa Marx” – our benefactors, who lifted us from the dark primordial ooze into the light of their wisdom. We lived in the greatest country in the world, thanks only to them. They loved us enough to sacrifice their only begotten son…oh..wait…wrong religion.

Anonymous September 25, 2009 at 12:40 am

I tagged you as a like simply because you duplicated my post above, gotta love papa Obama.

Though really the little kiddies were comparing Obama more to Jesus than to Lennin.

Methinks September 25, 2009 at 2:16 am

Sorry, Vidyohs. It was a hit and run post on my part – I didn’t read the comments carefully.

“Though really the little kiddies were comparing Obama more to Jesus than to Lennin.”

Obviously, my friend, you have not been forced to sing the propaganda songs children that age were forced to sing in the Soviet Union. They must have used one of the songs we sang as a template. It’s that similar.

Jeff September 25, 2009 at 4:44 pm

I don’t think the problem is with the state, but with the kind of state. A limited government, instituted for the sole purpose of mutual protection and free trade, is not a freeloader.

Free trade exists where there is no coercion. Limited governments carve out a firmament of freedom in the coercive international order.

Davidwilliams September 26, 2009 at 4:22 pm

So in other words there is no such thing as a free lunch?

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