Yes, it's me again, and this time it is about the $700 billion bailout plan. I'm not going to try to rate it or say if I think it is good or bad. The important thing is that the plan has been okayed both by the Senate and the House, and it has also been signed by the President. In other words, the bailout is going to happen. And it is going to cost an additional $700 billion in federal money.
Now this is what I'm wondering about. Where is that additional $700 billion in federal money going to come from? Unless I misheard both Senator Obama and Senator McCain, both of them favor
tax cuts along with this bailout.
The thing is that the United States already has a very big budget deficit. Quite simply, the U.S.A. can't pay for the bailout itself. It lacks the federal funds needed to pay for it, purely and simply. Its government hasn't got that much money. And both Obama and McCain propose additional tax cuts, which means, all other things being equal, that the federal funds available to pay for the bailout will shrink even further.
So how will the bailout be paid for? The answer is simple. Someone else will have to pay. Someone, or
someones, outside of the United States. Other countries. China. Russia. The Middle East? Saudi Arabia?
The United States will have to go to other countries and ask them for loans. Again. It is not as if the U.S. hasn't been doing that kind of thing before. Which is precisely why America has such a huge budget deficit. Precisely because America has kept going to other countries and asked them for loans, again and again. Loans to pay for the Iraq war, loans to pay for Medicare, loans to pay for tax cuts.
In Time magazine a little while ago, Justin Fox wrote this column about America's debt:
America\'s Number One Export: Debt Here is a quote from of Justin Fox's column:
Our quandary is that we are apparently not capable of safely manufacturing $700 billion in debt securities to sell to foreigners every year, as we've been doing since 2005. (That this is the same total as Treasury's bailout plan is just a coincidence.) If we keep trying to borrow that much from overseas--as you've probably gathered, selling debt means borrowing money--today's quality problems may soon seem petty.
As you may have noted, Justin Fox claims that the United States has borrowed $700 billion
a year since 2005, just to pay for ordinary expenditure. Now the United States is going to have to borrow
another $700 billion, on top of the ordinary $700 billion needed in fresh loans every year to keep America going.
If the United States keeps lowering taxes, then it is quite logical that it will need to borrow more and more money from overseas. What if a tipping point is reached when other countries are not willing to finance America's spending any more?
Ann
