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  • The Real Fiscal Crisis

    This week, Heritage senior fellow J.D. Foster squares off with American Prospect’s Robert Kuttner over how Congress should address the economy next in The Los Angeles Times. First JD:

    The Paulson plan was certainly no cure-all; it was intended to keep capital markets functioning so they can resolve their own problems. The plan’s core was to make up to $700 billion of taxpayer funds available to purchase low-quality assets. We need additional steps, such as expanding the reach of deposit insurance at commercial banks. The problem began with housing, but it has now spread far beyond. Another homeowner bailout bill just won’t make much difference.

    We face two choices. We can vent on the Paulson plan, as House members who voted against it earlier today, have done. Or months from now we can vent at Congress for not passing the plan, as the ranks of the unemployed swell by a couple million or more. The issue is whether to act to reduce the depth and duration of the economic slowdown, not whether to prevent it.

    The Paulson plan’s sticker price of $700 billion is shocking, but in context, the consequences for the federal debt and deficit are relatively minor. The real fiscal crisis, which is just around the corner, is more than 100 times greater. That crisis involves the promises made through Medicare and Social Security. Compared with the excess costs in these central federal entitlement programs, the Paulson plan’s size is just a warm-up.

    Kuttner on the other hand, wants to turn the federal government into the world’s largest landlord:

    First, rescue the money markets and the toxic securities by refinancing the underlying mortgages — rather than bailing out the banks. In the Great Depression, Franklin Roosevelt’s Home Owners Loan Corp., a branch of the government, refinanced one out of every five mortgages. Roosevelt’s administration saved about 1 million Americans from foreclosure. No middlemen got rich.

    Posted in Economics [slideshow_deploy]

    4 Responses to The Real Fiscal Crisis

    1. Jon, Columbus says:

      Stop the bailout! This is not free market, this is statist intervention. Get this commercial on tv and spread the free market message!

      http://www.clicktobroadcast.tv/videos/66

    2. Fred Manassas, VA says:

      I am actually opposed to this so-called bailout. I see no valid reason why those of us who spent a lifetime scrimping and saving so we could afford the things we have should be required to now pay for someone else's lack of financial wisdom. The rule is simple, do not spend more than you can pay for.

      Having said that, I understand the need to do something to help a lot of people.

      However, until the congress puts some real teeth into the laws to prevent such things from happening again, I will continue to oppose a bailout.

      Those who perpetrated this mess are sitting on their collective backsides, laughing, because they have their tens (hundreds?) of millions of dollars in safe havens.

      Fred

    3. Brittanicus says:

      Obama has already repeated that their will be a path to citizenship, for lawbreakers..AMNESTY! With the bailout of mega investment business and banks on the front burner. Nobody dare mention, that illegal immigration is implicated in this financial catastrophe?

      http://www.michellemalkin.com/2008/09/24/illegal-immigra... /

      http://www.vdare.com/sailer/080928_rove.htm

    4. Jon, Columbus says:

      I'm with both of you on this.

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