The government’s previous actions lead to the current financial crisis. See this.
Moreover, the government’s current actions are actually making things worse:
- The “Central Banks’ Central Bank” says that all of the “central bank intermediation may in some cases weaken banks’ incentives to resume their intermediation function”.
- The bailouts are causing HIGHER mortgage rates for consumers
- The government’s commercial paper buying spree is INCREASING the cost of borrowing
- Arbitrary interventions by the government (AIG rescued, Lehman left to fail) create chaos in the markets. Other than some brief exceptions, the stock market has steadily plunged since the bailout bill was signed. Indeed, every time Paulson, Bernanke or Bush speak, the stock market tanks.
- They also undermine consumer confidence. For example, consumer confidence is now at an “all-time low”, due partly to “increasing uncertainty about the government’s rescue plan“.
- The bailouts are drastically increasing America’s debt and causing other problems
- The bailouts may cause unintended problems for money markets
- PhD economist Marc Faber says that the government action may ensure that this crisis is worse than the Great Depression
Ill-advised government actions regarding the economy are not a trivial matter. For example, economists at UCLA have concluded that some of FDR’s policies extended the length of the Great Depression by 7 years.
The government’s attempt to stop the inevitable deleveraging process will also backfire.