Tuesday, July 15, 2008


Unwelcome Chickens

According to the news this morning on the radio, the efforts by the US Treasury and the Federal Reserve to shore up the troubled firms FreddieMac and FannieMae have not had the desired effect of restoring the confidence of investors, both here in the United States and abroad. One explanation offered was that the shoring up efforts involved the United States assuming an additional massive debt liability. Thanks to the structural deficit put in place by the Bush tax cuts, the United States is already the world's largest debtor nation. China, in particular, may be skeptical of the ability of our country to take on the additional debt involved in saving these troubled mortgage holding firms from bankruptcy.

Mr. Bush started this when he inherited an economy and a tax structure from his predecessor that provided government surpluses for years to come. He had Congress enact tax reductions that did away with the surplus and created a deficit. The theory was that by relieving wealthy taxpayers of some of their tax obligations they would have more money to invest in new businesses, create new jobs, and spur the economy to new activities so the treasury's tax revenue would increase. Etc., etc., etc. Trickle down economics. Supply side economics.

The chickens are coming home to roost.

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