Funding the Stimulus Package

Kemp Harshman, Esq., Guest Blogger

The government stimulus package (a Keynesian remedy) could (and probably will) exacerbate the current credit crisis, just as the government interventions during the Great Depression had a limited impact. It was the start of WW II that actually turned the economy around.

Even without the stimulus, the government will have to raise over $1 trillion to fund the current level of spending for federal programs. With the stimulus, it will now have to raise a total of $2 trillion in new funding. Who will continue to buy the debt when our currency is being inflated and the interest rates are suppressed to artificially low levels?

If the government cannot raise tax rates (during the recession) and foreign borrowers (like China) refuse to continue their funding, the Federal Reserve will have to rely on monetary expansion (printing more dollars so the Treasury can buy its own notes). Fed Reserve Chairman Bernanke once stated that he would drop dollars from helicopters if needed to prevent an economy from sliding into a depression. Will that really work? This article from CESJ and this article from "Money Morning" address this question.

The result of the "stimulus" could be to suppress the private sector (since credit for businesses will dry up) and delay the recovery of the economy, saddle future generations with enormous tax burdens, and undercut the value of the dollar leading to high rates of inflation. If that isn't enough, the current foreign bondholders could take their money when their notes mature and buy up assets at bargain prices in the United States, instead of holding inflated dollars. We could end up living in a country that we do not own!

It is painful to watch the American economy implode because of the greed of the fat cats and the incompetence of the bureaucrats. We are far from the end of this "global credit crisis." Let us hope that, with the promise given by Capital Homesteading and similar proposals, the free market will re-emerge, and that the American people will find better solutions to their economic problems.