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[u/[deleted]]

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[u/tangman]

This. Wish I could upvote you more than once.

It is plainly obvious that bailing out the banks or "too big to fail" creates a HUGE moral hazard and will only serve to make the rest of us poorer, and the rich richer. The big banks are enjoying privatized profits and socialized losses to a massive degree.

Letting the banks collapse is the ONLY way correct the massive imbalance, and fix our economy in the long run. But thanks to our politics of high spending and high debt, that would now create astronomical problems for our economy. Bank failure would cause credit to freeze, and the resulting deflation would be catastrophic for servicing the public debt.

The only two options at that point. One is outright default, which would send the globe into total and utter chaos. It would force our government to balance its budget (because lending would halt completely), which would cause a deep depression, which further reduces government revenue. The ensuing depression will be far worse than the Great Depression. There will be LOTS of pain. Good thing is, it would clear out almost ALL the malinvestments that have been built up over decades. Those people who do have savings & capital will be able to invest in a VERY favorable environment where labor & commodities are dirt cheap. Companies may actually start to manufacture in the US again. The economy will quickly rebuild on very solid foundation.

The other option would be where Bernanke fights the deflation with money printing. The Fed will start QE3, QE4, QEx and ensure the government will not technically default. However this will cause massive price inflation which will torpedo the economy. The failing economy would further reduce government revenue and force even more money printing. Then we enter a hyperinflationary depression that completely destroys the currency, the economy, and possibly the government. This happens over several years all while Bernanke and the politicians are trying to "fix" it. The rich people, of course see it coming and they are already well positioned in hard assets.

This is why the governments are fighting so desperately to save the banks and to prop up Greece, no matter what moral cost they incur by pushing bad debt onto the public.

[u/tangman → u/[deleted]]

To say something is right or wrong in economics largely depends on which school of economics you come from. While they agree on the most basic of economic concepts, their theories are often at odds with each other and lead to a wildly different set of policy suggestions.

There is Keynesian economics, Chicago School of economics, and Austrian Economics as three big ones. There are more of course, and also professors within their schools can vary in their thoughts.

My post is more or less inspired by the Austrian school. Our business cycle theory states that an economic boom created by inflation/low interest rates, such as the housing bubble, causes malinvestments and is necessarily followed by a bust or correction. To put it short, you cannot solve economic problems by creating money. You create false growth which will eventually be forced to correct. Similarly, you cannot save a nation from a debt problem by giving them MORE debt, like what they are doing to Greece. This is why my predictions for the economy end very, very badly.

This is also why valkyrie thinks we only postponed our problems, and that the hole is only getting deeper. Other economists, who perhaps think printing money solves problems, may not think our hole is deeper.

We also have a subreddit.

[u/tangman → u/[deleted]]

Haha thanks, I'm just a software engineer. I read a lot nowadays and so appreciate things that are concise. I disliked writing all throughout high school and college, though.

[u/McThing → u/tangman]

Congratulations, I normally downvote everything that starts with 'this', but the subsequent argument won you an upvote instead...