TARP Wasn't Obama's Doing

47 percent of Americans believe that TARP, the Troubled Assets Relief Program, that helped prevent the collapse of several financial institutions during the worst of the recession was the doing of President Barack H. Obama. Some who opposed TARP and other "bailouts," see them as a socialist concept that a liberal President decided was a good idea.

The truth, however, is that 47% of Americans are wrong. TARP was actually signed into law by President George W. Bush on October 3, 2008, several months before President Obama took office. In his book Decision Points, Bush discusses the creation and thought process behind TARP in Chapter 14, titled "Financial Crisis." There is no doubt, the financial crisis started during the Bush administration, and some of the blame should fall on the Bush administration. However, the Obama administration policy of pushing all of the blame on the Bush administration is improper. Under President Obama, the economy has become worse. When President Bush left office, unemployment was high. However, under President Obama, unemployment went even higher, from 7.6% to last month's 9.8%.

There is no doubt about it, TARP did help the economy in the short-run and in fact helped the country's deficit as TARP funds were paid back at a profit of over $25B. The difference between TARP and the Federal Reserve's "quantitative easing," is that TARP wasn't an expansion of the money supply, but rather a series of loans that would be repaid earning the lender (the government) interest and profit. TARP was, by no means, a socialist program that involved the redistribution of income from the American taxpayers to banks and other companies that made poor decisions.

While TARP wasn't something President Obama has done, the President deserves credit for having pushed forward items that are beneficial to the economy. The President's current push for unemployment benefits to be extended is a push in the right direction. Ideally, job creation would take place at a rate that makes an extension of unemployment benefits unnecessary. However, the ideal situation is unrealistic right now. If Americans find their unemployment benefits coming to an end with no job in sight, it will lead to more economic troubles as people are forced to default on obligations such as credit cards, utility bills, and mortgages. This will lead to even more foreclosures and more bankruptcies, which will have a negative effect on the economy. Congress would be wise to listen to President Obama when it comes to extending unemployment benefits, and Congress would be wise to also ensure that no American faces an increase in taxes on New Year's Day.

Bernanke Admits More Quantitative Easing Could Happen

On November 15th, I wrote about how if the economy didn't improve, the government would probably just go forward with more "quantitative easing," figuring that if the 2nd round of $600B didn't do the job, more money would.

Little did I know that less than three weeks later, Federal Reserve Chairman Ben Bernanke would admit that the government might spend more money if the economy doesn't improve or unemployment doesn't fall. Bernanke made these comments on CBS's 60 Minutes. Bernanke also said that what the Federal Reserve was doing wasn't printing money. While technically true, quantitative easing does increase the supply of money, thereby devaluing the American dollar. Money, as anyone who has used a credit card, debit card, or direct deposit has experienced, can be created and move without actual dollar bills (cash) being used. The Federal Reserve may not be printing up c-notes, but through "quantitive easing" they Federal Reserve is creating money. This cartoon provides a more in-depth, easy to understand explanation of "quantitive easing."

Creating more money isn't the solution to our country's economic woes. The solution lies in creating jobs. The private sector, not the government, can best create more jobs and job creation should be incentivized. Additionally, the American people need the ability to spend money in a way that will benefit American business. A tax hike next month will hurt business and cost jobs, as the American people will have less money to spend. The poorest Americans are facing a 50% tax hike on January 1st, and the middle class is facing a tax hike of more than 20%. Ben Bernanke needs to get real and next time he appears on TV he should state the true solutions to the country's economic woes: job creation and a reduction in taxation. More "quantitative easing" isn't going to fix the economy.

Waiting for QE3

A couple weeks ago, the Federal Reserve under Chairman Ben Bernanke announced plans for a second round of "quantitative easing," which quickly became known as "QE2" for short. The plan involved pumping $600 billion into the economy. The idea behind "quantitative easing," officially, is to lower interest rates for two purposes:

1. To promote job growth, something that the United States desperately needs and that the Obama administration has continually failed to deliver;
2. To avoid deflation

I won't argue with the concept of job growth. We need jobs here in the United States. Unemployment remains above 9%, and many unemployed will soon reach the end of extended unemployment benefits. However, the concept of avoiding deflation is absolutely absurd. Has anyone noticed any real deflation in this country? I constantly see prices going up. It costs more to travel, it costs more to eat, and it costs more to buy clothes. And just look at precious metals. The price of gold, silver, and platinum have skyrocketed. (On a stock / finance note -- if you're NOT invested in precious metals, you've been missing out.) For many, we are paying more than ever before in taxes. Sure, some products have come down in price, but this is limited to technology products which are introduced at high prices and then come down to more "mainstream" prices as newer technologies come out.

If you go out on the street (and I'm talking Main Street, not Wall Street) and ask people what "quantitative easing" is, most people don't know. The Federal Reserve is using complicated financial terminology in order to hide what "QE2" really is: the printing of more money, which devalues the U.S. dollar, and makes the money that Americans have worked hard to save worth less.

It seems that whenever times are tough, the government moves forward with plans that involve pumping in more money. If the $600B doesn't do the job, then their next idea will probably be to move forward with "QE3" and pump another $600B (or more) into the economy, devaluating the American people's savings even more.

You cannot solve all problems by simply throwing money at them. Zimbabwe tried this. They ended up with, according to their own government, over 230,000,000% inflation. (Forbes estimated the inflation to be so much that to express the figure, you need to use scientific notation - 6.5x10^108%.) Using the government's numbers, that means that a person with $2,300,000 ended up with their millions being worth just $1 in a matter of a few years. Do I think the Federal Reserve would be as irresponsible as Zimbabwe's Central Bank? No. Do I think President Obama is as foolish as Zimbabwe's Robert Mugabe? No. But simply printing money up isn't a long-term solution that can solve our country's economic problems.