After the US financial institutions created a sub-prime lending mess by giving easy loans to unscrupulous borrowers that resulted in a credit crunch sliding the economy into recession, discussions are now underway on how to stem the current crisis. The free-market capitalist US economy is now depending largely on the federal government to lift the economy from the current recession. The pertinent question that arises is which route the government should take to resolve the crisis.
Political opinion is divided on the issue. Senator John McCain, the Republican presidential candidate, has emphasized personal accountability of the Americans. McCain does not want the government to bail out the small borrowers and the banks whose irresponsible behavior triggered the current crisis. On the other hand, the Democrats disagree with McCain. Senator Hillary Rodham Clinton wants the government to do more. According to her, in today’s economy the trouble that starts on Wall Street often ends up on Main Street.
If government intervenes, what remains to be seen is who would have to bear the burden of the crisis - the taxpayers or the banks and the borrowers. With fear of foreclosures, erosion of household wealth and escalating inflation, any federal government spending to bailout the troubled banks and the loan defaulters will shift the burden on taxpayers. However, can government intervention actually help the economy?
The federal government had already introduced tax rebates and spending programs to make consumers spend more freely. Debt aversion is in fact not bad because increased saving stifles growth and history tells us that debt aversion is what prolonged the Great Depression. Debt is bad only when it fuels consumption with no long-term benefit. Even with the housing market continuing with its correction, housing remains an intelligent debt. With the end in the housing market correction, the next growth cycle will begin and smart investment in real estate will pay off.
Source: yahoonews
