Tonight it was announced that the U.S. government will bailout A.I.G. for the bargain price of $85 billion dollars. Add this to the $29 billion for the Bear Stearns bailout and $25 billion (or more) for Fannie Mae and Freddie Mac. Now we’re talking $139 billion dollars that the government is paying out to companies who made poor financial choices and put the United States economy on the line.
Your taxes are not going down
McCain and Obama both like to advocate lower taxes, but the more the government spends the less likely it is that either of them can hold true to their promises. Keep in mind that the government can tax you indirectly through seigniorage, aka the inflation tax. It costs the federal reserve almost nothing to print new money, which the government can then use to pay their debt. But surprise! Printing new money means the money in your pocket is now less valuable than it was before.
So by printing out money and under-reporting inflation the government can take your money right out from under you.
Privatize the profits, socialize the losses
Politicians advocate a free market on the way up, but when things turn sour it is almost guaranteed that they will rush in to help on the way down to prevent stock holders from losing too much money. Of course they are selective in who they bailout. Generally the riskier a company is the more likely it is to be bailed out.
I am a believer in free markets, but if the government is going to step in when things go wrong they need to put regulations in place to limit the tax payer liability when the market goes bust. The saddest part is that money going towards corporate bailouts is money that could go towards helping people who really need the money like those without healthcare.
Times are rough, and we are seeing drastic changes to the financial infrastructure of the U.S. Now is the time to pay off any debt you have, whether it’s credit card, autos, or a mortgage. If you don’t have a liquid emergency fund with a few month’s salary cushion then it’s time to build one up. Only then would I recommend trying to invest money in the stock market, and even then I am not sure I would recommend it.
Keep an eye on what’s going on in the news. There are more failures coming for sure. Washington Mutual is likely to be next, and who knows what’s going to happen in 2009. I still believe that things will get a lot worse before they get better.