Will bailout fever drive the US into a depression?

Not that long ago, I was ready to dismiss such talk but looking at the Freddie/Fannie bailout, the Big Auto bailout, the Bear Stearns bailout, the banks failures that are putting too much stress on the FDIC, and surely there has to be more bailouts coming, I’m not as sure about our ability to absorb all of these costs. Maybe this analyst is going too far but look at what has happened today with Lehman. In this interview this money manager suggest that the cost of the bailouts will tip the US economy beyond a recession and into a depression. If you have the time, watch the video inside the link. Agree or disagree, but it’s an interesting discussion. We’re making it much too easy and comfortable for businesses as we bail them out or even talk about bailing them out. Look at how Congress treated individuals in bankruptcy and tell me this is fair.

The estimated $300 billion cost of the Fannie/Freddie bailout will probably be considered as a loss that the government will have to take, therefore passing it on to taxpayers, he explained.

“We already have $3 trillion of debt, as far as the U.S. government is concerned. These debt figures across the U.S. economy are rising very sharply.”

When the government can no longer pass the United States’ “immense debt” on to taxpayers, it will turn to the holders of U.S. dollars, leading to the eventual downfall of the currency, Hennecke said.

Former Wall Street heavyweight Lehman Brothers – the center of bankruptcy rumors for months – is now lost without a buyer. Really, who wants to buy billions in bad debt and a management team that drove them into the ground? I have said repeatedly that there is only so much money to go around for bailouts and we may be reaching the end. As a nation, we have little cash to fall back on either at a personal level or a as a country. The credit crisis brought on by Republican policies may well be one of the nastiest financial problems in a long time. Unfortunately, McCain doesn’t even see it as a problem and continues to ignore the issue.


An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.

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