Friday, March 20, 2009
Fed's action of pouring $1 trillion into financial markets leads us right back to what got our nation in trouble; households must not spend more
The decision this week by the Federal Reserve to float $1 trillion of our money into the financial marketplace is an incredibly derelict act that will just get more Americans in trouble.
An analysis on NPR cited the Fed action as a way to get more people spending -- specifically it wants to force down mortgage rates so people will refinance their homes and use the extra money to put on a deck, swimming pool or extra room they really don't need.
Or perhaps they'll go out and buy a car, or refrigerator or some big ticket item.
The end result, the Fed hopes, is that jobs will be retained in American industry through increased spending.
Wrong. You don't make things better by encouraging bad behavior.
The Fed is only encouraging the kind of overspending that got American households in trouble in the first place. The equity a person or people has in their home is there for an emergency -- or to leave to your heirs.
It is a sacred trust account not to be tampered with for reasons of the moment.
All this housing mess started when people who could not afford this part of the American Dream were encouraged to buy homes, often places way beyond their means.
The numbers were crunched by the bankers and other lenders to make it seem that these Americans could afford the homes with adjustable rate mortgages that initially would demnd lower monthly payments.
During the lower payment period, everyone figured that home prices would continue their meteoric rise and and the homebuyer could simply refinance their mortgage based on the greater value of the house and take out the equity to ultimately afford the home and maybe even add a swimming pool.
There was only one problem to this game: Home prices fell. And all the Wall Street firms that descended in for the profit got burned, too. But Washington was there to bail them out with your tax money. The people were left to rot.
This nation must learn from that debacle and these hard economic times. Our parents and grandparents did. Why do we consider ourselves more worthy to avoid these travails and truths?
We must tell Washington that its further intervention into the economy only spells ruin -- from AIG to flooding the marketplace with a trillion dollars to encourage the American people to do the wrong thing at the worst possible time.
For shame. Such acts of desperation are not what this nation needs.