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America First Party
1630 A 30th Street #111
Boulder, Colorado 80301

Tuesday, September 23, 2008

The Present Danger: Will We Become a Bailout Nation?

Boulder, CO - The crisis of confidence in U.S. financial institutions is becoming global. Tuesday's Treasury Department data showed private Asian investors, during the month of July when Fannie Mae's and Freddie Mac's stock imploded, pulling $92.9 billion out of the U.S. During this last epic week, with unprecedented runs on money market funds, near cessation of intrabank lending, wild stock market gyrations, investor flight to Treasury Notes, and the Federal Government's desperate attempts to avert another Great Depression, Asian investors are almost certainly unwinding their investments at an accelerated rate. Alarmingly, even central banks are showing an aversion for U.S. government financial products, as their preference for short-term versus long-term Treasuries shows.

It is fair to say that we are standing at the precipice. If ensuing events shatter foreign investor confidence, then the flow of foreign funds into U.S. public and private debt instruments may stop, preventing the Treasury from financing the debt and bringing the availability of credit to a near standstill. We could also see very steep declines in the stock market which would wipe out the precious savings of millions. This long anticipated scenario would put severe downward pressure on the Dollar and cause interest rates to surge. The result: stagflation, with its high inflation, unemployment, and slow to zero GDP growth. The loss of wealth could result in severe hardship for millions of Americans.

We are in uncharted waters. It is easy to sympathize with Secretary Paulson's efforts to stabilize the markets. There is also a flip side. If his $700 billion corporate rescue proposal, which would raise the statutory debt limit by that amount to $11.3 trillion, goes through, we become a bailout nation at the cost of increased moral hazard and long-term inflation. This, as well as any deficit resulting from the operation of Paulson's proposed new entity, will be on the backs of taxpayers.

"Will this make us less competitive?" asked National Chair Jon Hill. "Chrysler was bailed out, but what resulted? Did car makers do sufficiently better at building fuel efficient and quality cars? No. They lost about 40% of the market to foreign makers. Letting Chrysler fail might have led to a smaller more effective company, and would have pressured domestic makers to be competitive. The same applies to financial companies and our nation. This needs to be considered, as do the requirements of national preservation."

Jonathan Hill, National Chairman, 1-866-SOS-USA1, ext. 4
Michael Lynch, Press Secretary, 1-866-SOS-USA1, ext. 2


America First Party ~ 405 River Road ~ Greenwood, Mississippi 38930
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