From the inbox:
What is your official stance on the bailout? I'm trying to figure if I'll ever be able to retire.
My reply:
I hope it works.
It is probably a good idea in the short run … if it helps avoid a really bad recession … but the economy is still likely to suck for awhile.
In the long run it is a terrible idea as business firms are likely to engage in even more risky behavior since they know that government is so willing to insure them against huge losses.
The $700 billion is about the same as our annual national defense budget, about 5% of GDP. That’s huge and scary and an enormous amount of money to borrow when we have big deficits already. Some day China might decide not to lend us more money and interest rates will spike regardless of what the Fed does.
*I teach college level macroeconomics and I approved this post. I'm also an immature jerk who can't get over an insult.