US Debt 2: Private Sector Bailout of Government

On the subect of "bail-out", below is a short but good paper from a good friend, former President of Mackinac Center for Public Policy in Midland, Michigan, Larry Reed.

Larry is arguing that it's the private sector bailing out the national/federal government, not the other way around.

Meanwhile, now Mackinac Center President Joe Lehman made a comment a few years ago, that "While the Democrats want to bring us (Americans) to socialism on a train, the Republicans want to bring us there on a bus."

A friend here in Manila asked me, "After 8 years with Bush, does your friend in Mackinac change his statement?"
I said, "I think Yes. Probably he will say now, 'both Democrats and Republicans are bringing the US to socialism on a train.'"
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http://www.mackinac.org/article.aspx?ID=9829

Not So Fast!
by Lawrence Reed


"Thank God we had the federal government last week to bail out the private sector!"

That's what a rather statist friend of mine declared, almost gleeful that the financial crisis seemed to be proving how much we all need a massive federal establishment to both regulate and rescue us.

Never mind the federal government's own indispensable role as an enabler in the crisis, from its reckless monetary policy to its jawboning banks to make dubious mortgage loans. Never mind the long-term danger of its assumption of colossal new obligations and the moral hazard in the message its intervention sends. My response to my friend was of a more narrow focus. "Thank God we have the private sector to bail out the federal government not just last week, but every week!" I exclaimed.

Think about it. Taxes on the private sector pay a majority of the federal government's bills. For most of the rest, the government borrows by selling its debt obligations mostly to private sector entities - including banks, insurance companies and individuals.

The federal government is the world's biggest taxer and the world's biggest debtor. If those of us in the private sector didn't pay our taxes or didn't buy Washington's paper, the feds would have gone belly-up decades ago. We've rescued Washington to the tune of about $10 trillion and rising. A big difference between Washington bailing out the private sector and the private sector bailing out Washington is that the private sector has to work, invest, employ people and produce goods to come up with the cash. It can't print it like Ben Bernanke can.

Our friends in Washington have blessed us with future burdens almost too astronomical to comprehend. In the name of taking care of us in our old age, we are saddled with no less than $6 trillion in Social Security payouts over the next 75 years for which there are no presently-earmarked funding streams. According to Brian Riedl of the Heritage Foundation, the unfunded obligations for the new federal prescription drug program, enacted under President Bush total another $8 trillion. On and on it goes. The private sector has an awful lot of bailing out to do in coming decades.

If you have any doubts about the role played in the present crisis by the very federal government now posturing as our rescuer, take a look at this article from the Sept. 30, 1999 edition of The New York Times: http://tinyurl. com/3jdn9e. And then contemplate how deeply we taxpayers will have to dig in the not-too-distant future to pay the bills of our benevolent, compassionate and forward-thinking government.

* See also, US Debt 1: How Bloated is the US Govt? May 08, 2006