Last week, my mom sent me an email that started with the sentence: "Would we be better or worse off if there was no bailout of these banks?"



I was going to just answer her question right there, but then I realized my answer would make for a great blog post. So, here you go, Mom! Sorry it took so long, but I got a little distracted with the news lately. :)



By the screencap above, you might think we'd be better off if the bailout went through. The Dow dropped more than 500 points by closing today in reaction to the bailout bill not passing the House.



If the bailout did go through, we'd see banking begin to return to normal--loans could be given again, loads of people would still have jobs, and both the USG and Wall Street would save tremendous face (after all, it was the two bodies in concert who is responsible for this mess).



Of course, those are just the good things that would happen. There would be bad things, too, that our leaders aren't really going into.



Most importantly, in my mind, if the government really decides to spend $700 billion (about the price we've paid in Iraq so far), the negative impact could be pretty far reaching--especially on one part of our economy that no one likes to *really* talk about.



We have a problem in our culture--no one really likes to talk about the "i" word.



No, not impeachment.



Well, they don't like to talk about that either, but Americans seem even more loathe to use the other "i" word, inflation.



I'm kind of a broken record when it comes to inflation. I explained my view of it in a recent blog post here: http://thepete.com/…ed-economy



Suffice it to say, when $700 billion gets injected into our economy, it will be a lot of new money floating around. When you increase the supply of money, the existing money drops in value (as dictated by the law of "Supply and Demand"). When the bailout goes through, it'll send the dollar's value plummeting.



That's what can really make for a weak economy, BTW. A weak dollar.



So, in the end, sure, a bailout is going to keep our lives more or less like they are now. We'll be able to borrow again and bankers will keep their jobs and life will be grand until the real meaning of "trickle-down economics" is learned--when the lost-value of the dollar trickles down from the rich (who will use the new money first) to the poor (who will only see the benefits of that new money once the value of their own money drops--it's a little abstract, my apologies).



Another thing any bailout will fail to do is guarantee this won't happen again. We are all familiar with the Great Depression and the stock market crash that preceded it. Was there a bailout then? I don't know.



Regardless, we, as a country, survived the Great Depression and I'm sure America will survive this, whether we have the bailout or not.



So, why does it matter? It matters because the bailout lets people get away with breaking the rules. Hell, the bailout itself is breaking the rules of the free market.



I'm no free-marketeer, but the way I look at it, if you're going to bother to make rules, you should bother to follow them. If you don't want to bother to follow them, then change them and follow the new ones.



Breaking your own rules just makes you look unprofessional.



I'll post more about rule breaking tomorrow...



...assuming I don't get distracted by the news again. :\



Tomorrow's post on the rules will also involve socialism vs. capitalism, conservatives vs. liberals, and probably even McCain vs. Obama, if I can get really creative.



So:



Bailout = good in the short term (status quo, status quoed)



Bailout = bad in the long term (inflates inflation, weakens our overall economy and our individual power to buy stuff, doesn't prevent another economic explosion, also lets bad guys get away with it)



Well, Mom? I hope that answers your question.



Either way, we're in for a world of hurt. Luckily, most of us are broke, so we won't feel it as much as the rich folks panicking right now (though we may have trouble buying things that are about to get more expensive).



For all the folks on Utterli who got notified about this post, I hope you don't mind! I hardly ever notify everyone I've friended about posts, so hopefully you'll forgive me if you're not interested in this post.



Also, I'd love to hear what anyone reading this thinks. I really want to learn more about our money and how it works. I'm really nervous that it's really as simple and truly as messed up as it looks.
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