Obama says Americans are saving too much

Based on a totally wrong theory of why businesses are not hiring. Who would hire when you never know what burden on businesses the out-of-control brainiacs in Washington are going to dream up next?

Alarmed by the rising savings rate, which liberal Keynesian economic theory views as potentially bad in a weak economy, intellectuals with close ties to the Obama administration, such as Matthew Yglesias, and liberal commentators such as Noam Scheiber, are floating the idea of a trillion-dollar bailout at taxpayer expense, using government-controlled mortgage giants Fannie Mae and Freddie Mac. The bailout would involve Fannie and Freddie writing off part of the mortgage balances of many people who are perfectly capable of making their mortgage payments, not in order to prevent defaults, but just in order to increase borrowers’ purchasing power so that they can spend more money. (The bailout would not cover all Americans, only many of the loans held by Fannie and Freddie.)

The cost of this bailout — perhaps a trillion dollars — would be borne by taxpayers, since Fannie and Freddie are already insolvent, and are expected to need as much as $363 billion more in taxpayer bailouts, even if this massive bailout proposal is not adopted. (Democrats in Congress recently blocked GOP proposals to reform Fannie and Freddie or limit their bailouts.)

This entire proposal, like many of the administration’s stimulus proposals, is based on the faulty assumption that weak consumer demand is the primary reason for the slow recovery. In fact, personal consumption has resumed rising, while private investment has fallen and remains low. Private investment is way down compared to past recoveries, driven partly by lack of confidence in the administration (a well-deserved lack of confidence given the administration’s anti-business policies). The savings rate has only increased slightly and remains lower in the U.S. than in most of the world.


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