Government Slowing Bailouts

geithner bailout crashThe government is beginning to take steps to slow spending, showing consumers that they do not plan nor want to be in the business of bailouts for much longer. I think most would agree that the continuation of government bailouts to businesses, will eventually lead us into a massive whole of debt and even more risks of inflation. The big question is will the government really have the courage to let go and allow the economy to walk on its own feet. My worry is that, lately, we have depended so greatly on government stimulus that if they were to cut off all bailouts, it would send us into another down spiral. Just as we saw with Cash for Clunkers, consumers have become very comfortable with subsidized purchases and as soon as they are gone, the consumers are also gone.

Financing terms for Fannie and Freddie debt were tightened this past week, showing that maybe some underwriting standards may start to get more conservative. The institutions are increasing the amount required for a down payment, as well as raising the minimum credit score for eligible borrowers. The changes were not too earth shattering, but show that steps are being made.

Secretary Geithner also announced that the $700 billion bailout fund will soon be not needed. The government plans to cut off the fund as soon as they can and are hoping that the economy will be able to move on without it. Unfortunately, I believe the only thing consumers have learned this past year is that, "when times get rough, don't worry, Uncle Sam will fix them." Who will step in to help grow the economy when the government leaves? I, personally, do not believe the government will be able to do all they plan to. For instance, putting stops to home buying incentives and loan purchasing would open up the doors to yet another housing crash. As such, we would see that trickle back into consumer spending, once again bringing down the entire economy.

For the time being deflation is being covered up by continual government spending, but trust me, it still exists. All economic signs are pointing to the existence of massive deflation, and as soon as this kicks in, I expect to see a lot of selling pressure in the markets. Oil and gold continue to see success, but I still believe their highs are coming down very soon. Gold will once again be a superstar in 2012-2013, but for now, I believe it has some retracing to do. I also see the dollar bouncing back as investors come back to safer investments. There are a lot of changes are economy currently faces, and I expect to see some major changes coming in the beginning of 2010. Happy Trading.


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    One bailout after another