Bernanke: TARP is Not a $350 Billion Slush Fund

Stabilization, not stimulus

There may be some benefit in stabilizing certain institutions (although it is doubtful that investors should be protected) but simply moving money for the sake of moving money does nothing good.

I don't see how this money provides a stimulus.

It seems that people have the strange idea that this money comes from later generations, but it doesn't. In order to spend at a deficit we borrow the money today--it comes out of the pockets of today's lenders. All of the money that is going into this deficit spending is being borrowed, and thus is coming at the expense of money that would otherwise be invested at a lower risk-adjusted rate of return (i.e. cheaper money). That is, the money that is going into the stimulus likely has the effect of drying up sources of capital and credit.

The harm comes from the transfer of wealth from more productive uses to less productive uses, and that happens today, we aren't taking the money from our children. The harm to our children is that it subjects them to yet another wealth transfer. It is the opposite of stimulus.

Mazzula of VA @ Jan 13, 2009 17:33:07 PM