Whenever the US Government announces subsidies, handouts, bailouts, etc.---whatever you want to call them, it's still "free money"---I have yet to see anyone in the (mainstream) media ask, "But where is this money coming from?"
Indeed, where is it coming from?
Basically, the money is coming from out of nowhere, as if by magic. That is the short answer.
The longer (but not the longest) answer is that the Federal Reserve, the central bank that creates the US money supply, will print up more money, as it has the (unconstitutional) power to do, and inject it into the economy as it sees fit. It will also use money taken from taxpayers, you and me, but it will use inflation first because it is a less-visible tax.
Printing up money, that is, inflating or increasing the supply of money, is the true definition of inflation. This is different from rising prices---those are a result of inflation, but not inflation itself. Since something that is in great supply has less value, an increase in the amount of money available means that money---in this case, dollar bills that the Fed prints up, which is arguably not real money because its value is so flexible---will be worth less than before. Prices will rise. Employers, who, unlike the Fed, do not have access to an unlimited supply of dollar bills, cannot raise wages, so common Americans must pay the higher prices while receiving the same salary. This is why inflation is often referred to as an invisible, or hidden tax. (Also see here.)
A common phrase during the Great Depression that must be revived for today's society (and indeed, must be known and practiced by everyone at any time!) is TANSTAAFL, short for "There Ain't No Such Thing As A Free Lunch." If something seems free, it isn't. The costs are hidden, so look for them carefully.
Rest assured that there will be costs associated with the federal government's bailout of Fannie Mae, Freddie Mac, and AIG, and we will pay them.
When stories like this explode all over the Internet, newspapers, and televisions, I have a very difficult time understand people's continuing hatred of big business. Well, partly. I realize what they hate about it, but I don't understand why their anger is so misdirected.
As I mentioned in a previous post, it is big government that is to be feared, loathed, and boycotted, not big business. Without big government, many of the characteristics that people associate with big business would rarely exist---price "gouging," corrupt practices, customer deception, etc. Of course, in a truly free-market system (which we do not have in the United States), businesses would still be imperfect, and swindlers would still exist, but they would be wholly subject to the natural justice of consumer spending, of profit and loss, of advertising, and by all these things would be held accountable. By bailing out huge corporations, the government is preventing the natural results of corrupt and/or unsound business practices---failure.
The same principles are at work in the private sector. Let us say that you have an acquaintance who is addicted to cocaine. His/Her expensive habits lead to unreasonable, harmful, often unlawful behavior. Is it helping him if, at the first sign of trouble, you "bail" him out time after time? If you keep giving him a vast amounts of money, what will happen to him and the money? Perhaps you do not have enough money yourself to support him, so you take it by force from your neighbors and create counterfeit money. This only perpetuates and escalates the problem, and eventually creates additional problems by criminalizing yourself to support his habit. He must be allowed to suffer the consequences, no matter how painful, to curb this behavior. It may not eliminate the problem, but it will not increase it. Eventually things will somehow catch up with him through the natural course of reaping what he sows (or, if you prefer something less biblical, "karma"). It is not pleasant, but it is the natural order of things. Society may be disrupted, but things even out eventually.
(But wait, wouldn't you be arrested for counterfeiting money and stealing from your neighbors?
Of course. So why is the government allowed the very same practices? Pause. Think about that.)
It is the same with federal bailouts to huge banks, insurance companies, and other businesses. Instead of letting the banks fail, the Fed infuses more (stolen) money into them. Officials say it is to prevent further trouble, but the government is doing nothing more than paying companies to be inefficient. Postponing the inevitable only makes the inevitable worse.
If they are backed by federal (and thus, unlimited) money, then businesses have no reason to be honest or to care about consumers/clients/customers and their wants or needs. They don't have to! If they get into trouble, Uncle Sam will write them a fat check and curtail the consequences. They don't have to be accountable for anything. Of course, the government will take over, as it takes over everything it subsidizes (e.g. public schools, energy, roads, health care), but the company's top executives will still make money without having to bother with little things like ethics, principles, business models, or customer satisfaction. Big business gets bigger and more corrupt, and people point to it as the cause of all society's miseries, rather than considering it the effect, with big government being the true cause.
To learn more about these principles as they apply to you personally, I highly recommend that you find and borrow (better yet, purchase) Whatever Happened to Penny Candy? and The Money Mystery: The Hidden Force Affecting Your Career, Business, and Investments, both by Richard Maybury, part of his brilliant "Uncle Eric" series of books, available from Bluestocking Press.
If you want further information presented in articles that are more academic and far more well-written than this blog, please check out these links, only a fraction of what is available on the Internet if you're willing to look for it.
The Denouement by William Norman Grigg
Are Freddie and Fannie Too Big to Fail? by Frank Shostak
Ticking Time Bomb Explodes, Public is Shocked by Robert Higgs
Fannie and Freddie by Ron Paul (Note: this is an address delivered in September, 2003, a full five years before the previous articles were published)
Should Obama Salute Marines?
3 hours ago