More Bailouts Are Just Wasteful

Every day we hear more and more news about companies coming back to the government for more bailout funds.  Banks, insurance companies, auto makers have all received massive amounts of our tax dollars and are now coming back for more.  The New York Times is reporting that the U.S. is Pressed to Add Billions to the Bailout .  The real question is whether any of this will help.  

The fundamental problem with the economy is that the consumer, the main engine of the economy, is tapped out.  Collectively, we are trying to get our own balance sheets in order.  Instead of buying new big screen televisions and automobiles, we are trying to pay down the debt we accumulated.  Hopefully, we are starting to live within our means.  But, that also means we need to adjust the way we do business.  The demand for goods and services will not return to the way they were anytime soon.  Take a look at this chart from Contrary Investor:

What this chart shows is that households are borrowing less and less.  It is a sign that we are starting to unwind the debt we have accumulated.  While no one can predict where this chart may lead, it is very likely in the coming months, if not years, that this chart will actually be negative - that is, that households will be reducing more debt than we collectively borrow.  

What does that say for the future of the financial industry that relies upon the collection of interest?  It means revenues are permanently down.  A smaller pool of resources.  What does it say about product companies like the automotive industry?  It means demand will be reduced.  In the end, it will be a good thing if we all live within our means.  In the short run, it means that industries will need to readjust what they are doing to meet the lower levels of demand.  

With the spectre of lower demand, how does it make any sense to continuing to finance the banks, insurance companies and auto industry when they can't make a profit?  It doesn't.  It is one thing if we are adding funds to preside over an orderly liquidation and restructuring, but it is quite another to keep funding these industries without any plan or goal in mind.