Observers warn that the United States’ reliance on borrowing to fund essential programs is a dangerous gamble. For the first time, investors are beginning to question the ability of federal government to meet its growing financial obligations, and fading confidence can have dire consequences. “You might have a situation where there is one day when the government says we need to sell several billion dollars of bonds, and nobody shows,” Economist reporter Greg Ip says. “No money to pay the Social Security checks, no money to give to the states for their Medicaid programs. Cut, cut, cut, cut, cut.”
Yet more borrowing is exactly what the Obama administration plans to do: hundreds of billions to bail out the banks and other financial institutions; tens of billions more for the auto industry; $275 billion for homeowners and mortgage lenders; and a giant $787 billion stimulus package to jump-start an economy spiraling downward. Just like the Bush administration before it, Obama and his team are going to borrow big.
“That’s the paradox of the situation that we’re in now,” observes Matt Miller, author of The Tyranny of Dead Ideas. “Government has got to run big deficits to stimulate the economy, deficits that would have been unthinkable … because government’s the only entity with the wherewithal to prop up a demand in the economy when businesses and consumers are all pulling back.”
Examining what Paulson and Bernanke didn't see, couldn't stop and weren't able to fix. How the economy went so bad, so fast and what Paulson and Bernanke didn't see, couldn't stop and haven't been able to fix.