Cato Scholar Comments on the Bush Administration's Bank Rescue Plan

Tuesday, October 14, 2008

Gerald P. O'Driscoll Jr., senior fellow:

The Bush Administration's plan to forcibly inject capital into the nation's major banks represents the unwinding of its fatally flawed policy of sustaining prosperity by leverage and debt. Economic growth is fostered by savings and investment, not debt, deficits and financial disorder. Just as the nation's banks are too heavily indebted, so too are many consumers.

Thrift and fiscal restraint, both individual and governmental, are the only long-term solutions to the current crisis. As a nation and as individuals, we will need to recognize that debt-driven prosperity is illusory. Personal and government consumption must fall. It will do so through prudent restraint on spending, or inflation that reduces the real value of all economic magnitudes.

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