The AIG Diversion

So the AIG guys got a bundle in bonuses.  Probably it was a little too much under the circumstances.  But is that the most important story of the week or just the most covered one because of the scandal value?  The fact that people are able to understand it makes it fodder for every news report around.  They can’t stop talking about it or looking for different angles on it just to keep it going. 

But looking at the rest of the economic turmoil, this is no more than a footnote.  We are now hearing about $10 trillion in cumulative deficits in the coming years.  This will be a staggering problem and nobody can even measure the repercussions.  The Federal Reserve and the Treasury are making money by magic that doesn’t even go through the budget process.  Will anybody ever figure out how to put this back?

The Premier of China is getting nervous about all the spending and borrowing and what it will do to our ability to pay as well as the value of our currency.  This is critically important since he is one of the main guys we have to borrow it from.  While there is a temporary concern about deflation, vastly expanding the money supply can create inflation which will siphon off even more value from what investments we have left.

It’s a lot of fun for the Congress to bark about the bonuses, but no matter how the issue is resolved, it will make no difference at all to the outcome of the economic crisis.  The real problem is that it distracts us from the big issues like all the spending and borrowing in Washington.  The trillions in both budgeted expenditures and indirect borrowings is many times more important.  While those in Washington say all this has to be done, like many medical remedies, the side effects can kill you.  We as well as Congress should be focusing on the story with the real value, not just the scandal value.