The Collegian

Issue date: 10/2/08 Section: Beyond

Inflation, or the increase of the money supply, is the root cause of the current collapses of major creditors and banks, including Fannie Mae and Lehman Brothers.

The Federal Reserve, which has the ability to print money and keep interest rates falsely low, is the root cause of inflation.

Had the market been left alone, this collapse would not have happened.

The additional money supply created by the Federal Reserve caused inflation that consequently lowered interest rates.

In turn, this led to increased investments, since money was cheap and artificial demand was created.

This caused malinvestments, or investments based upon current consumption, instead of future demands and savings.

Banks loaned money to people in excessive amounts and borrowers are now defaulting on loans because they are losing jobs because companies producing without real demand are now collapsing.

As a result, unemployment will continue increasing because people were employed in the wrong industries, because of false signals created by low interest rates.

Many companies are closing down, and there are less available jobs and more job-seekers, making it difficult for new job-seekers to enter the career world.

Now the government is planning to bail out companies that took excessive risks.

If the current bill is passed, in less than three weeks the national debt will have increased by over a trillion dollars.

The burden of these bailouts will be paid by normal American taxpayers.

If the government refused to bail these companies, an economic crash would occur now, instead of later.

This would be beneficial because bailing-out companies only postpones and worsens the inevitable crash; to rescue companies, the Federal Reserve is increasing the money supply and thus, the cycle will repeat itself.

"Instead of having one bad year, now we are going to have one bad decade," said Jernej Šuštar, lecturer in economics.

Jernej Šuštar, lecturer in economics, and Charles Steele, assistant professor of economics, contributed to this article.

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