The Big Deal this week (and it wasn't the AIG bonus scandal)

Anyone following the news of politics in recent days might easily find themselves wondering what's really going on here. Obviously, Chris Dodd and Timothy Geithner got caught in a lie, and a big one at that. But I've been doing some reading on this, and it seems there may be more to all this than first appears.

First, Glenn Beck reminded us on his show that when the "right hand" is doing something, don't become so focused there that you miss what the "left hand" is doing. This week -- taking a backseat to all the noise over AIG bonuses -- the Fed announced a decision that most Americans aren't aware of and likely wouldn't understand anyway. As a last ditch effort to keep us out of a depression, they have printed a trillion dollars. This is a huge gamble; whether it accomplishes the goal of increasing lending and spending or not, it *will* increase inflation, and all Americans will feel the effect of this decision.

The Fed End Game reports that "the idea is that the treasury prints money, the Fed uses that to buy long term bonds to keep down interest rates and encourage investment, and then the money goes into circulation. Theoretically that money will cause inflation and — coupled with low interest rates — people will stop saving money and start buying stuff, getting out of the deflationary spiral and causing universal bliss. There are a few minor problems with this theory." [One that I can think of that isn't mentioned in the article is the fact that demographics are against that happening -- the baby boomers have peaked on spending and will be spending less for purely demographic reasons.]

Fishman summarizes, "In short, by trying to avoid a depression, they are punishing savers and rewarding debtors, and doing it in a way that makes the people that messed up have more wealth." And "they are, in practice, devaluing all industry and commerce which hasn’t failed." Swell. The worst part is that if it doesn't work, we're in for a MUCH worse depression than we would have experienced otherwise.

Obviously, I'm a much bigger fan of Reaganomic approaches to economic recovery. Pare back on goverment programs and spending, let people and businesses keep as much of their hard-earned tax money as they can (*especially* the wealthy and the corporations because they are the job-creators), and give the American people (with the greatest entrepreneurial spirit in the world) a chance to reclaim the spirit we found after 9/11 and work through this depression ourselves.

Larry Kudlow has a very insightful article on the implications (hidden agenda) behind the Congress' attempts to tax 90% of bonuses. One of the most interesting points he made:
"I wonder about this simply because there's a much better way to recoup the misbegotten AIG bonuses. Though no one in Congress is paying any attention to beleaguered Treasury man Tim Geithner, he explained in a March 17 letter to Nancy Pelosi that the Treasury "will impose on AIG a contractual commitment to pay the Treasury from the operations of the company the amount of the retention awards just paid. In addition, we will deduct from the $30 billion in assistance an amount equal to the amount of those payments." So the AIG bonus problem can be remedied in a much calmer and simpler way than returning to 90 percent tax rates."

Read his entire article -- its short and concise -- but he summarizes by saying, "You see, taxes matter. They hugely impact economic behavior. The whole economic system is run on incentives to work, invest and take risks. And it must pay, after tax, to ignite the entrepreneurial activity that really drives the economy. Like it or not, our free-market capitalist system is driven by the economic activist, provided he or she is properly rewarded."

Taxes matter, folks. Don't get so caught up in populist anger at greed and bonuses that you miss the big picture of what is really going on here. The real travesty is the government involvement.