Tuesday, July 21, 2009
Gov't still helped in the rescue of CIT
A lot is being made of how the "private sector" saved financial giant CIT, causing people to question whether the bailouts were necessary at all.
Where did the private firms find the capital to save CIT?
The answer to the question is simple, it came from record pool of personal savings, put there by deficit spending. (Read how this works, here and watch me explain how it works here.)
Remeber the identity:
I = S
Which means that for every level of investment there is the equal level of savings (and vice versa).
Without the record level of savings supplied by deficit spending, there would not have been enough capital most likely for private investors to take a chance on saving CIT.
Had the government not deficit spent in the amount that it did and we were still dealing with a paltry--or even negative--private savings rate...no private firms would have had the ability to invest in anything.