Wednesday, November 12, 2008

Is Bailout a sustainable solution? No!

Bailout is not and can never be a feasible sustainable solution to the economic turmoil the world is facing.

The American economy has always been looked up on as a free trade economy where performance pays and sloppiness is brutally punished. The economy of this great country was doomed the day government started interfering with fair market forces.

Bailout packages can and must be used only has stop-gap emergency mechanism to handle sudden collapse due to unforeseen events. It is completely unfair to the taxpayer to use his hard earned money to fill the pockets of industrialists and executives who did not have the vision or guts to face the changing market conditions.

History is showing that each time economy was supported with bailout packages it has risen only fall harder the next time.

This happens because the manufacturers have been producing more than what the market needs or can consume. Due to this, competition has become so stiff that manufacturers are falling head over heals to please the consumer. Companies are working on wafer thing margins that make vulnerable to the slightest tremble in the market.

Take automobile industry for example. For years sales was proped by providing its customers with easy financing options. The consumers have so much credit on their hands that they is unable to meet their obligations. As a result, the finance companies are in a mess. Today, a major company like General Motors is at a position where sales have fallen so miserably that the automobile giant is in on the verge of a collapse and government is mulling another bailout package to salvage this company.

Bailout packages may revive sales in the short run, but it will not be able to sustain the recovery in the long term. For a long term solution to the crisis - according to me - there is an immediate need to reduce production capacities to level where the consumer must have to make an effort to get his needs fulfilled.

The basic rule of capitalism - Survival of the Fittest - is the one and only law that will decide the outcome. Bailout packages can and will only delay the fall of the weaker companies.

1 comment:

Finance Guru said...

"Survival of the fittest" cannot be practised in the current scenario as it will affect the lifestyle of millions of individuals not only in the United States but all around the world.