Government Says No to Helping States and Main Street, While Continuing to Throw Trillions at the Giant Banks

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Washington's Blog

The Wall Street Journal noted last week:

Federal Reserve Chairman Ben Bernanke on Friday ruled out a central bank bailout of state and local governments strapped with big municipal debt burdens, saying the Fed had limited legal authority to help and little will to use that authority.

“We have no expectation or intention to get involved in state and local finance,” Mr. Bernanke said in testimony before the Senate Budget Committee. The states, he said later, “should not expect loans from the Fed.”

Congress has also discontinued the Build American Bond program, which was significant in temporarily financing California and other states’ budgets. See this, this, this and this.

That’s unfortunate, given that many states and big cities are in a dire financial situation, and given that Keynesian economists say that aid to the states is one of the best forms of stimulus.

In any event, as Steve Keen points out, giving money to the debtors is much better for stimulating the economy than giving it to the lenders.

Unfortunately, as I will demonstrate below, virtually the entire government economic policy is to throw trillions of dollars at the biggest banks.

Because there are so many rivers and streams of bailout money going to the big banks, I will start with the specifics and end with broader monetary policies.

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