Can't The Government Bail Me Out Of Debt?

In the event of a major financial crisis, would it be possible for the national government to bail out the public instead of bailing out banks?

Well, yes and no.

If the banks are in trouble because too many people are defaulting on their loans, allowing them to go out of business could spell disaster for the economy. If they're big enough, it could affect the global economy and even your plans for your dream vacation.

You may think that allowing them to go out of business sounds like a good thing, and you may be right in the long-term. It would certainly feel good to see them be the ones to lose everything for a change, but in the short term, it would create hardship for a lot of people.

Or maybe you think that nationalising the banks (i.e. have the government take them over) is the way to go? You might be right with that, too, but there are lots of people who would object because it's giving the government too much control or would become more inefficient or... just trust me that there will be objections.

Bailouts

In the aftermath of the 2008 crisis, governments kept bailing out the banks to cover the money they were losing on bad loans. Unfortunately, politicians typically did not attach any conditions to these bailouts, so the banks got to keep chasing borrowers for payment on those loans.

So, the government could have bailed out the public instead of banks?

I already said yes and no, but... fine, I'll give you more of an explanation. A quick one.

If the government had given money to the public instead of the banks on condition that they use it to pay down their debts first (and they could keep whatever was left over), then the public and the banks would no longer have been in trouble.

The government wouldn't have had to give people enough money to pay off the loan in full, though. Giving them enough to bring their repayments down to a more manageable level would have done the job nicely.

Wouldn't we need to pay more tax to pay for that?

Nope. The fact that people couldn't repay the loans was a symptom of there not being enough money circulating around the economy. By creating more money and injecting it into the economy via these bailouts, the government would have made things better for everyone.

Doesn't money printing cause inflation?

The government can always afford to buy whatever they want (they're the issuer of currency, after all), but the only constraint is that they should only buy whatever's on sale _without causing a shortage for everyone else_. Giving people money to pay off existing debts when you're on the brink of a crisis doesn't create a shortage of anything! Well, maybe it'll create a shortage of destitute families.

I'm up to my eyeballs in debt now - what should I do?

Well, don't turn to crime. That's bad. Instead, turn to the criminals in government and demand a modern debt jubilee. The name sounds like a party, doesn't it? They'll love the sound of it.

If they say no, then you must tell everyone you know about the politician who's a party pooper and they'll be better off having a party animal get elected instead!

If you don't ask, you don't get!