Steve Chapman gave an astute analysis when he said this.
Sometimes bipartisanship is grounds for celebration, but more often it is cause for tears. Last week, congressional leaders from both parties went into a room to hammer out a plan that would put taxpayers on the hook for $700 billion. But they assert that the investment is essential to the health of the economy. And they insist that if we make this investment, we'll get all or most of it back.
This promise would be more believable if the federal government had a long record of using tax dollars responsibly. In fact, it's the equivalent of the guy who raids his kid's piggy bank to feed the slots. The most notable impulse of our leaders is spending money the Treasury doesn't have, piling up bills that future Americans will have to cover.
How do our leaders intend to pay for this massive new outlay? Not by raising taxes. Not by cutting spending in other parts of the budget. No, they will borrow the funds. The Chinese and other foreign investors will lend us money so we can keep the economy humming, which will allow us to make the payments on the money we already owe them.
Now, when the Federal Government creates billions in new government bonds, that is no different than printing money. In fact, Government bonds is the 21st century equivalent of actually printing money. Now, when the Federal government prints money, two things happen. First, they weaken their own currency. Second, they create inflationary pressure in their economy.
Normally, I would say that this action would weaken the dollar except that we have to look at what the consequences of closing down Fortis are. Soon, banks all over the world will begin to fail, and their own governments will have to bail out their banks. Invariably, Socialists all over Europe aren't about to cut spending in order to pay for these bailouts. As such, they will also issue all sorts of new debts. That means, that in an absurd way, currency levels won't change as a result of these bailouts. They will all be equally weaker. Instead, it will usher in a new era of world wide inflation. As governments all over the world need to borrow to bailout their financial institutions, they will begin to print money with no end. As such, the first step in world wide inflation will be ushered in.
Then, as weak economies all over the world face unbridled new inflationary pressures, buying power will be weakened all over the world. Folks will wind up paying more for gas, food, and other everyday items. In a time of an already weak economy, that is almost certain to send the world into a global recession. When we have global recession at the same time we have global inflation, that is called global stagflation. In other words, we have an unmitigated disaster.
2 comments:
I think you are neglecting two significant mitigating factors.
The first is that the real estate supporting these toxic securities is "real". While the values are currently plummeting, they will recover most of their value within a few years. Government purchasers of these securities may well make a profit over and above the initial investment. This is true of the U.S. government and any government that is savvy enough to take the same action regarding their own financial institutions.
Secondly, it appears that you are looking at the finance sector in a vacuum and assume that the economy is based on this sector. It is not.
Let's alter the analytical paradigm a little. Instead of perceiving the finance markets as the source of wealth, let us perceive them as a side effect of wealth.
You see, when production generates profits in excess of the production costs, the money has to go somewhere. Some of it is returned to shareholders as dividends. Those shareholders, then re-invest the excess money above their survival needs. Additionally, companies invest some of the excess profits in additional research and development and may have their own investments.
If these side effect institutions are suddenly experiencing losses because their investments, due to this very predictable, and possibly deliberate, bubble burst, another solution is to increase production and profits to the point where additional funds are pumped back into the market.
The second very significant factor that you are not incorporating into your analysis is the expiration of drilling bans in the U.S. on October 1, 2008.
A sudden increase in energy production in the U.S. will result in a considerable decrease in the price of energy worldwide, making additional production in every other sector more affordable. If we take the correct actions, as prescribed in the GOP's American Energy Act and in addition to additional drilling, aggressively pursue additional nuclear and all available alternative energies, we will see an even greater increase in wealth and natural wealth distribution (as opposed to the artificial and suicidal re-distribution promulgated by socialism).
It is essential that the banking sector be rescued so that it can continue to function, but it is not necessary for the government or anyone else to replace the lost value.
It is our responsibility to do what we do best...produce. Additional production in every sector will mitigate the damage of this crisis.
Next on the agenda is to aggressively pursue legal action against the legislators, lobby groups like ACORN, and Fannie and Freddie administrators who perpretrated the greatest fraud of the last century on the American people and indeed, on the people of the world.
Crimes exist behind this failure, not mere greed, but an actual effort to redistribute the wealth of American citizens and companies to people who had not earned it. Those people on the receiving end of this "help" are probably its biggest victims. And that is certainly a significant evidence that the redistribution efforts were illegal in the first place, and that the legislation that permitted and supported it was in fact unconstitutional and in violation of the laws of our nation.
So, let's get busy.
Best regards,
Gail S
It's real, however what is it worth? We've had an explosion and I mean an explosion. I remember doing a loan for a borrower for a property worth 230k. Seven months later, I refied the property and it was now worth 300k. While it is real, it is also unclear just how much it is worth.
Here is what I know. When the internet bubble burst in 2000 three trillion dollars of paper profits were lost. then came 9/11 and then Worldcom, Enron, et al. yet that crisis was small compared to this one. Why? Because when you control the money, you control everything. When the financial system is teetering it is unlike any other industry. We simply can't have our financial institutions fail one after another. They control the money.
As for drilling, that is wishful thinking. I believe in off shore drilling but its effect is minute compared to the crisis we face.
Of course, the banking system needs to be rescued, as I said, they control the money. Yet, when you rescue them, by a wholesale printing of the money, that creates widespread inflation. When you have widespread inflation at the exact time there is weakening world economies, that creates global stagflation.
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