The feds want to give people money. They've already cut interest rates to zero - as a practical matter, they can't go lower. And Obama is talking about a new stimulus program of more than $850 billion.
The last major stimulus program was $700. So far, only half that money has been skimmed. It takes time to work a hustle of that scale. The money is destined for the accounts of Paulson's friends and colleagues on Wall Street; everybody knows it. Still, you don't want to be too transparent about something like that. You have to pretend that you're not giving away hundreds of billions to the richest people in the country. Instead, you're helping to "recapitalize the financial system." And that takes time. In this case, you have to pretend that you are smarter than the market...that you are putting one over on Wall Street by buying its castaway "assets" at bargain prices. Heck, you might even make a profit for the taxpayer.
Paulson has gotten his hands on only half the money that Congress authorized. He wants to be sure there aren't any Madoff-style blow-ups - at least until the rest of the loot is under his control.
Obama's additional $850 billion sounds like a good idea to most people. People need cash. They're not too particular where it comes from...and don't seem to mind that it belongs to someone else.
But where does all this cash really come from? There are only two choices...up or down...honest or corrupt...inflation or deflation. It is either borrowed...or it is counterfeited.
If they borrow the money, they can bailout cronies and prop up amigo industries. But it does nothing for the economy as a whole. They are just taking money from one person and giving to another. Even this is pretty sleazy...since it is really nothing more than redistributing wealth...from the people who earned it to the people who didn't. It's corrupt; but at least it is honest corruption. That is, people are used to it and don't seem to mind.
Trouble is, Japan proved that it didn't work. You can borrow and spend all you want. Prices still fall. Unemployment rises. People go broke. They whine and moan. And the pols think they still have to "do something" more.
The United States has an additional problem...even if the feds wanted to borrow every penny of their bailout money, they couldn't do it - not without driving up interest rates much higher and making the situation much worse. Americans don't save that much. And the foreigners have their own bailouts to finance.
That leaves no choice. Birds gotta fly...and the feds gotta print.
Stick with us here...we're getting somewhere...
Bill Bonner
for The Daily Reckoning Australia
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by Nina on 5 April 2009:
This is terrible people are out of jobs or working part time. They are more worried about Mrs. Obama dress than the problems in the world. My husband was suppose to have a government contract at his factory, at the last moment the government changed it; after it was in the stimlus program, what are people going to do. We are barely making it and my husband it going down to four days a week; and they are shut down for a week. My son who's 29, couldn't even get food stamps, because they counted my husband's gross, we don't live on my hubby's gross; he has no income and they wouldn't give him unemployment; he's 29 so how can they count my husband gross when we are barely making it, my son been getting food baskets just to try and help. Our neighbor has more coming in than us and is getting food stamps, what's going on here. When are we going to be able to live again, we have everything shut off, phone's on min! We can barely make our mortage, my son is trying to make our truck payments. Bill collectors call and threaten you! We are getting to old for this. Something needs to be done soon to help people not just the people on welfare, we can't even go to the doctor with a 5000 deductable. Some of these people in office should come and live our lives for a while and they would be working harder for the american people. We need help, but can't get any. Reminded we don't live on gross so why do places count gross? It's terrible we aren't going to be able to retire, and could end up losing our house and on the streets before it's over. Something needs done! We need help but how do we get it! And they count my hubby's income for my daughter who has heart disease for college, how can they do that she's 20, an adult! She can't afford all these loans and there's no way to get out the poor girl will be paying the rest of her life, it's so unfair to her. Somethings wrong here, you have to be on welfare to go to school? This is terrible! Something needs to change! We've been through heart disease, death of a son, house fire etc; Now we lose our state tax for a doctor bill on my son, they said they couldn't write it off because he was only sixteen, we can't afford this, but people on welfare get free medical this is wrong. So now we have a constant reminded of our son's death every year at tax time; it's so unfair. The government needs to keep his promises! And needs to make changes, when someone on welfare is living better than us something wrong! We don't live on gross! I use to believe in our government, but it's hard to believe when so many are out of work, living on the streets, working part time, wage changes etc: Why, "God" would be very upset! The taxpayers shouldn't have to pay for the bailouts, the government should, they are our leaders! I will keep America in my prayers! The government should also make free housing for the homeless, that have lost thier homes to forclosure until thier back on thier feet, paid not by the taxpayers, but the people in office who can afford it. 1 out of 50 children our on the streets now; look at your own children would you want that. Older people can't find jobs, younger people our in debt from college loans. Something is wrong. I pray "God" forgives the people who create this! For "God" is seeing what we are going you are going to do.