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…
for The Daily Reckoning Australia