U.S. Government Doing So Many Stupid Things All At Once


“How do you feel now?” asked a reporter for a local investment magazine. “I mean, you’re a contrarian…and you were right about so much?”

“Not exactly,” we explained. “Yes, we saw the problem coming. And we expected the government would do all the wrong things – which it has. But we never imagined that they’d do so many stupid things all at once.

There are only two examples from modern history of depressions such as this – the ’30s in America and the ’90s in Japan. Both times, the governments did stupid things. But this time, the U.S. government has outdone them all. They’ve committed $13 trillion to programs that make no sense theoretically…and have never worked when they’ve been tried.

If you’ll recall, the dog that bit the world economy was rabid with debt. The feds are trying the old ‘hair of the dog’ technique. But they’ve rounded up every mangy cur and stray bitch in the country. And now they’re adding debt to the world economy at a much faster rate than ever in history.

Of course, as feral economists, we love it. We never thought we’d see such a thing. Gone are the mealy-mouthed reservations of cautious economists. Gone are the hesitant…hedged…halfway measures. They’re pulling out on the stops. It’s the pedal to the metal…it’s hell for leather…

What a bold experiment! What a brave undertaking! What a crackpot thing to do!

They must think the planet is under attack from aliens. It’s as if the survival of the human race were at stake. Nearly the entire output of the largest economy on the planet for an entire year – debt, not savings – is being spent to…to…to…well…to do what?

To try to stop the speculators from getting what they deserve!

But wait…it gets even madder. Of course, if you put food out in the alley, it’s bound to attract rats.

Not surprising then, that the government’s bailout cash is giving rise to an astonishing number of new fraud and money laundering accusations.

The complex nature of the bailout program makes it “inherently vulnerable to fraud, waste and abuse, including significant issues relating to conflicts of interest facing fund managers, collusion between participants, and vulnerabilities to money laundering,” says an internal government report.

“You don’t need an entirely corrupt institution to pull one of these schemes off,” said an expert. “You only need a few corrupt managers whose compensation may be tied to the performance of these assets in order to effectively pull off a collusion or a kickback scheme.”

But don’t worry. The feds are on the case. They’re said to be investigating. Just the way they did with Bernie Madoff. And who knows? Maybe the crooks will tell their families…and maybe the sons and daughters will turn them in, just like they did with Bernie.

There are always a few rotten apples in every barrel. But from here at The Daily Reckoning’s South American headquarters in Buenos Aires they all look brown to us. Even Business Week magazine opines that the whole bailout program is nothing more than a scheme to pick the pockets of the nation’s retirees in order to give the money to rich bankers.

“Monday afternoon, Goldman Sachs (GS) reported much larger than expected first-quarter profits on the heels of the strong earnings Wells Fargo (WFC) reported last week.

“No one should be surprised.

“The Fed has permitted the banks and financial houses to park vast sums of unmarketable paper on its books – securities made nearly worthless by the misjudgment and avarice of bankers. In return, the Fed has provided these paragons of finance with fresh, cheap funds to lend at healthy rates on credit cards, auto loans, and even mortgages.

“While the Fed cuts the banks slack, the bankers are busy turning the screws on their debtors by raising credit card rates and fees, and harassing distressed borrowers with all the zeal the Roman army displayed sacking Palestine.

“It takes good banking skills to borrow at 3%, lend at 5%, and make a profit.

It takes much less business acumen to borrow at 2%, lend at 5%, and make a profit – which is exactly what has happened. The extra fees are just gravy.

“This all comes at a cost to someone – America’s elderly.

“Many retirees depend on interest from certificates of deposit. Those rates are down dramatically and as CDs expire, retirees are compelled to reinvest their savings at lower rates and live on less income. They can take comfort that their sacrifices are helping pay off Wall Street’s losses from the lavish bonuses that were paid bankers – for example, the $70.3 million Goldman doled out to CEO Lloyd Blankfein in 2007.”

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

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.
Bill Bonner

Latest posts by Bill Bonner (see all)



  1. Hi Bill,
    How can bailouts and printing money to reduce the wage disparity between US and China be a stupid thing? I believe no union or worker in the US would be ready to take a 90 to 95% pay cut to get on par with his/her Chinese counterpart. I guess the only way to achieve this is to devalue the US dollar 10 fold or more. Albeit it would make gasoline at the pump more than 10 dollars a gallon in the US, it would give the much required boost to new innovation for alternative energy and life style in the US it could in a way lead us all into a new better way of life.

    May 1, 2009
  2. Per-hour wages in China have been rising, but are still much lower than in the West. You can thank cheap & easy credit for allowing what would otherwise be an untenable practice – manufacturing stuff in China and selling it in the US for half of what US-made products go for.

    In a time like this, the US can compete on exports due to the devaluation of the USD$. With attention to quality and craftsmanship, American products canbe just as good as Germany’s best – for half or even ¼ the price. However, I do not think America is in a position to exploit this advantage. Care to guess what happened to most of the manufacturing infrastructure of the US?

    Detroit’s big three could take advantage of the USD devaluation to improve their financial situation. Perhaps if they get used to the fact that from now on there will be no golden parachute in case of poor sales, US automobiles will sell well in other countries.

    Also, GM and the the rest should de-emphasize cars and develop a line to manufacture railroad cars. America is in dire need of good railways. In a future where cars and trucks might not be able to travel so much due to the high price of petroleum, trains that can run on a variety of fuels are a definite plus. No, a definite must.

    China is not relying only on cheap labor to keep its economy in the black. The PRC is adopting a gold standard, I hear. In addition, they are getting their hands on each and every commodity they can – not to mention making huge investments in infrastructure to ensure cheaply available WATER. Finally, the PRC transportation infrastructure – roads, railways, seaports, and airports – will be upgraded extensively over the next few years. Which means China, along with India, will pretty much drive the global commodities boom. We can say that China is following the road that Western economic powers took to arrive at economic greatness.

    In the US, businessmen and investors want the government to reduce its role in the US economy and restrict itself to regulation. This means shutting the doors to the influence of big business. The government will do what it does to ensure an amenable business environment, and nothing more – and do not expect Washington to be play sugar daddy.

    Unfortunately, Washington has done just the opposite and those in cozy rapport with the Federal government are using their position to gain even more business – at the expense of new upstarts that could provide exactly what the market wants. These old, established businesses are, IMHO, staving off their demise through a juggernaut of regulatory rigidity as expressed in Federal laws and regulations.

    I guess the practice of making the market follow the product (instead of the otehr way round, as is the usual case worldwide) is pretty much becoming obsolete.

    And, if inflation does get bad, wages in the US would have to be raised to account for inflation.

    Please feel free to correct me, even rudely. I am not an authority on global economics, so any correction is most welcome.

    Arian I.
    May 16, 2009

Leave a Reply

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au