Is It Time to Bail Out of the US?
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bigbadwolf
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Rad said:
You are absolutely correct. We can trace this all the way back to the late '70s.
Here Come the Zeros
Paris, France
Friday, February 6, 2009
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*** What happens if America follows Japan’s example?...little by little, the word ‘depressions’ is creeping into the press...
*** The price tag on Obama’s stimulus plan is getting steeper by the day...taking out the protectionist measures and replacing it with more boondoggles...
*** Expecting the people who caused the problem to solve it...the solution to a depression is a depression...and more!
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We live in a world run by simpletons.
In this morning’s paper is a front-page article describing how Japan “wasted trillions” on its various stimulus programs.
The International Herald Tribune :
“Japan’s rural areas have been paved over and filled in with roads, dams, and other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s.”
Public spending was so aggressive, it boosted Japan’s government debt to 180% of GDP – more than two times the current U.S. level. But did all that cement buy Japan out of its slump?
You be the judge. Housing prices in Japan are now back down to where they were in 1975 – nearly 90% below the late-’80s peak. And stocks? The Nikkei index is back down to where it was a quarter century ago. Stocks sell for half their book value – and they’re still considered too expensive for beaten-down, hyper-fearful Japanese investors. The downturn began in 1990. Over the following 19 years, it did more property damage than the Great Tokyo Fire of ’23 and the Enola Gay combined, wiping out wealth equal to three times the country’s GDP. This was despite interest rates at zero...and a heroic effort at Keynesian stimulation.
If America were to follow Japan’s example, it would have to leave its interest rates near zero for the next decade...and add about $10 TRILLION to its public debt. And if it got the same results, you’ll be able to sell your house in 2026 for the same price you paid in 1992.
But the simpletons have no other idea.
“In a nutshell,” continues the IHT report, “Japan’s experience suggests that infrastructure spending, while a blunt instrument, can help revive a developed economy, say many economists.”
Are these, perhaps, the same economists who thought America’s super-consumption, eternal-debt economy would never fail? The same economists who thought the bankers were providing a public service, by offering so many people so much credit...and then planting their debt bombs all over the planet? The same economists who forecast rising stock prices in 2008?
Probably.
The Dow gained 106 points yesterday. The dollar gained ground too – rising to $1.27 to the euro. And gold rose too...plus $12 to $914.
In the United States, jobs are being lost at the rate of 6 million per year. New jobless claims just rose to a 26-year high.
Little by little, the word “depression” is creeping into the press. Yesterday, GE’s top man warned that the downturn could turn into a depression. And Britain’s Prime Minister, Gordon Brown, let slip the d-word during a parliamentary session.
The TIMES of London reports:
“Gordon Brown appeared to acknowledge for the first time today that the world economy was heading for a 1930s-style ‘depression’.
“Mr Brown stumbled slightly over his words at Commons question time, just a week after admitting that Britain was facing a ‘deep’ recession.
“As the financial gloom deepens, he told the Tory leader David Cameron today: ‘We should agree, as a world, on a monetary and fiscal stimulus that will take the world out of depression.’”
But not to worry...the simpletons are on the case. The price tag on Obama’s emergency plan had risen to nearly $1 trillion last time we looked. The Senate bowed to global scorn and ridicule, taking out many of the “Buy America” provisions. Of course, they didn’t do it as a matter of principle...they don’t have principles. Instead, someone must have warned them that if Americans insist on “buying American” the Chinese might insist on “investing Chinese.” And then the whole game would be up. The Ponzi scheme that is U.S. finance requires new money from foreigners in order to pay off the old money that foreigners put in last year and the year before.
The news this morning is that the senators burned the midnight oil...taking out the protectionism and putting in more boondoggles – including a $15,000 tax break for people who buy houses.
So, here at The Daily Reckoning , we have no worries. The feds are on the case. And they’re going to spend, spend, spend...until daddy takes the T-bird away!
*** Wait a minute. The feds are on the case...but haven’t they been on the case for the last 18 months...ever since Bear Stearns went broke? And wasn’t Tim Geithner right there in the room when they decided to let Lehman Bros. go broke...while saving AIG?
Albert Einstein: “Never expect the people who caused a problem to solve it.”
And aren’t the feds’ new plans to save the economy little different from their last plans? Bailouts, stimulus, tax breaks, new, looser credit...aren’t these the same things that were used not only for the last 18 months...but in the Great Depression in the ’30s...and in Japan in the ’90s? Have they ever worked? Nope. Never.
Of course, there’s a good reason they don’t work. As we explained yesterday, you can’t really buy your way out of a depression. Because the problem is deeper than that. The economy is not just taking a rest. It is dead. It needs to be restructured, not revived. And for that, the old structures must be destroyed. That’s what Schumpeter’s ‘creative destruction’ is meant to do. But the feds don’t appreciate it. They talk “change,” but the only change they want is for things to go back to the way they were. So, they’re trying to stop the correction. And they’re using every worn-out trick, every blunderbuss weapon and every claptrap theory they can think of. Bailout the banks...create a ‘bad bank’...nationalize the banks...stop the foreclosures...send out checks...lower interest rates...build bridges to nowhere – they’ll do it all. But it won’t work. All these measures are designed to encourage consumption...in order to support the old structures. But more consumption is just what the economy doesn’t need. It is in trouble because people have spent too much. Now, they have to cut back...and when they do, every enterprise, speculative investment, and household that depended on excess consumption is in trouble.
Ah yes, dear reader...that is where we are. In trouble. At the beginning of a depression. The old structures must be swept away to make way for new ones.
Change! Can it be stopped? Yes we can’t!
“So, what’s the solution?” asked a colleague this morning, after we explained why the stimulus programs cannot work.
“The solution to a depression is a depression,” we replied.
*** Here’s another idea that won’t fly, abolish America’s central bank, the Federal Reserve. From our old friend, Dr. Ron Paul:
“From the Great Depression, to the stagflation of the seventies, to the current economic crisis caused by the housing bubble, every economic downturn suffered by this country over the past century can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial ‘boom’ followed by a recession or depression when the Fed-created bubble bursts.
“With a stable currency, American exporters will no longer be held hostage to an erratic monetary policy. Stabilizing the currency will also give Americans new incentives to save as they will no longer have to fear inflation eroding their savings. Those members concerned about increasing America’s exports or the low rate of savings should be enthusiastic supporters of this legislation.
“Though the Federal Reserve policy harms the average American, it benefits those in a position to take advantage of the cycles in monetary policy. The main beneficiaries are those who receive access to artificially inflated money and/or credit before the inflationary effects of the policy impact the entire economy. Federal Reserve policies also benefit big spending politicians who use the inflated currency created by the Fed to hide the true costs of the welfare-warfare state. It is time for Congress to put the interests of the American people ahead of special interests and their own appetite for big government.
“Abolishing the Federal Reserve will allow Congress to reassert its constitutional authority over monetary policy. The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy.
“In fact, Congress’s constitutional mandate regarding monetary policy should only permit currency backed by stable commodities such as silver and gold to be used as legal tender. Therefore, abolishing the Federal Reserve and returning to a constitutional system will enable America to return to the type of monetary system envisioned by our nation’s founders: one where the value of money is consistent because it is tied to a commodity such as gold. Such a monetary system is the basis of a true free-market economy.
“In conclusion, Mr. Speaker, I urge my colleagues to stand up for working Americans by putting an end to the manipulation of the money supply which erodes Americans’ standard of living, enlarges big government, and enriches well-connected elites, by cosponsoring my legislation to abolish the Federal Reserve.”
Bill Bonner
steveinbsas
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Jedard, why don't you tell us what you think..in your own words...for a change.
steveinbsas
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Is Obama the commander in chief or the enabler in chief?
Do you see any difference?
He is about to become the spender in chief.
Do you see any difference?
He is about to become the spender in chief.
steveinbsas said:
One, I hate typing,
Two, these people are a hell of a lot smarter than me or any of us here hiding in Argentina including the retired Chicago genius.
Three, I have done so in the past and many have chosen to look at my English grammar than listen to what I have said.
So, Mr.steveinbsas, I ask you to put down here exactly what you think the new Pres is going to do. I want to see it here so I can take a copy and later when you find out that you know exactly nada about what is now going to happen. Then I can ram it up your keester.
I think everyone on this site wants to hear your version of this crisis and how well Mr. Obama is going to do. So, lets hear from you today!
Because I like you so much I will give you a tip or two.
The "American dollar" is going to collapse so invest in Gold Bullion, gold funds, gold stocks or Gold mines. That way you can still live here
Jedard
bigbadwolf
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jedard said:
It's enough to provide the links, along with a few apposite comments on what makes the link relevant and why it is interesting, along with perhaps a quick summary or one's own individual take on it. This lengthy cut-and-paste is just a waste of bandwidth and they eyes of many -- including mine -- just gloss over such "contributions."
steveinbsas
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jedard said:
I think the "stimulus package(s)" will have a negative and perhaps disastrous effect on the US economy, and I also believe that a depression is possible. Food production in the US probably won't be seriously affected, but the Prez and his cronies may have to ration food along with health care. It would be hog heaven for those control freak-power mongers. Martial law would surely be imposed if those who cannot buy food begin to riot.
The dollar could indeed become worthless (it will certainly be worth less in the future).
Perhaps owning some gold coins that one might be able to trade for food would be a good idea when things get really bad, but I seriously doubt that anyone will trade a loaf of bread and a chorizo for gold stocks, funds, or shares in a mine. Investing in a weapon for self defense would be in order, too, as those with the guns may eventually be the ones with the food...and probably the gold as well...unless the National Guard can stop them.