Bailout Bonanza
Keeping track of the ever mutating bailout debate is becoming increasingly difficult. With the Federal money spigots now thrown wide open, and with no one of influence advising restraint, the only debate is where to direct the torrent. During the past week, the talk began with Detroit and Citigroup, but by Friday had shifted to a massive “stimulus package” to bail out consumers. The early buzz includes some very large figures. But first, a bit of a recap:
On Monday, the $300 billion Citigroup bailout took center stage. Once again Henry Paulson decided to throw taxpayer funds into a bottomless Wall Street money pit. Shockingly the Citigroup plan did not seem to demand any serious curtailment of lavish salaries and bonuses. Paulson’s shameless largesse to his Wall Street friends has elevated financial industry bonuses to entitlement status.
“Remember Lehman” now seems to be the rallying cry to justify any and all financial bailouts. But Lehman’s demise is in no way responsible for our current problems, and the decision to let them fail is the only bright spot in otherwise consistent record of policy mistakes. We bailed out Bear Sterns and AIG, and what did that get us?
The Citi bailout greatly increases the chances for a similarly misguided auto industry bailout. After all, if taxpayers ensure multi-million dollar bonuses for Citi executives, how can they refuse similar help for eight-figure auto executives and $70 per hour unionized auto workers?
It was inevitable that the size of these bailouts would up the ante for an economic stimulus package aimed at consumers. Not missing a beat, Barack Obama announced a $700 billion dollar fast-tracked package that will likely exceed $1 trillion before passage. (Trillions are the new billions.) The plan must be sending shivers down the spines of our foreign creditors who are expected to foot the bill. Add this cost to the hundreds of billions of prior stimulus and bailout packages, and the cost to our creditors is quickly heading into the multi-trillion dollar range. It can’t be long before they cry uncle and repeat the words of prizefighter Roberto Doran “No Mas.”
With so many familiar faces on his new economic team, Obama signaled his intention to “hit the ground running.” With the possible exception of Paul Volcker, all of his top appointees share the view of the Bush administration that the root causes of our economic problems lie in the reluctance of banks and other financial institutions to lend. As a result, we can expect a virtual continuance of current policy.
It is no surprise therefore that both Democrats and Republicans offered healthy “huzzahs” to Henry Paulson’s latest bazooka: $200 billion to purchase securities backed by auto, student, and credit card loans. It is hoped that with this transference of risk to taxpayers, lending institutions won’t be so cautious, and the credit-fueled American economy can thrive anew. This is unalloyed insanity that can only lead to total ruin.
Paulson stated clearly that he would like the Fed to print as much money as it takes to revive the economy. Unfortunately the only industry likely to be revived by such policies is printing itself. But even this will not help the United States as the majority of our printing equipment is imported from Switzerland.
But what if the root of our financial problem is that American consumers have already taken on too much debt? By trying to force feed even more credit down the throats of already overly indebted Americans, Paulson’s plan will only weaken the economy further.
Building on the groundwork laid by Paulson, the massive stimuli that will likely be pushed through by Obama and an overly eager Democratic Congress will further impede any real recovery. By swallowing up all available capital, spending to create government jobs will destroy far more private sector jobs. Rather than expanding government and increasing the national debt, policy makers should be thinking about doing the opposite.
The brutal truth that no one in Washington dares acknowledge is that our systemic economic problems can only be solved by a reduction in consumer borrowing and an increase in savings. We must repair our national balance sheet and a painful recession is the only path to achieve this. By interfering with the market’s attempts to bring this necessary change about, all the proposals currently coming from Washington or bubbling up from think tanks and Nobel prize-winning economists, will only exacerbate the imbalances and lay the foundation for even greater losses and a larger crisis.
A short-run reduction in GDP is a sacrifice we must be willing to accept. If we swallow this medicine now, in the long run we will have a sustainable rise in GDP as higher savings leads to increased capital investment, greater productivity, and eventually a lasting increase in consumption.
Peter Schiff is the president of Euro Pacific Capital and the author of Crash Proof: How to Profit From the Coming Economic Collapse and The Little Book of Bull Moves in Bear Markets.
Comments
.... the globalists have won.... game over
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“The brutal truth that no one in Washington dares acknowledge is that our systemic economic problems can only be solved by a reduction in consumer borrowing and an increase in savings”
they have no faith in capitalism. thye don’t think it will work without their help
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daniel -ya think?
http://www.inquisitr.com/10231/whopper-virgins-it-doesnt-get-much-more-offensive-than-this/
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What a disaster Mr. Schiff: The idiots that made the disaster continue to run things. Rubin, Summers and the Berneke Obama has brought some change.
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This last insane opening of the money floodgates is not a serious attempt by the Wall Street insiders to avoid the inevitable crash. It is merely designed to postpone it. I suspect that a few of them were surprised by the crunch and now they and their buddies in Washington open one last time the spigot, to fill their coffers, convert the cash into assets that will survive the crash, and then leave the unsuspecting public standing, holding the bag, wondering what happened. And soulless corporations like AIG and Citi will be blamed, while the real profiteers have abandoned them long time ago and will innocently join in the chorus as victims. It is the oldest trick in the book: form a shell, sucker everybody (including the government) to invest their money, suck it dry and find a “fall guy” to run it into the ground. Mission accomplished!
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And one of these days this tsunami of dollars is going to find a new sinkhole, the NYSE..
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The hole is greater than the sum of its parts.
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This just shows the incompetence and the stupidity of those in charge who think that throwing money bills at this fire will extinguish it. They can’t think of any other solution can they?
Granted that we’ve got the bailout the Big 3 since they are major manufacturing component of the US- and there aren’t many left of those. But giving trillions to bankers is never a good idea.
Of course some will probably correctly argue that this was never about solving anything. This is just Paulson doing what rich old white guys do, enrich themselves and their buddies with money stolen from others.
When all this is said and done, there will be a bunch of new billionaires that are going to make the Russian oligarchs look like saints.
Hey, how about this: cut out the middle man. Rather than give money to banks so they can supposedly lend it to Americans, the government just might as well do it itself.
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With the Financialists’ BAILOUTS and other recent actions, we are seeing the greatest misdirection of capital, i.e., malinvestments, in the history of Capital. Always and everywhere, these malinvestments have to be liquidated. This will cause severe pressure around the world, and after the depressionary shakeout, this time the West may not be fated to emerge again on top.
Add to this our distinct disadvantage verses Asia in that through our policies of diversity and affirmative action, we have institutionalized mediocrity in our large systems, public and private. You cannot simultaneously pursue diversity and excellence.
So, between the two, it is probable that we are hollowing out our economy for posterity, and the West will soon evolve into a subservient relationship to the emerging new heirs of world leadership. We should all now seek employment as waiters and waitresses as it will provide excellent training for our only future vocations.
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Citigroup spent 10bn on Spanish infrastructure business.
Can anyone say bailout is a scam?
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Its called debt peonage and the banskters are holding the US economy hostage.
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I am most curious about the bailout of AIG. This was a profitable (and highly regulated)insurance company with big bets in the (unregulated) CDS market. What is being bailed out is the CDSs. Why? This was a speculative market, and its failure affected no production whatsoever, nor any lending. It may have screwed up some banks, but we are re-capitalizing them anyway.
The suspicion I have, perhaps unfounded, is that among the major counterparties was the Chinese, the people who happen to hold the mortgage on this country. I have, incidentally, the same suspicions about Fannie and Freddie, since the Chinese gov’t was buying these in lieu of Fed bonds.
So are my suspicions misplaced?
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Volker is 81 years old!
I just joined the Peter Schiff fan club on Facebook.
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The passage this fall of what I call the “Economic Patriot Act of 2008” (i.e. the original “bailout bill” that made all the madness that has followed possible) marked no less than a lightning-fast coup d’etat perpetrated on the constitutional government of the US by a financial/political oligarchy.
I liken this to a thermonuclear blast. We all witnessed its brilliant flash. Still temporarily blinded, none of us knows the megatonnage unleashed. However, anyone with half a brain now waits--in awe-struck certainty--for the shock wave, firestorm and fallout that we know are inevitable. It’s only a question of when.
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Clinton, Bush & Blair handed the money supply over to a clique that largely by means of hedge funds created trillions in funny money. The collapse of the scam is bringing about a deflation larger than the bailout inflation being thrown at it, at least in the short term. Obama is continuing the program. The same team that looted Russia in locked in place. If you want to know the source of the problem, you might inquire as to why no Christian has a place on the incoming economic team. No change from the outcoming teams there that we can believe in.
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This bailout is only for the crooks that made it. The Clintons, Bush, Rubin, Bernecke, Paulson, Summers,Greenspan,Cheney, Dodd, Schumur, Frank, ect. belong in prison not running the economy
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Somebody sed: “The idiots that made the disaster continue to run things. Rubin, Summers and the Berneke Obama has brought some change.”
Obama’s financial folks are no Paul Revere heros...all of them are responsible for the internet “dot.con” bubble, and cheered on the real estate bubble.
I noticed David Brooks had kind words for Obama’s choices for the money czars. Proof enough that we have another pimp for the CEO Classes and the Wall Street bankers in the White House.
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heads need to roll, literally.
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Posted by Daniel: .... the globalists have won.... game over
No, the backlash against the globalists has just begun; it will be extreme and last a generation (probably a lot longer in certain countries).
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Quote: “The brutal truth that no one in Washington dares acknowledge is that our systemic economic problems can only be solved by a reduction in consumer borrowing and an increase in savings”
NO, NO, NO. Our debt based international floating exchange rate monetary system is dead, dead, dead. Nothing can save it, Not monetary savings, not Bailouts, not reductions in consumption, not austerity, NOTHING. You can’t feed a corpse, stop trying.
You just declare it dead, cancel the debts and find something else to do the job i.e a anti-usury fixed exchanged rate social credit system. Monetary policy won’t fixed the problem because problem is the loss of United States capital goods production relative to the velocity the increase of monetary aggregates.
The only solution is to forget about the money and think about the capital. You need capital to have “capitalism” and capital is NOT money, not savings, not gold, not credit, not financial investment vehicles , or anything else the Wall Street crowd thinks capital is.
This country needs real physical production i.e. production of capital goods that people want to buy. What good are savings going to be in the face of quadrillions of debt obligations? What good is feeding money into a dead system?
Do you want a Dark Age where no money is available for any physical production or real world economic activity for decade after decade as all credit and savings are poured into a black hole of speculative debt? That’s what Peter Schiff is saying we should do and you folk’s don’t seem to understand.
No Austerity. No killing Americans for Wall-Street gambling debts. Human Beings come first not Bankster created debt. No Fascist Schachtian Austerity.
Biblical Debt cancellation, prohibitions on usury and non productive gambling, and credit for physical production to meets human needs.
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