The Financial Bailout

After some thought, I have decided to make a prediction. The prediction is that even as the expectations are that this will result in a loosening of credit in the United States, they will be wrong. That is, there will be no loosening of credit.

The reason is simple. Since Reagan was President, people have been sold a bill of goods called Voodoo economics. (This term is immortalized in the movie Ferris Bueller's day off.) That is, cutting taxes stimulates the economy.

This package is a clear example. That is, the United States government will pay $700,000,000 to buy bad debt from banks, effectively paying the banks this amount. The theory is that this will result in the banks having more money to loan out. The fact is, they won't.

It is nice to look at where the money is going, and if there were some multi-trillionaire willing to foot the bill, that would be the case. Unfortunately, that is not the case.

The real question is where is the money coming from? It would be possible for the government to simply create the money, but that would result in a very high inflation (I would think the inflation would be about 30? or so, but that is an estimate because I don't have the size of the economy in front of me now). The fact is that if this were done, people wouldn't put up with it.

It would be possible to increase taxes to cover it. This is probably the best way, and would result in the stimulus that people expect. Unfortunately, Reagan's voodoo economics says that raising taxes be a drain on the economy.

This leaves borrowing. Which means, in reality, what will happen is the banks will be paid a "bailout" which will be used to buy the government bonds that are financing the bailout. Anyone who thinks there will be more money for personal or business loans doesn't understand the system.

Still, the general public has been raised on voodoo economics, and will ignore the truth, so the bailout will be defended as needed. When the economy continues to tank, the press will find some other excuse to blame it on. Almost anything will do.

I have noted for years that this is exactly the situation that existed before the stock market crash which marked the beginning of the Great Depression. That is, there was a general disregard of the truth. In that case, the general public was sold on the idea that the stock market would never go down, therefore, buy stocks, and get rich without any work - that is, without creating any goods or services.

Unfortunately, this is never the case. That is, every time someone eats some food, someone else had to grow it. When a television is bought, someone had to make it. When a movie is watched, someone had to film it, etc. If people think they can get money, which they can use to buy goods and services (and what good of money if it can't) then they have to recognize that they have to create goods or services to make this money.

The same situation exists now. People expect to get government services for free. That is, people drive down roads the government pays for. People expect the government (for better or worse) to wage war. These are all goods and services and, therefore, must be created. Therefore, people need to pay for it.

Since 1835, the United States has insisted that on holding a large debt to pay for the goods and services the government supplied to the people. Before World War II, there were attempts to pay off the debt. That is, if the debt is graphed by dollar amount versus date, there were dips after each war, but the debt was not allowed to zero. In fact, it was not even allowed to back to the level that existed before the war. This was true of every war before the WW II. But even then there was a dip, but the dip was very small. There was no attempt to pay off the cold war, although Clinton was started in that direction. There was no dip, only a slowing down of the growth.

This has resulting in a set of people who have some money to save being given the status of a United States aristocracy. That is, they are being given money without the creation of goods and services simply because of who they are, which is a form of aristocracy. They get paid for their owning some of the debt.

That is, the people who are in the United States. Much of the debt is being held by other countries. This means that the United States must do their bidding because if they don't, then these countries can threaten to quit financing the voodoo economics.

I wonder if this had any connection with the fact that the United States did not say anything to Saudi Arabia after the 9/11 bombings even though the majority of the perpetrators were from there. Instead, they attacked Iraq, which had nothing whatsoever to do with 9/11. That is, Saudi Arabia holds US debt, so we can't take a chance on alienating them.

This bailout will work into the hands of those who would make the United States into a Kingdom, or, perhaps, an empire, similar in nature to the Roman Empire, which was create out of the old Roman Republic. In the same way, there are people who would create a kingdom out of the United States by making the peons too poor to do anything but whatever the aristocracy wants,

I have often said that the problem with ignoring the truth is that eventually the truth will come out and hit you in the face. The question is not if, but when.

The solution is to quit ignoring the truth. Do a study of money, how it is used, and how this can be altered to make a working system. Then implement the changes.

Among other things, this will require that the goods and services used by the government be paid for, and no debt be allowed to accumulate. It should also provide that no one person or group of people be allowed to control so much of the wealth that they can become an effective aristocracy. This latter point was the intent of the inheritance tax.

Until these truths are recognized, the economy will continue to grind down, and there will be economic bailouts, all of which will fail.