Friday, December 5, 2008

Chronicles Of Depression 2.0: #458: Spin

The Great 2009 Failout, Sustaining the Unsustainable.
As of today the 2008 Bailout: $8.5 Trillion (And counting).

$8.5 trillion is nearly 4 times the amount of revenue that the US government takes in each year in taxes. It is nearly 75% of our entire GDP! If the US government really wanted to help the economy, they could have eliminated the income tax for everyone for 2008. Actually, at $8.5 trillion, they could have eliminated all income tax for everyone for 2008, 2009, 2010, and 2011. Letting the people keep the fruits of their labor would have quickly increased consumption and demand. When you give a tax cut to the poor and middle class, they spend it. The rich put it in the bank.

The question that the Grin Reaper is puzzling over is if it took the FED from 1913 until September 18, 2008 to create 1 Trillion USD of FED notes, what will happen when an additional 8.5 Trillion make their way into the economy? If an investor can receive 10% on corporate bonds issued by International Paper instead chooses to buy two year T-bill yielding less than 2% in an environment where real inflation is running at 13%, what is a Grinner to do? What happens when that yield goes to zero? What happens when there is no advantage to hold a bond rather than cash?

If any of you said "Bond Market Collapse" you win a Kewpie doll.

Emphasis added by me.

Yeah, I've heard rumblings of the bond market being the next to go. Unless credit card debt does it first!

There are going to be major consequences to these actions. By taking money from the many and putting it into the hands of the few, the government is deepening the already lopsided distribution of wealth in this country. These policy decisions move us one step closer to third world status, the US is transmogrifying into Argentina with nukes.

Of course all of the FEDsury's efforts are aimed at restoring a system that is dying if not already dead. So for 2009 rather that focusing on the Great Bond Collapse, how about focusing on what comes next? Some question comes to mind about the inherent unsustainability of the American Way. The Grin Reaper asks "why bother?"

Emphasis added by me.

Remember, Paul Volcker's immediate response to the crisis was an Op-ed column calling on the government to buy up all the toxic assets to remove them from the books of the banks.

That became The Failout, which then was re-marketed as TARP: Troubled Asset Rescue Program.

Until Paulson said, "Time out! We're not going to buy that stuff after all!"

Then Bernanke mused about the Fed buying T-Bills (I didn't bother to post that) and there's also talk of monetizing the debt -- which would send us hellbent to USA-Zimbabwe.

This post leads off with the most profound quotation I've seen applied to this Worldwide Fraud:
The problems we face today cannot be solved by the minds that created them.

-- Albert Einstein

That's exactly correct.

There is now only one single way out.

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