Look Out Below!
The politicians and popular news media have already declared "bailout" too negative a word for the latest raid on U.S. taxpayers, so "rescue" is the politically correct term. We are rescuing financial institutions - including some foreign ones - who got stuck with truckloads of bad debt. In a free market they would suffer the consequences for their recklessness, even if it meant declaring bankruptcy. But the Panic of '08 is not taking place in a free market. The Founders had some general idea of freedom of commerce, but it never really was given much of a chance.
Notice that the Panic of '08 is taking place one-hundred and one years after the Panic of '07 (1907) which triggered events that led, eventually, to the present decline of the once mighty United States dollar. The 1907 panic was the fourth experienced among the states in 34 years, and banker J.P. Morgan and some cronies injected enough money into the banks to stabilize the financial system and revive business. Six years later a "solution" to recurring panics was devised by the bankers and approved by Congress. The following year The Federal Reserve System opened for business. Its job was to inject liquidity into the system to prevent financial panics. It was also supposed to drain money from the system when it overheated and price inflation got out of hand.
The creation of the Fed led to the biggest credit economy the world had ever seen, and we're now reaping the whirlwind of allowing the dollar - - once the world's strongest money unit - - to become so flimsy and disrespected that people in the U.S. are now running for shelter in yen, renminbi, euros, and other currencies. Some American banks are offering CDs denominated in foreign money, and they are FDIC insured. (In dollar terms.)
Gold and silver have enjoyed steady sales and the United States Mint only today announced it is halting sales of its 24-karat "Buffalo" gold piece. Orders have exceeded the supply!
Anyone who tells you he/she knows what's ahead is lying. We can speculate. We can hope. We can pray, cajole, and rant in our fear and outrage, but we cannot KNOW.
So, let's calmly speculate. This is a credit economy. History clearly shows that debt-based economies always come to a bad end. The experts believe a massive band-aid can be put on the credit shortage, courtesy of the taxpayers, and the wound will heal itself. That's what the proposed $700 billion bailout...oops, rescue... is all about. "We must loosen up those lines of credit so people and businesses can start borrowing their way to prosperity again."
It won't work. The credit balloon has popped. It will be a long time before the banks start shoveling money out the door to almost all comers, even to people with flimsy credit records. Americans will learn a hard lesson; You can't borrow yourself rich.
Here's what this curmudgeon is recommending for the faint of heart, the good people of my acquaintance who are frightened by the awesome media chatter and the images of a major downturn so many howling commentators have constructed. Don't take on a dime's worth of unnecessary debt...pay off existing debt as fast as you can...learn to live within your means, even if it means eating at home more and cutting costly vacations...and then relax. The world isn't ending. Only adjusting to reality.
Skip Christmas. At least the silly excessive gift-giving part of it. Consumers are going to catch hell anyway for being miserly in December, but the greatest gift is personal solvency which you'll never achieve if you stay in hock to the credit card companies.
Practice for the coming economic downturn. You'll discover that being frugal does not necessarily mean being unhappy. There's a lot of truth to the corny old expression "The best things in life are free." And, who knows? All this may lead to a national conversation about reviving honest money - - those coins that jingled with the light-hearted sound of silver, and the paper notes that carried the guarantee "Redeemable in Lawful Money." That guarantee and those jingling coins kept the Inflation Genie under control for long periods of time.
We've seen what today's fiat currency has brought us. What harm could lawful money do?
September 26th, 2008
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Voting for Maggie
Poobahs of Positivism
A Wistful Vista
An Unknown Road
Resurrecting a New Deal
Blood In the Streets
How To Buy Gold
Just Plain Stealing?
A thing to fear
Unstuffing a Lifetime
FDR & History
The Chicken Little Convention
Mr. Bolton's Predators
And Lead us not into temptation
The Legislature and Embryos
Ac-cent-tchu-ate the Positive
What Fools, We Mortals
My Immigrant Relative
The Eloquent Pogo
Unionize School Children
Hucksterism Gone Wild
Unmanageable Religious Violence