Oh, Say, Can You Still See?
Part 12: Bottom Line on Bailouts

By Dr. Russell McDougal

Dear Reader,

You are being stolen blind.  The Fed is an instrument of theft and has been since inception in 1913.  The current and coming bailouts tremendously up the ante.

Banks, Wall Street investment houses, bond insurers, mortgage packagers, and other vehicles of financial excess over the last seven years are coming apart at the seams.  The real estate market and the economy look dismal.  News of further distress is coming in on a daily basis.  The Federal Reserve is responding, in panic mode, with the same thing that caused the problem in the first place - cheap, easy, and fraudulent money.  Two drastic interest rate cuts within one week are historically unprecedented.

The President, Secretary of the Treasury, and the entire Plunge Protection Team are working overtime to keep the system patched together.  Picture the little Dutch boy with more holes in the dike than he has fingers.  We’re in an election year and there is much talk of “recession.”  Those who practice honest accounting know we’ve been in and out of recession since 2000.  Last night’s IDE Unplugged article dealt with this in greater detail.  Those who understand the gravity of the current chaos know that it will take a great deal of finagling to prevent a depression.

Bailouts are a given.  The Fed is owned by multiple banking entities.  The primary objective of the bailouts is to rescue their buddies.  They also have to keep the overall system functioning so they can remain in power and eventually steal from your grandchildren as well.

There is no previously earned or saved money sitting around in a super fund ready to come to the rescue.  The handouts proposed by President Bush are akin to Bernanke’s promised helicopter money.  “Economic stimuli” of this nature are nothing more than a confidence game.  Printing new money and putting it in the hands of someone likely to spend it so the economy picks up is a desperate and pathetic gesture.

Printing new money and coming to the rescue of elitist financial entities is a mugs game.  That is now well in process but it will not transpire without great cost to the American people as well as other global citizens.  The system might just hold together one more time, but it will never again be business as usual.  Let’s look at some repercussions of these historic events.

#1. Price inflation - The costs of goods and services will rise.  The proper definition of inflation is when government and their banking buddies add to the existing money supply.  When more money chases the same amount of goods and services, prices rise accordingly, sooner or later.

U.S. citizens should have received the benefit of falling prices for many goods and services over the last several decades.  Technological advances and cheaper global labor pools, under ordinary circumstances, should have provided these economic benefits.  Not so with the Fed and our drunken government.  They seized the opportunity to print gobs of funny money to buy votes and waste.  Even at that they’ve had to rely on distorting official consumer price statistics to the downside. See John Williams’ Shadow Statistics website for an accurate portrayal of prices (http://www.shadowstats.com/).

Bailouts will largely be monetized.  Funny money will come to the rescue and that act will steal from every citizen currently in possession of U.S. dollars.  Prices will rise accordingly.

#2. The dollar will take a pounding - As bad as the dollar has performed over the last several years, that is just a warm-up act.  Countries and institutions hold foreign currencies as a matter of trust.  The dollar used to be as “good as gold” because it actually could be exchanged for gold.  That has not been the case since 1971.  The magnitude of the coming bailouts will destroy what little international confidence remains in the dollar.

The U.S. has held the privilege of issuing the world’s reserve currency since 1944.  Other countries have held the dollar as reserves and had to buy dollars in order to purchase key commodities such as oil.  American citizens were the beneficiary of this deal.  It made all of our imports cheaper.  It also made a ready market for all the paper financial instruments the NY/DC axis of finance so loved to send abroad.

The euro has been taking up more and more reserve currency responsibilities this decade. This, in spite of the fact that the euro can’t be redeemed for anything more than the dollar can.  Countries have been abandoning dollar pegs and dollar commodity pricing right and left.

These bailouts will likely push this global problem past the breaking point.  They are destined to spell the official end of the dollar’s reserve currency status.

#3. America is for sale - Foreign entities are buying up large chunks of failing U.S. banks.  These are bailouts with a slightly different twist.  The Chinese, Japanese, Saudis, and others have now found something to buy with their long accumulated stacks of funny money.  In an ultimate irony, they are sending it back where it came from to purchase key U.S. corporations on the cheap.

A falling dollar makes U.S. assets relatively inexpensive to foreigners.  The same holds true with desperate failing banking entities.  Banking powerhouses are selling out large and influential portions of their corporations to the highest international bidders.  The “New World Order” marches forward.

#4. Loss of foreign support for U.S. financial assets - Don’t look for foreign entities to step up to the plate any time soon to purchase packaged mortgage bonds, Treasury bonds, municipal bonds, stocks, derivatives, and most anything associated with the recent fraudsters.  Our financial paper is being shunned because of the recent frauds.  Only rock-bottom prices will bring back this buying support.

In conclusion, you can rest well assured that there is no easy way out of the current financial and economic mess.  Those who look to the government or the Fed to “fix” the problems are only asking for more of the same.  They are and have long been the problem.

Invest Resourcefully,

Rusty

[Ed. Note: Dr. Russell McDougal has dedicated years of study and investing in the natural resources exploration sector. During that time he has closed out DOZENS of gains of 500%... 1,000%... 2,000% and more! Currently he is sitting on multiple thousand percent winners, including one stock that is up a whopping +5,000%. And for a select group of investors, Rusty has agreed to share his secrets of success... and his top stock recommendations. Click here to learn more... ]

Market Watch

Government Spending Does
What to an Economy?

By Charles Delvalle

Last week, I wrote an article where I analyzed Hillary Clinton’s effect on the economy.  I got a spirited e-mail from Joe Z that said:
I am a free market guy.  My argument is this: We have an energy crisis because of the government. 

If the private sector wants an alternative fuel they will develop it, but having the government add another $50 billion of debt for something that’s time has not come is ridiculous.

Dear Joe,

It’s true that we have an energy crisis because of the government.  But I say we’re in the crisis because the government never invested in sustainable ways to generate electricity.

Just look at what Germany’s incentives have done for their renewable energy business.  Solar panels and wind energy are HUGE there.  And they have some of the most advanced technology in the world.

And California’s plan to spend $3.2 billion on solar energy was also a good idea.  Imagine if an entire state didn’t have to worry about roaming blackouts or electric prices that kept going higher.  Imagine if the entire U.S. didn’t have to worry about that.  Isn’t that a huge economic incentive to do this?

So do we wait until the technology is affordable and slowly push this?  Or should the government help subsidize the start-up of this huge initiative to get the ball rolling?

Think of it like this.  If you are the CEO of Intel, do you stop spending most of your money on Research and Development just to get short-term profits?  If you did that, your business would be facing hard times.  Likewise, if the U.S. stops focusing its efforts on education, developing new technologies, and coming up with creative ideas, our future won’t look too bright.

In the end, I have no issue with this incentive package as long as it doesn’t add any debt.

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