Thursday, 2 October 2008

More bailout crack

They're doing it again. 

Just when you thought that the bailout crack might have been put back in the box, we hear that the bastards are setting up to deliver another fix.  A trillion-dollars straight into the veins.

Even the New York Times calls these actions “printing money” in a report that (says NBR)

    describes how the Fed has already poneyed up more than the $US700 billion bailout plan in the past week for an emergency-lending programme for banks, swap lines with foreign central banks to help money markets from Europe to Asia, and the cost of propping up AIG and other institutions.
    The Times says there is “more money where that came from,” citing sources that say the Fed could add debt of $US1-2 trillion...

That's nearly three times higher than the present bailout plan -- a sum almost equal to all the loans currently extant in the United States [see charts here]!  For what?  To delay the necessary correction -- one of the reasons the 1930s depression dragged on for so long -- and to keep prices from falling that desperately need to fall -- one of the other reasons the 1930s depression dragged on for so long.

And to delay it by means of the same method that inflated the boom, leading inexorably to the bust: printing more money, as if pieces of printed paper over which the Fed has waved its magic wand are in and of themselves able to turn stones into bread, and toxic bank reserves into solid capital.

I got a phone call the other day asking me to come and talk to a group of people about the causes and implications of the present financial turmoil.  "I'm no expert," I demurred, and my caller replied, "Neither are the bastards who caused it."  Good point.  And the bastards who caused it are still doing their best to make it worse.

UPDATE 1: Reports are in that the dumbarses in the Senate have voted in not just Bailout II, but Bailout II with Extra Pork.  Pork with dripping,  A package totalling for every wallet in America.  
So that's more pork, more credit made up out of thin air, and all with the result of putting off the inevitable pain of correction for ... another few weeks.

And next time the fix will need to be even stronger.

UPDATE 2:  This is not a bailout package, says Robert Murphy writing before today's decision, it's a crime scene.   

    This is not an economic plan: it is a heist.
    It will go down as The Great Bank Robbery of 2008.
    The economics behind it are nonsense, but we are naïve if we spend much time even considering the "arguments" for it. This is a money and power grab, pure and simple.
    Just as magazine covers today feature scantily clad women that would have been scandalous a generation ago, in the same manner Paulson's proposal — made in broad daylight and on national TV! — is almost naked in its audacity.
And since there's no real money created here (reality doesn't allow real money to be created out of thin air) someone has to pick up the tab. Guess who?
    It is the crudest Keynesianism to view the Paulson Plan as an injection of capital or "liquidity." That money has to come from somewhere. If it is taxed or borrowed, then it is just a shell game; the liquidity is drained from elsewhere, to be injected into Wall Street.
    Besides taxing or borrowing, the government has a trump card: it can have the Federal Reserve simply create the new money out of thin air, by engaging in some "Open Market Operations." Yet even in this case, real wealth still hasn't increased. Certain nominal figures, like "aggregate asset values" might go up. But that's not very relevant, because the economy isn't really richer. After all, there aren't more tractors or office buildings just because Bernanke allows the monetary base to grow more rapidly. So what happens in this case is that prices rise; people find it harder to buy milk, bread, and gasoline. But the Wall Street fat cats are fine with the general price hikes, because they got their hands on the newly injected funny money early in the game
And as for talk of "a breakdown" in the financial system without a bailout, this too is a bogeyman, says Murphy. "Just because the banks disappear doesn't mean [genuine] lenders will."


  1. It's really quite simple: the problem is the governemnt, in both the US and NZ

    It's worse in NZ of course simply because we have so much more of it.

    The solution is the same in both cases: let losers go to the wall, immediately stop funding any welfare programs, and fire as many government (in the US this includes state) employees as possible

    if you have a real, non subsidised, non government funded private sector job, then you'll be able to cope with a 50% pay cut when the ecnomy deflates.

    if not - well you don't deserve to

  2. Did you accept the invitation?

  3. Oh, and note how it's now widely reported to be a "rescue package" instead of a bail-out.

    Clever twist. The connotation has changed from one of fault, to one of blamelessness.

  4. "Did you accept the invitation?"

    Have you ever known me to turn down a chance to talk at people? ;^)

  5. What seems to have gone unnoticed here is that the UK bailouts, costing US$5,000 a head are more expensive per capita than the US bailout at $3,500 a head.

    In the UK it seems the Cabinet just "Did it".

    The only good news out of the US debacle is that Al Gore's Lehman bank has folded. I'm not sure is he will receive any of that renewable recycled money the Feds are dishing out.

  6. What seems to have gone unnoticed here is that the UK bailouts, costing US$5,000 a head are more expensive per capita than the US bailout at $3,500 a head.

    What's the big surprise - the government sector in the UK is so much larger than the US.

    And - funnily enough, it's not Zimbabwe, or Africa (which don't have a functioning government); it's not the UK or even Germany or Scandanavia that has the highest proportion of government in the OECD - because all those blatantly socialist countries (even Finland) have very active large private sectors (think Nokia).

    The "Western" country with the highest effective proportion of its economy under government control is now New Zealand. Thank you Labour!

    And all this means is: when then crash hits NZ- just as the crash of 1987 or the great depression hits NZ - it will hit here harder and longer than anywhere else


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