Great Depression Online Archive Issue:

When Heads Roll

Great Depression Online
Long Beach, CA
October 17, 2008

Inside This Issue You Will Discover…

*** Doing The Objectionable
*** Japan Says Bailout “Insufficient”
*** When Heads Roll
*** And More

Doing The Objectionable

President George W. Bush stood in the White House rose garden Tuesday morning, where he hocked the latest government plan to fix the financial system.  The plan, he avowed, is “not intended to take over the free market but to preserve it.”

Yet, to our amazement, no one laughed at this obvious incongruity.  Not even a smirk, a chortle, nor a belly guffaw was emitted from the garden.  Clearly, in our opinion, a waste of good clean irony. 

Hank Paulson then let it be known to all, that he was bound by duty to commit an act that by which he did not want to carry out.

‘“Government owning a stake in any private U.S. company is objectionable to most Americans – me included,’ Treasury Secretary Henry Paulson said in announcing the initiative.  ‘Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable,’” reported Jeanine Aversa for AP.

~~~~~~Top Secret~~~~~~

Top Secret: Government “Bailout” Planners Don’t Want You to Read This!  Inside this Free Report, our friend and Wall Street Legend Bob Prechter offers blunt commentary and sharp analysis that reveals the truth about what’s really going on in the U.S. financial markets, in Congress, and at your very own bank.  Break the cycle of misinformation here: Top Secret: Government "Bailout" Planners Don't Want You to Read This!

~~~~~~~~~~~~~~~~~~~~~~~~~

Paulson then instituted what effectively amounts to a partial nationalization of the U.S. Banking industry.  “Initially the U.S. government will pour $125 billion into nine major banks with the hope that they will use the money to rebuild their reserves and to increase lending to consumers and businesses.  Another $125 billion will be made available this year to other banks -- if they need it -- for cash infusions.

“In return, the government will get ownership stakes in the financial institutions.”

If this doesn’t work, who knows what these guys will try next.

Japan Says Bailout “Insufficient”

It didn’t take long for other nations to condemn the effort.  Shino Yuasa reports for AP…

“Japan Prime Minister Taro Aso said Thursday the U.S. bank bailout is ‘insufficient’ and is contributing to the renewed plunge in global stock markets.”

Maybe so.  But we’re not convinced anything would be sufficient.  Moreover, it seems that Aso should understand this. 

For following Japan’s credit binge and asset bubble that culminated in 1992 with George Bush the elder barfing on then Prime Minister Kiichi Miyazawa’s lap…Japan has pulled out all the tricks.  Bank bailouts, public spending galore…all to no avail.  The weary citizenry refuses to borrow money.  And the money they do have, they refuse to spend.

Flooding the financial system with money hasn’t stimulated economic growth in Japan like the academics said it would.

When Heads Roll

But it’s a peculiar world out there.  And things don’t always work out the way you expect them to.  And when they do, what you get is not what you thought you wanted to begin with.  Be careful what you wish for, goes the saying…you just might get it.

Having such thoughts in mind, we pause to ask…

What if the bailout works?

And the flood of money breaches the dams of the financial system that are currently holding back its flow into the economy.

Will it be too much for the economy to handle?  In other words, will the economy drowned in paper money?

The Federal Reserve, in the month of September, inflated its balance sheet by the insane number of $600 billion.  To put this number in perspective, in that one month alone, the Federal Reserve added about 20% of the cumulative amount of reserves that they’ve injected into the banking system during their entire history, dating back to 1913.

That money, so far, has gone into the black hole of insolvent banks and has been largely hidden from the real economy.  But if the bailout works, and banks begin issuing free flowing credit again, the potential for an unrestrained deluge of money into the economy becomes frighteningly real.

In central bank parlance, this is when they’ll move to the mop up phase of their operation.

But how do you use a mop to dry up a breach of Hoover Dam?

Central bankers and politicians are faithful that this money will flow back into housing prices, the stock market, and to finance business activity.  And some of it likely will.  This current undertaking is being called reflation.

But it’s just as likely that more of it will flow into oil prices, food prices, and consumer prices.  When that happens, it’ll be called inflation.

And if this unprecedented amount of pent up money supply floods into oil, food, and consumer prices faster than Bernanke can mop it up, it’ll be called hyperinflation.

Throughout history, when this has happened, shortly after…heads roll.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  Top Secret: Government “Bailout” Planners Don’t Want You to Read This!  Inside this Free Report, our friend and Wall Street Legend Bob Prechter offers blunt commentary and sharp analysis that reveals the truth about what’s really going on in the U.S. financial markets, in Congress, and at your very own bank.  Break the cycle of misinformation here: Top Secret: Government "Bailout" Planners Don't Want You to Read This!

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