Economic Bailout

[Maggie]

Royal -- I agree those are all valid and legitimate concerns. But what are we to do next and how should it be structured? Should we do anything at all?

As for BostonWu’s question – I don’t know if the majority of Congress wants a quick solution so they can simply go on vacation. What they want is to be perceived as taking action…however; I fear they are more concerned (especially because it is an election year) with the short term political benefits and not the long term consequences.

It seems to me to be more about setting up a situation where one party or the other can more effectively play the blame game – if and when, whatever “solution” they come up with has “unintended” consequences. :roll:

[WuDrWu]

Wouldn't it be great if this started a groundswell that swept out every single one of these knuckleheads in about 6 weeks?

Unfortunately, most of the Senate is not up for re-election so guys like Kennedy et al would still be there......

That reminds me....it's nice to tear down McCain for his inability to use a computer but say nothing about Teddy who is all but incapacitated.....he can really do his job today can't he?

Idiots....every last one of them.

[RoyalShock]

Royal -- I agree those are all valid and legitimate concerns. But what are we to do next and how should it be structured? Should we do anything at all?

No clue. That's when I defer to people smarter than I.

[macshocker2004]

Someone smarter than Royal? I refuse to believe it

[Maggie]

Royal -- I agree those are all valid and legitimate concerns. But what are we to do next and how should it be structured? Should we do anything at all?

No clue. That's when I defer to people smarter than I.

What about Ron Paul? What does he have to say?

[RoyalShock]

Ron Paul for decades has campaigned for getting rid of the Federal Reserve altogether. From my understanding of the situation, if there were no central bank (can't just create credit, ie. money, out of thin air), the conditions that made the situation possible would not exist.

So while I have not read a statement from him putting out a solution moving forward, I would guess his ultimate position is that we need to abolish the Fed. But I will do more poking around and see what I can find.

[RoyalShock]

Didn't take long.

Taken from this PDF on the bailout available at the Campaign for Liberty site:

America became the greatest, most prosperous nation in history through low taxes, constitutionally-limited government,
personal freedom, and a belief in sound money. The way out of this current financial crisis is to return to those timeless
principles:

1.) End the Bailouts - The Federal Reserve's authority to use taxpayer money to bail out Wall Street must be revoked and
the Fed must be held accountable.
2.) Stop Congress' Reckless Spending - We must freeze all non-entitlement spending by the federal government at
current levels and eliminate wasteful spending both domestically and in our trillion-dollar overseas budget.
3.) Cut Taxes - If Wall Street can be given your tax dollars, shouldn't you get some back? It's time to cut taxes and return
your money to you. Combined with spending reform, this will increase the purchasing power of our dollars and help
lessen the economic storm.
4.) Reform the Monetary System - If we are to have long-term economic progress, we must end the system of printing
money out of thin air. The current laws limiting the circulation of gold and silver-backed currency must be overturned.

[C0|dB|00ded]

Without the Federal Reserve we (the U.S.)would have much more severe economic cycles and would not have enjoyed the growth in GDP that we have enjoyed over the last century. This is where I and Ron Paul part go our separate ways. The Federal Reserve is not political and without their existence, the U.S. would not be the place where everybody keeps their money.

The problem with this country is that those in power who make fiscal policy decisions have not been conservative in their actions. If Joe Citizen balanced his checkbook like Congress balances theirs, he would be sleeping in the street. The "poor" Fed has to work overtime to "bail out" the bevy of lawyers we call Congress.

Do you know that if you take more than 3 economic courses in college that you have more economic education than almost every member of congress (I had an economics professor tell me that)? It's a very scary thought...


T


...8)

[RoyalShock]

The Federal Reserve is not political . . .

You lost me right there. It was created to appear that it is not political, but it's naive to think that Barnanke and the board aren't subject to powerful outside influences. They facilitated this mortgage crisis by keeping interest rates articificially low. Even with the Fed, market correction needs to occur. Keeping rates low allowed a bad situation to get worse.

A few words from Thomas Jefferson:

If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.

A private central bank issuing the public currency is a greater menace to the liberties of the people than a standing army...We must not let our rulers load us with perpetual debt.

[C0|dB|00ded]

The Federal Reserve is not political . . .

You lost me right there. It was created to appear that it is not political, but it's naive to think that Barnanke and the board aren't subject to powerful outside influences. They facilitated this mortgage crisis by keeping interest rates articificially low. Even with the Fed, market correction needs to occur. Keeping rates low allowed a bad situation to get worse.

A few words from Thomas Jefferson:

If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.

A private central bank issuing the public currency is a greater menace to the liberties of the people than a standing army...We must not let our rulers load us with perpetual debt.

"No clue. That's when I defer to people smarter than I."

The Federal Reserve is not political.


T


...8)

[Aargh]

Let me put the $2.1 trillion in assets the government gets for the bargain price of only $700 billion into something easier to understand.

Joe owes me $2,100. I loaned him some money to buy a pickup. The pickup was only worth $1,000, but Joe and I both thought it was going to increase in value. He's supposed to pay $100 a month, but hasn't made a payment for 6 months. Joe's broke and doesn't have a job.

To make matters worse, I'm showing $2,100 on my financial statement as an asset and I used that $2,100 to borrow $20,000 from my bank 'cause they think I'm loaded. Now the bank wants me to repay my loan and I need to raise some cash fast.

I offer to sell you my $2,100 "asset" for the bargain price of $700. If Joe doesn't pay, you get the pickup, which Joe trashed and it's only worth $400 - $500 now. (People getting kicked out of their houses aren't known for placing significant value on maintenance.)

Are you going to pay me $700 to get the opportunity to try to collect from Joe?

The inflationary effect is real, but getting overstated. The Fed Reserve has a current balance of $800+ billion. $700 billion requires running the printing presses. M1 money supply is pretty much hard currency and regular checking accounts. That number is around $1.4 trillion. I don't have the numbers on hard currency as opposed to checking accounts, but for this purpose, let's say there's around $2 trill in real money. Printing $700 bill produces around a 30% devaluation of currency. A side effect of devalued currency is the exportation of unemployment.

The M2 supply includes insured deposits, savings accounts, CD's under $100,000 and money market accounts. That number is around $7.7 trill. The government has $800 bill to cover $5.7 trill of deposits we think are safe. If banking collapses, we collectively lose around $5 trill in what's considered spendable money, not including investments in mutual funds, stocks, etc. If banking doesn't collapse, then printing $700 bill produces only about a 10% devaluation in the value of currency. That's only about a year or two of investment income on a retirement account.

Best case scenario: If you have $100,000 in a retirement account, you are paying $10,000 to bail out some Wall Street guys who made some wrong bets.

Worst case scenario: If you don't bail those guys out, there's a possibility you lose the entire $100K. It's almost a guarantee you lose more than $10K.

Conclusion: The income you were making on your retirement account was being artificially inflated for years. You have "money" there you never should have had in the first place. The system is going to take back the $10K you shouldn't have had in the first place.

[ABC]

I have yet to read specificly how lack of a bailout will cause harm. I know the President and Paulson are saying it will hurt, but exactly how?

Let's think about what they are saying. "We need $700 billion now and just trust us, don't worry about the details." WHAT??? This is from the same administration that said "trust us" about Iraq.

If someone comes to you and says, "I need $700 billion right now." I think I would say, I need a little time to think about this.

[SB Shock]

I have yet to read specificly how lack of a bailout will cause harm. I know the President and Paulson are saying it will hurt, but exactly how?

What I'm about to say is what I think they believe the potential harm is. I frankly don't think anybody really knows one way or the other.

They believe the following will happen.

1. Banks will not be able to issue any credit and borrowing will dry up because the banks will need all available liquidity to stay in business. Worse case is U.S. Banking system become insolvent.

2. Foreign Investments in this country will dry up.

3. Dollar will fall 40%

4. Investment and retirements acounts will tank. Those at or nearing retirment will find they have nothing (except social security).

5. US fall into a sever recession (potential depression), the world will follow.

6. Unemployment will increase to double digit levels.

7. Deficit will skyrocket because the US will still have to borrow money to pay for the deficit, but their credit rating will not be so good and they will have to pay higher rates.

8. There will be run on savings as people panick and try to pull all their savings out of the banks.

9. Bank failure after bank failure as the US banking system become insolvent.

and finally from the great Dr. Peter Venkman

Human sacrifice, dogs and cats living together... mass hysteria!

[ABC]

Yes - so how will that happen?

You also have members of Congress saying the US government will make money on this transaction - maybe 2.1 TRILLION $$ !!! If that is the case, we don't need the bailout.

Regardless for this adminstration to ask for a $700 billion check w/out restrictions, analysis or deatils, is nuts.

Oh yea, the $700 million bailout will turn the $400 billion budget defecit into a $1.1 TRILLION decefict which is over 1/3 of the $3 trillion Federal budget. Something is wrong in Denmark.

This is absurd.

[SB Shock]

Yes - so how will that happen?

From what I can tell, they claim the scenario like the following will occur:

1. World markets will start collapsing on Sunday.

2. US stock markets collapse on Monday

3. Bank(s) start failing everyday

4. Panic of the people. People going to their bank and trying to pull all of their savings.

5. Foreign investors pulling their money. Credit to banks will become very tight and the lending markets will cease to exist. This will cause additional bank and business failures.

6. Failures will then spread to other World Banks.