Friday, May 02, 2008

Bernanke's "Hail Mary" Pass

I was just listening to Karl Denninger’s U Tube expose on the government stimulus package. I pretty much agree with his math, and what it will cost the average home owner, but I believe that the Fed and Congress have with a little miss-direction, something else in mind. The problem is far bigger.
Don’t believe for one minute that Congress decided to give us a stimulus check. Examine the S&L collapse of the 1990’s. We, the tax payers, paid over 100 billion to bail out the banks. This is just a different approach, kind of a pre strike initiative. The ultimate goal is to inject the cash into the banking system, resulting in increased liquidity for the financial markets. The average Joe on the street thinks the government is doing something for him. Yea right!

To view it in a different light, everyone’s savings was just taxed at 10%. No tax was collected. $10k in the bank now has the purchasing power of $9K. Deposit the check and $10K becomes $11K but it's only worth $10K. The taxpayer got nothing out of the transaction except a warm and fuzzy feeling that the government did something good for them. As Karl mention, we got screwed by Congress and we thanked them to boot. The irritating thing is a majority of people have no idea what we are discussing here and I am afraid it will remain so.

The Fed (Bernanke et al) and Congress are trying to keep the financial system from imploding. Any solution, in this case, no matter how ever far fetched, is worth a try. Their reasoning, "It’s at least a 2 to 20 trillion dollar mess. If we can spend 5% of that and keep it from happening, it is well worth the investment." The alternative is an inconceivable financial collapse. This is a "Hail Mary Pass" for the end zone. The only trouble is, this isn't the last seconds of the 4th quarter.

Government can't create money out of thin air. Inflation is a government tax. Accept that as fact, and the picture becomes clearer. In algebra, adding the same amount to both sides of the equation does not alter the values. If you want to call it a Stimulus check, be my guest.

There is one problem that everyone is glossing over here. Two to twenty trillion dollars has been lost. Whose money was it? There is only one place with big money like that, our retirement savings plans. Let's keep quite about this; we sure wouldn't want to start a panic.

Don't pay any attention to the pictures; they have nothing to do with what I'm talking about (I'm lying). Double click the picture above for a larger image, you need to read the fine print.

A $100 doesn't go far any more. Look for the $1,000 bill to be reissued back into circulation. Do you notice a pattern starting here??

Copyright 2008 All rights reserved


Anonymous said...

Does this mean that I should be backing up the truck to $860 gold?

Do you realize that you are hinting at a possible currency collapse for these great United States?
Is this even possible with the dollar being the world's reserve currency?
Is this where you are going with this post?
I've been reading your posts for almost a year now and have considered you to be level headed. Having said that, now you are scaring me. Not that I think you are insane, but that you might be on to something.

Jim in San Marcos said...

Hi Anon 8:48

The pictures were more of a history lesson. Gold is way too expensive to buy at these prices. But we are approching a point to where the $100 dollar bill has too little value to use in commerce.

If we don't get some serious deflation, the $1000 dollar bill could become a reality. I see that as happening 20 years out when Social Security starts hitting the wall.

Gold is a lousy buy right now, but if you wanted to cover yourself against possible inflation, housing in certain areas has a reasonable rental return. Gold has no rental return. Both are good stores of value.

I don't see any currency collapse for the US, but that doesn't mean that everyone's retirement fund is in good shape.

Take what I said with a grain of salt, retirement savings will be lost, it can be done either way, deflation or inflation. Congress has a choice.

Thanks for your comments

Jim in San Marcos said...

As a post script to the above.

The last post ran two themes that were disconnected. The picture and dialog were separate. They did tie together in the end with the implied suggestion that it could happen again. It was more or less my sense of humor run amok. It seemed absurd enough to be funny.

I think that we will see the thousand dollar bill, but look at its release as a warning of what could come to pass in the future.

The thing that is the center to my thoughts right now is the retirement fund cover up. The money is gone and no one believes me.

Anonymous said...

So if gold is not a buy currently, do you think all commidites are toppy?

If so do you think that commdity currencies (Aud, Nzd, Cad )should be sold?


Jim in San Marcos said...

Hi Banker

I'm not into currencies so I have no suggestions there.

I think that commodities are reaching a top. It's probably the last game in town that still has 5 to 1 leverage. So the returns can be quite high.

Just to show you how quirky it is, an oil refiner might not refine it's shipment at $100 a barrel if they can sell it to someone else for $120 a barrel. So here you get paid more for not refining the oil than you get for refining it. The added benefit, product prices increase. On top of that, the refinery gets to charge storage fees for futures contracts stored in their tanks. You sure can't beat that!

Money is the name of the game.

Thank you for your comments

I'm Not POTUS said...

The super rich are hiding what is left of their wealth in commodities.

That is a bad place to be, because now you are pushing on buttons that a lot of governments around the world DO NOT WANT TOUCHED. Banana republics, military huntas, oilgarchs, and pretty much all the others don't want hungry and mad citizens. They tend to topple or seriously degrade the power of governing.
If the US/HeloBen keeps the asset deflation from happening other nations backed into a corner by food and energy inflation will force our hands to that end.
Sovereign Wealth funds only exist because no one is running through the palace with torches and pitchforks.
As long as HeloBen keeps the fat cats holed up in food and oil, the chances increase dramatically for the rest of the world throwing us under the bus.

Jim in San Marcos said...

Hi Potus

I tend towards the idea that the super rich are even stupider than the average hard working Joe. People that are rich think they are smart, in most cases they are incredibly lucky.

Putting your wealth in commodities could be costly unless you have free storage. Loss of interest at the present time is not much of an issue.

In some of these countries four dollars a day is the wage. You are not going to buy gas. Food is now more expensive.

I see the third world starving to death with our lack of orders for cheap goods. This could topple a few banana republics as you suggest.

Thank you for your comments

Anonymous said...

Ack! Retirement fund cover up? I've been meaning to write you for a while since I posted a question on social security. I just cannot fathom what will happen if someone actually pulls the plug on social security. Now you post that retirement funds have left the building as well? Are you referring to 401k plans or pensions or what?
I'm 40 and have been hoping to retire early and spend some quality time with my young son. Lately it's been impossible to get anywhere with savings. The 401k took a big hit after 2000 and while it recovered late last year its been going south since. Regular savings accounts aren't giving any kind of return. How can a family save for retirement or college with zero percent interest rates?
Now commodities are out as well?
I think I've really bummed myself out here. Sorry!