The status of our economic system

The President wasn't a great leader last week. Instead of attempting to restore confidence in our system, he stated, "Give us a trillion dollars, or everything fails." Wait. What? At that point, it didn't matter whether they really needed a trillion dollars, his lack of confidence would cause banks to fail.

Is this bail out really necessary? If I make a lot of cars and people buy my cars, then my stock will go up. But if people stop buying my cars, then my stock should go down. Unless someone keeps buying my stocks, even though I'm not selling any cars. If I don't tell anyone that I'm not selling any cars, then my stocks look good and keep rising. At least short term.

What we have here in the bail out is effectively the same thing. We, the American people, are supposed to buy stocks that aren't worth a darn.

If the bill didn't pass, sure there would be hard times. Yes, even on Main Street. Car dealers won't be able to give out the same number of loans. Not as many houses will be able to be sold. Cities won't be to able to issue bonds at the same low interest rates. Many people could lose their 401K's invested in money market accounts (except that they are now insured). That's bad.

As of 2007, there was $700 billion dollars in circulation. This bill is supposed to buy bad debt (stocks) putting $900 dollars into circulation. That means the dollar will be worth half of what it was before. (Forgetting about debt based inflation for a moment.)

And this $900 billion will be "invested" in Wall Street. Why $900 billion? That number was just made up by Secretary Paulson. Congress and the Senate have not seen any analysis as to why it should be $900 billion.

There's a few other things to the bill. Raising the $250,000 FDIC limit is reasonable. A tax cut for the middle class though? I'm all for tax cuts, but isn't that contradictory based on the rest of the bill? So.. they are going to pay for this not by taxing us but just by printing money?? Is that how?

The worst part of the original bill was giving dictatorial power to Secretary Paulson. The original bill called for the $700 billion to be under his jurisdiction, without any further possibility for review or being able to be taken to court.

As one Senator put it, "Suppose some boats are sinking in a reservoir. You want to stop boats from sinking. So you blow up the dam. That's this bill."

The bill is simply too extreme. Doing nothing is extreme but a heckuva lot less extreme. The bill makes us more communist then any other country. How are we supposed to preach democracy and free market principles to other countries if we don't even follow those principles?

I blame Ben Bernanke and his colleagues for everything. He, who is in charge of the Federal Reserve and interest rates, claimed there is no housing bubble two years ago. He withdrew $125 billion this last week from the banking system. http://market-ticker.denninger.net/uploads/drain.png

If we keep propping up a system that is unviable, we could be doing it for decades, costing a lot more then a trillion dollars. If we allow assets to come down to their true values, then we might have a recession for a year. We're pretty much stuck no matter what happens. The question for us is simple - do we want to attempt to stall the inevitable and make it worse, or just go through with it.

How do we solve this?
End all Enron modeled companies. That is, end these companies that are simply balance sheet games but do nothing and have nothing.
Allow less amount of loans per dollar in the bank. Banks that failed had $80 dollars loaned out per dollar in the bank. The limit was eight times lower 5 years ago. (Didn't Bernanke become Chairman then?)
Regulate more exchanges such as OTC derivatives.
If we do pump money into the economy, do it less at a time, under the oversight of Congress each time and not some unelected official.

Although extreme, end the Federal Reserve. They are the true-ist culprits in all of this. The Federal Reserve was established by only 3 Senators in the early 1900's, over a holiday break. Many argue that if the Federal Reserve hadn't gotten involved in the Great Depression, it only would've lasted a year or two - not a decade. They are the ones establishing artificial loan rates. They are the ones controlling our money supply and inflation. They seem to have many conflicts of interest.

Most importantly, listen to Ron Paul. His predictions, years in advance, have always been spot on. (And Senator Shelby - he actually seems reasonable.)