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Stock Ideas Investors Daily Edge Everybody’s Doing It 
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By Chris Johnson Last week, there was some confusion around the retail sector, with retail sales numbers clashing with government data. The former showed that most retailers fell below expectations... |
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| Everybody’s Doing It |
| Wednesday, 22 October 2008 | ||||||||
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Some Argentines, without means do it I hear even Boston beans do it Let's do it, let's fall [into debt] By Cole Porter, “Let's Do It” When it's the government doing something, nothing is often better than something. The government is trying to nurse the economy back to health. I can't think of any worse caregiver, can you? If you were under the watch and care of a doctor to treat a stomachache and you developed cancer of the liver while under his care, would you trust the doctor to treat you? Of course not. And, yet, we're leaving it up to the government to make the economy whole again? The same government that let mortgage companies run wild? What the heck are we thinking? It's bad enough that we're leaving it up to the government. But we're also leaving it up to a lame-duck government. They're going to stick the next administration with this whole putrid mess. Bush of course will be gone. So will Hank. And, if Bernanke were smart, after the new administration is sworn in, he catches the first train back to the hallowed halls of academia. I bet that the very people who are being lionized now – Paulson in the U.S. for example ... and Gordon Brown in the U.K. ... will be candidates for tar and feathering a couple of years down the road. First of all, this is uncharted territory. We simply can't look at history and say, we've been there and done that. We haven't. The savings and loans crisis isn't comparable. In the 1980s, it cost the Federal Deposit Insurance Corp. (FDIC) less than $2 billion to resolve a $100 billion insolvency in the savings banks. That is a fraction of the $2 trillion or more costs it will take for just one country – the U.S. – to finance all the bailout activity.
The New Deal under President Franklin D. Roosevelt also was quite different with its alphabet soup of programs to deal with the Great Depression. There was no $55-60 trillion mortgage derivative market to deal with back then. No hedge funds crashing. No global aspect (except for trade restrictions which aggravated the crisis). And banks were less perpetrators of the crisis than victims. And the government was much smaller. Social security, for example, was started under Roosevelt. The government's brilliant idea to deal with the current crisis is not so brilliant after all. It's simply a garden-variety response to most problems it encounters: Throw money at the damn thing. Lots and lots of money. And see what sticks and what doesn't stick. Nothing much has been sticking so far. That's okay. This is right up the government's alley. If nothing sticks, then try something else until something does. Call it what you want. Plodding, meandering, and arbitrary all apply. But if you back it up with almost 700 pages of pork and gibberish, it doesn't make it any better. But if this is what governments do all the time, what's so different this time? * Its scale is off the charts. It's like fighting four Iraq wars at once. And it's downright naked arrogance to think we can afford it. It takes an enormous dose of denial to think this won't come back and bite us on the backside. * The global nature of the bailouts. Everybody's doing it. The latest bailout junkies? Welcome aboard, Netherlands. About time, Germany. Nice going, Korea. They join Ireland, England, France, Iceland, Japan and a host of other countries. And, believe me, this list is only going to get longer. Countries that are printing and pumping money into supposed cash-starved banks under government-sanctioned programs already seem to outnumber countries with responsible fiscal policies. The banking crisis is destined to end up as a footnote to the real convulsive event – massive government intervention that will smother economies from China to Colombia with cash... It will trigger an inflation cycle twice as destructive and twice as intractable as the original problems with banks that started it all. There are “Red Alerts” flashing all over the world... The Baltic states are in big trouble. So are Pakistan, Hungary and South Africa. They all have huge external debts and narrow revenue bases. All in all, some $30 trillion has disappeared from global equity markets. All it takes is one country – and it doesn't have to be a big one – to crash and burn. There is no happy ending. Either the IMF (and other countries who can't afford it) throws money at these countries – making the global crisis worse. Or countries fail – throwing the global financial system into disarray. There's really only one way to protect yourself from the coming inflation Tsunami. Buy gold. P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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