All Your Debt Are Belong to Us

Welcome to socialism… for big business at least.   Private profits, but public losses.  The ‘free market’ suddenly isn’t free anymore, and we have become the suckers holding the bag.

No one knows the final dollar amount for sure yet, but I’m positive that by them time everything’s said and done American taxpayers have shelled out at least 2 trillion dollars with all of the bailouts that have been promised in the last few months.   I don’t believe a word that comes out of Treasury Secretary Paulson’s mouth right now.  He asked for all this power earlier this summer claiming it was a good idea, but he didn’t think he’d have to use it, and now look at where we are.

This stuff came to a head very fast.  From what I have been reading, it sounds like this was a combination of a couple things.  Rumors are out there that some of our foreign creditors more or less laid down an ultimatum stating “bail out our investments, or we stop buy Treasury bonds.”   Without foreign banks buying our debt, the government basically stops.   Another rumor was that the Bush team saw the writing on the wall with regard to the elections… namely that Obama was likely to win.   Policymakers in the White House may have decided that the Obama team would be less likely to open the credit floodgates for Wall Street, so they decided to take the pain and bail the big boys out now while the window of opportunity was still available.

So what does all this mean?  I honestly have no clue, but here’s what I’m thinking right now:

  • Get ready for higher taxes.  We have taken on a huge debt load, and anyone who thinks we’ll get away with lower taxes is fooling themselves.  The only other solutions are hyperinflation or debt repudiation.  We may have to take option #2 at some point… option #3 is unlikely short of open warfare breaking out.
  • Get ready for lower standards of living.  Frugality will be the new conspicuous consumption.  Assuming the economy is still standing next year, we’ll be paying so much in taxes and for goods that most peoples’ abilities to pay for luxuries will be down.
  • Debt slavery is a real possibility.    As consumer credit dries up, we’ll spend more and more just to service our mortgages, credit cards, loans, etc…  In my opinion, the government has chosen Wall Street over main street, so we will end up having bailed out the banks and credit card companies that will then turn around and put the screws to us economically.  Choice between food & mortgage?  We’ll make that easy and foreclose you out of your house.  Thank you for playing…    The Democrats are trying to put language in the new bailout plan to forestall foreclosures for a while… we’ll see how that plays out.
  • Keep an eye on your investments.  IMO, nothing is truly safe in this environment.   Your savings are safe only as long as your bank and the FDIC stay solvent.  Money Markets?  Safer, but still an element of risk as was seen last week. I don’t think either the FDIC or Treasuries would ever default… a more likely scenario, IMO at least, is the Fed pumping even more liquidity into the markets.  You will still have your dollars, but thanks to the miracle of inflation they’ll be worth a lot less.   Another form of taxation if you will.
  • Politicians will say “I’ve got a plan” for this mess, but it’s mostly bullshit.  The real fixes are either to let the global economy unwind itself, raise tax rates through the roof, hyper-inflate, cut entitlement programs, or start a major war.   How many of those things would make it into an election stump speech?
  • The USA will start being eclipsed as a world superpower.  We are the king of debtors, and the rest of the world knows it.  Things may not happen fast, but I think we will start to see the waning of US power projection around the world.  Russia & China clearly aren’t afraid of us, and I think more nations will rediscover their backbone in coming years.    It takes a lot of money to keep our military power overseas, and if our creditors decide they’ve had enough of our bullshit, we may see more troops being recalled from overseas.   I’m sure it’ll be spun as ‘Mission Accomplished’ but I don’t know that it will be true.

Those are my gut reactions to the fun & games going on with our economy.  Stay vigilant, and stay flexible.  The radio & papers are already saying that we are entering a new economy with the decline of the investment banks.  They are shying away from stating whether that’s a positive or negative development.

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4 Responses to All Your Debt Are Belong to Us

  1. […] Mish talks about the Housing Bailout The Debt Rattle MEOW gives some opinions on the situation […]

  2. Rebecca says:

    China and Russia are all ready rising powers. They are just waiting right now, biding their time, until we get weak enough for them to move openly.

  3. Rebecca says:

    Whoops, it submitted before I was ready.
    I was going to add that Russia and China know the value of patience, which we have never learned, so waiting is no hardship for them. We’re scrambling to maintain our position and they are thinking two or three plays ahead on the chess board of international politics.

  4. Bart says:

    Very good points, Rebecca. They are giving us all the breathing room we need to hang ourselves.

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