Thursday, September 25, 2008

Pinnochio's Reflection in Washington's Crystal Ball

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our video related to this posting:

Dire warnings of a bleak economic future for the American economy have been prognosticated by Fed Chair Ben Bernanke, Treasury Secretary Hank Paulson and President Bush in the last few days - unless of course their proposed emergency Wall Street bailout plan is passed immediately by the U.S. congress. These statements represent a complete turnaround of what the three of them have been saying during the last year and as recently as a couple of weeks ago. This immediately raises the question of whether they were lying then or are they lying now? To be fair, it is possible that Bernanke, Paulson and Bush have not purposefully been lying, but they just don't have the slightest idea of what's going on. Regardless of whether their behavior can be explained by dishonesty or incompetence, they have assured us that if we just follow their lead now, everything will be OK.

The consistent message from the economic triumvirate this week has been that a recession will be taking place in the future along with increased unemployment, home foreclosures, and bank failures unless congress gives $700 billion to the big Wall Street banks. In his testimony on Tuesday, Ben Bernanke bluntly warned of this scenario. He followed up with, "the financial markets are in quite fragile condition and I think absent a plan they will get worse". In his testimony, Paulson suggested that the fallout from the credit crisis would hit almost everyone in the pocketbook unless forceful action was taken.

President Bush in his speech on Wednesday night echoed Bernanke and Paulson's concerns and while requesting the biggest corporate bailout in U.S history made the following obviously insincere statements:

1. "I'm a strong believer in free enterprise ..."
2. "I believe companies that make bad decisions should be allowed to go out of business."
3. "This rescue effort is not aimed at preserving any individual, company or industry."

Like Bernanke, Bush was also worried about the stock market going down and specifically stated that without the bailout, "the stock market could drop even more". But he assured the nation there was no need to worry if his recommended actions were taken because "the plan is big enough to solve a serious problem" and "we expect much, if not all, of the tax dollars we invest will be repaid". If you believe that, I have a bridge in Brooklyn that I would like to sell you.

The reality is that $700 billion is not going to be able to deal with an estimated $13 trillion in toxic debt and that only the most worthless of this debt will be transferred to the government in this bailout. There is no chance whatsoever for the taxpayers getting their money back. Furthermore, the U.S. is already in a recession and the government has been jiggling the figures to hide it and that recession is going to get worse along with unemployment, home foreclosures and bank failures regardless of what bailout package is passed by congress. And you may assume that Bernanke, Paulson, and Bush know perfectly well that this is what's going to happen.

NEXT: This Weeks Largest Bank Failure in U.S. History

Daryl Montgomery
Organizer, New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

1 comment:


The crystal ball has brought panic and crisis.