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How Do You Know When You Are About to See a Bailout?

By: Steve Johnson

8/8/2008 - 16 Comments

Today is a day to smile, to talk about the start of the summer Olympics and to laugh a little before the world plunges into a full blown global economic crisis.

The funny thing is that America is a land of capitalism, where it is understood that business growth is best supported by letting weak businesses fail so that capital can be freed to fund new businesses that have a better opportunity to create more jobs and produce profits. Capitalism and democracy have been so successful in America that they have spread to many parts of the world that are now being rewarded with double-digit growth. America taught the world its economic strategy for growth, but the student has become the teacher as America needs to learn from the rest of the world the dangers of high debt and how it can lead to hyper-inflation.  America is becoming a bailout nation.

So in the spirit of fun, I ask you, “How do you know when you are about to see a bailout?”

  • A political is in the neighborhood and the media is following them around
  • Your canoe hit a rock and is taking water very fast
  • Your entire neighborhood is in foreclosure
  • When GM is auctioning off its fleet of new SUV's to the highest bidder started at $1000
  • When houses are listed 'buy one get one free'
  • When your brakes go out in your car
  • When you can't watch the news for 3 minutes without hearing the word bailout

Ok, let’s say that you do spot a bailout and it's coming right at you. If you’re a foreign nation, you can buy dollars to maintain your purchasing power because dollars will not lose value as fast as your national currency will. This is what many nations have done when faced with an economic crisis which led to hyper-inflation. But, let’s suppose you are in America,

What should you do when you see a bailout?

a. Run in the opposite direction
b. Hide your money
c. Use your money as toilet paper
d. Buy gold and foreign currencies with your dollars
e. All of the above

I love that line President Bush used the other day is his speech about the trillion dollar bailout of Freddie Mac and Fannie May. He said something like this,

Some say this is a bailout, but it’s not a bailout. US Treasure secretary Henry Paulson is simply asking for congressional approval for a line of credit to be extended indefinitely to support these mortgage firms.

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