As you know, I have been critical of the government’s actions to nationalize the economy by directly purchasing company assets and bailing out of the financial and automotive industries.
But in the larger picture, there is actually little the government can do to stop the forces of capitalism that are so powerful in the global economy.
If you listen very carefully to Obama’s inaugural speech, you can hear the same thing that I’m saying. The combined loses in the housing market and stock market over the last year total more than 10 trillion dollar, which is far less than the $700 billion bailout of the Bush administration and the $800 billion that Obama is asking for.
At best, these bailouts and the actions of the Federal Reserve and Treasury will only be able to help 10-15% of the economy and only temporarily at that. Long-term, the automotive and banking industry will be subject to capitalism as the Federal government will not be able to endlessly supply them with money.
Time Is Running Out
The only way that congress can get the billions in bailout money is by borrowing the money from foreign central banks by selling Treasury bills. But, now that we are facing a global recession, many of the wealthy nations like China and Japan are reducing the amount of T-bills that they are buying because they need to finance their own recessions.
Congress and the new Obama administration are tapped out. They couldn’t borrow more money if they wanted to. So, when the recession continues to worsen and they realize they need another $8 trillion dollars – they will not be able to get it.
The Obama administration will be left with the option to increase the currency supply at a faster rate then what the Treasure is already doing. But, I don’t think they will because of the massive dangers to the economy and the value of the currency that they will be risking. They are already increasing the money supply at the fastest rate that the economy can handle.
Given this revelation, after the bailout money runs out and if the economy doesn’t turn around, the stock market is likely to continue to drop.
Trade and Currency War Risks
Off course, because this is a global recession, there is an unpredictable risk of trade and currency wars, which are likely to shift the economic landscape as nations try to avoid national bankruptcy. Russia is a case in point, with low oil prices and a 70% drop of its stock market and now its currency (the Ruble) has fallen through the floor.
What are the Russians going to do, starve to death? I don’t think so, at least not without a fight.
Capitalism will have its way with the economy and there is little the US government will be able to do to stop the wave of bankrupt industries that are going to collapse with the collapse of the consumer.
It will be capitalism that will eventually force businesses to make adjustments to the changing market and global recession. Obama cannot save your job or your business - it’s up to us. I like what he said, that we need to choose ‘hope over fear’. But, that doesn’t mean put your hope in a government bailout, but in attacking a new market and growing your business. That’s how America is going to move forward in this global recession – getting after new markets.
This week I participated in several blog carnivals
They did an excellent job and as usual, there are tons of great articles. If you have the time, I highly suggest you skim through this week’s carnivals.
Carnival of Personal Finance No. 188: The Jane Austen Edition
175th Edition of the Carnival of Debt Reduction
Money Hacks Carnival Presidential Edition