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Low Interest Rates, Rebates and Bailouts

By: Steve Johnson

5/1/2008 - 14 Comments

What more could you ask for?  The Fed is throwing everything it has at the economy, but so far the economy is winning.

The economy is still sinking as the housing market is still setting record declines, unemployment is still moving up and inflation is in hot pursuit of the middle class.

When elected officials run out of money, bad things happen. Chairman of the Federal Reserve, Ben Bernanke understands the economic battle we are in. But he is running out of ammo.  The dropping value of the dollar and the rising inflation are taking away his influence of low interest rates and tax rebates.

Bailouts are Dangerous

The bailout of Bear Stearns has created a sense of insurance behind all banks, with the Fed as the support system.  Yet everyone knows that the Fed doesn’t have any money.  It’s like if I gave my 6 year old son my house insurance payment each month in the hope that he could insure my home.  In the event of a disaster, the only way my son could pay for the damage is if he printed the money to cover the costs.  The decision to bailout Bear Stearns could possibly be the most dangerous decision that the Fed has undertaken during this economic crisis. 

Reference Article: When Elected Officials Run Out of Money – Trouble Follows

The Next Wave

What else can the Fed do?  Rising food costs are starting to cause nations protect their food supplies by halting exports, but this will only push prices higher as it further reduces global supplies. The reaction by neighboring nations will likely cause them to ration their exports, which could lead to additional tariffs, price controls, wage freezes, etc.  Historically, government controls have never worked, but elected officials are bound to try as the public cries out for help.  These things lead to wars.

Career Ending Decisions

The government cannot bailout everyone. How are they going to choose who to bailout and who to let go bankrupt?  There are going to be so many people looking for a bailout like; the banks, the bond-insurers, the homeowners, the mortgage companies like Freddy Mac and Fannie Mai, Wall Street, foreign banks, etc. The more the Fed bails out with printed money, the more they reduce the value of the dollar and the longer they delay the coming recession.

The next round of leaders will need to make career ending decisions, as they will more than likely not get re-elected for the decisions they make. Eventually, the government will have to stop the bailouts and let the chips fall. They will have to let businesses go bankrupt, let millions lose their jobs while inflation chews up everyone else’s savings and retirement funds.

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The Hyperinflation Survival Guide offers strategies for business managers to keep their enterprise afloat in the midst of runaway inflation. Within this succinct little book are a plethora of sensible business strategies for American businesses. If businesses are to survive they must effectively counter and minimize the ill effects of rampant inflation and/or hyperinflation. The utmost prudence is required in managing accounts receivable, inventory, and production at such a time. A sudden inflationary economic downturn may very well bring a business to its knees leading to insolvency.

The Case Against the Fed

This book, written by Murray Rothbard, an economist and historian of fairly well known repute, is a scathing attack on not only the Federal Reserve, but the interests that created this institution. Rothbard explains how the Federal Reserve is the true source in the destruction of wealth, which has led to the destruction of the middle class and continues to sift money into the hands of the wealthiest.

Day of Reckoning

In Day of Reckoning, Pat Buchanan reveals the true existential crisis of the nation and shows how President Bush's post-9/11 conversion to an ideology of 'democratism' led us to the precipice of strategic disaster abroad and savage division at home. Ideology, writes Buchanan, is a false god that seeks vainly to create a paradise on earth. While free enterprise is good, the worship of a 'free trade' that is destroying the dollar, de-industrializing America, and ending our economic independence, is cult madness.

Crash Proof

Peter Schiff has predicted the economic hardship more accurately then any other economist in the world in this book. Everything from the housing crash to the credit crunch to the stock market. Peter has a plan to help you servive the crash. Peter explains why the Wall Street investment firms are still trying to sell you stocks, and was the house prices are likely to continue to decline for years to come.