Rabid with Debt

[natrat]

Rabid with Debt

By Bill Bonner
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04/24/09 Buenos Aires, Argentina “How do you feel now?” asked a reporter for a local investment magazine. “I mean, you’re a contrarian…and you were right about so much?”

“Not exactly,” we explained. “Yes, we saw the problem coming. And we expected the government would do all the wrong things – which it has. But we never imagined that they’d do so many stupid things all at once.”

There are only two examples from modern history of depressions such as this – the ’30s in America and the ’90s in Japan. Both times, the governments did stupid things. But this time, the U.S. government has outdone them all. They’ve committed $13 trillion to programs that make no sense theoretically…and have never worked when they’ve been tried.

If you’ll recall, the dog that bit the world economy was rabid with debt. The feds are trying the old ‘hair of the dog’ technique. But they’ve rounded up every mangy cur and stray bitch in the country. And now they’re adding debt to the world economy at a much faster rate than ever in history.

Of course, as feral economists, we love it. We never thought we’d see such a thing. Gone are the mealy-mouthed reservations of cautious economists. Gone are the hesitant…hedged…halfway measures. They’re pulling out on the stops. It’s the pedal to the metal…it’s hell for leather…

What a bold experiment! What a brave undertaking! What a crackpot thing to do!

They must think the planet is under attack from aliens. It’s as if the survival of the human race were at stake. Nearly the entire output of the largest economy on the planet for an entire year – debt, not savings – is being spent to…to…to…well…to do what?

To try to stop the speculators from getting what they deserve!

But wait…it gets even madder. Of course, if you put food out in the alley, it’s bound to attract rats.

Not surprising then, that the government’s bailout cash is giving rise to an astonishing number of new fraud and money laundering accusations.

The complex nature of the bailout program makes it “inherently vulnerable to fraud, waste and abuse, including significant issues relating to conflicts of interest facing fund managers, collusion between participants, and vulnerabilities to money laundering,” says an internal government report.

“You don’t need an entirely corrupt institution to pull one of these schemes off,” said an expert. “You only need a few corrupt managers whose compensation may be tied to the performance of these assets in order to effectively pull off a collusion or a kickback scheme.”

But don’t worry. The feds are on the case. They’re said to be investigating. Just the way they did with Bernie Madoff. And who knows? Maybe the crooks will tell their families…and maybe the sons and daughters will turn them in, just like they did with Bernie.

There are always a few rotten apples in every barrel. But from here at The Daily Reckoning’s South American headquarters in Buenos Aires they all look brown to us. Even Business Week magazine opines that the whole bailout program is nothing more than a scheme to pick the pockets of the nation’s retirees in order to give the money to rich bankers.

“Monday afternoon, Goldman Sachs (GS) reported much larger than expected first-quarter profits on the heels of the strong earnings Wells Fargo (WFC) reported last week.

“No one should be surprised.

“The Fed has permitted the banks and financial houses to park vast sums of unmarketable paper on its books – securities made nearly worthless by the misjudgment and avarice of bankers. In return, the Fed has provided these paragons of finance with fresh, cheap funds to lend at healthy rates on credit cards, auto loans, and even mortgages.

“While the Fed cuts the banks slack, the bankers are busy turning the screws on their debtors by raising credit card rates and fees, and harassing distressed borrowers with all the zeal the Roman army displayed sacking Palestine.

“It takes good banking skills to borrow at 3%, lend at 5%, and make a profit.

It takes much less business acumen to borrow at 2%, lend at 5%, and make a profit – which is exactly what has happened. The extra fees are just gravy.

“This all comes at a cost to someone – America’s elderly.

“Many retirees depend on interest from certificates of deposit. Those rates are down dramatically and as CDs expire, retirees are compelled to reinvest their savings at lower rates and live on less income. They can take comfort that their sacrifices are helping pay off Wall Street’s losses from the lavish bonuses that were paid bankers – for example, the $70.3 million Goldman doled out to CEO Lloyd Blankfein in 2007.”

We don’t envy the feds. So many pockets to pick…so little time. Make sure you aren’t among those who find themselves bled dry by the government’s bailouts.

Now, we turn to Addison with a look at China’s recent gold accumulation:

“As we’ve been suspecting, the Chinese have been accumulating gold, slowly but surely.” Writes Addison in today’s 5 Minute Forecast. “They made the announcement this morning. Really, what would you do if you were sitting on $1.9 trillion in foreign reserves – more than half of it minted in U.S. dollars?

“The State Administration of Foreign Exchange says China’s reserves now total 1054 metric tons – up from 600 in 2003. If you’re keeping score at home, that’s a 76% increase in 5 years.

“These new numbers place China fifth among nations that disclose their gold holdings – just ahead of Switzerland.

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“Given pronouncements made by premier Wen leading up to the G20 meeting last month, you can count on them to pick up a fair share of the $12 billion the International Monetary Fund (IMF) plans to sell this year.”

http://dailyreckoning.com/rabid-with-debt/

[Turbineguy]

1. Bill Bonner

Turning fear and greed into a publishing empire.

I used to subscribe to their investment advice. When I quit, they wanted to know why. "Because I have no money left."