Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Canadian Cannabis Stocks CRASH as Canopy Growth Hits a Dead End - 14th Dec 19
Retail Sector Isn’t Dead, and These 6% Dividend Paying Stocks Prove It - 14th Dec 19
Top 5 Ways to Add Value to Your Home - 14th Dec 19
Beware Gold Stocks Downside - 13th Dec 19
Fed Says No Interest Rate Hikes In 2020. What About Gold? - 13th Dec 19
The ABC’s of Fiat Money - 13th Dec 19
Why Jo Swinson and the Lib Dems LOST Seats General Election 2019 - Sheffiled Hallam Result - 13th Dec 19
UK General Election 2019 BBC Exit Poll Forecast Accuracy Analysis - 12th Dec 19
Technical Analysis Update: Tadawul All Share Index (TASI) - Saudi Arabia ETF (KSA) - 12th Dec 19
Silver Miners Pinpoint the Precious Metals’ Outlook - 12th Dec 19
How Google Has Become the Worlds Biggest Travel Company - 12th Dec 19
UK Election Seats Forecasts - Tories 326, Labour 241, SNP 40, Lib Dems 17 - 12th Dec 19
UK General Election 2019 Final Seats Per Party Forecast - 12th Dec 19
What UK CPI, RPI INFLATION Forecasts for General Election Result 2019 - 11th Dec 19
Gold ETF Holdings Surge… But Do They Actually Hold Gold? - 11th Dec 19
Gold, Silver Reversals, Lower Prices and Our Precious Profits - 11th Dec 19
Opinion Pollsters, YouGov MRP General Election 2019 Result Seats Forecast - 11th Dec 19
UK General Election Tory and Labour Marginal Seats Analysis, Implied Forecast 2019 - 11th Dec 19
UK General Election 2019 - Tory Seats Forecast Based on GDP Growth - 11th Dec 19
YouGov's MRP Poll Final Tory Seats Forecast Revised Down From 359 to 338, Possibly Lower? - 10th Dec 19
What UK Economy (Average Earnings) Predicts for General Election Results 2019 - 10th Dec 19
Labour vs Tory Manifesto's UK General Election Parliamentary Seats Forecast 2019 - 10th Dec 19
Lumber is about to rally and how to play it with this ETF - 10th Dec 19
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19

Market Oracle FREE Newsletter

UK General Election Forecast 2019

Republicans Defy Bush and Vote NO to Socialist Bailout Bill

Politics / Credit Crisis Bailouts Sep 29, 2008 - 06:10 PM GMT

By: Richard_C_Cook

Politics

Best Financial Markets Analysis ArticleFINALLY, someone said “No” to the criminal gang that runs the U.S. economy when the House voted down the Bush-Paulson $700 billion Wall Street bailout plan by a vote of 228-205.

Shame on the Democrats! Speaker of the House Nancy Pelosi, Majority Leader Steny Hoyer, and Majority Whip Rahm Emanuel delivered “yea” votes from 60 percent of Democratic House members and thereby gave the bill the only chance of passage it had.


Pelosi Kills Bailout Bill

Hooray for the Republicans! The bill went down to defeat only because 67 percent of House Republicans voted against it.

The bailout bill is one of the most critical ever brought before Congress. The Republicans who defied President George W. Bush, Secretary of the Treasury Henry Paulson, and the House leadership did so because their constituents demanded it. Ideologically, they acted to let the free market do its work. If overextended financial institutions which had invested recklessly go bankrupt, so be it.

For Democrats who voted against the legislation, the rationale was more complex—not enough taxpayer protection and too little help for homeowners facing foreclosure who would lose their homes even with the bill. But they also bucked the leaders of a party which, since pro-business Democrat Bill Clinton won the presidency in 1992, has completely sold out to the financier elite. Since then, Wall Street investment firms have been the principal bankrollers of a party that in recent years has totally betrayed its New Deal roots.

However it happened, the result of today's vote was momentous. After rolling over and playing dead for the financial elite that has held the U.S. economy in a death grip due to the deregulation of the last quarter-century, a majority in Congress stood up and said, “Enough,” even after the two parties' presidential candidates, Democrat Barack Obama and Republican John McCain discredited themselves by voicing support.

Of course the financiers and their many political lackeys attempted to blackmail the country by claiming the economy would seize up and the stock market crash without the legislation, and, in a self-fulfilling prophecy, the Dow-Jones went down 777.68 points today. Traders interviewed on CNN said that if a bill were not passed before the session ended in a week, the fall could amount to 2000 points.

But so what? Everyone knows that the peak of the stock market last year—over 14,100 points—was the result of the bubble economy. Now that the bubble is bursting why shouldn't the stock market find out where it really belongs, along with the prices of houses, as well as the worth of the banks and stock brokerages that got us into the mess?

So now what happens? It is unclear whether the House leadership will try to revive the bill or just let the voters decide in November who they want to step in to fix an economy which Bush, Greenspan, and their enablers in Congress have ruined.

What then can be done? Well, no one in government has much of an idea, and the huge number of commentators writing about the debacle in print and on the internet and talking about it on TV have offered literally thousands of suggestions. These range from returning to the gold standard to another New Deal. But few of these suggestions really get to the heart of the matter.

We do know one thing—unfettered finance capitalism as a national economic engine, which was the solution offered by Ronald Reagan and his supply-side, trickle-down “revolution,” has totally, dismally, hysterically failed. And we might suspect the same thing of a return to New Deal Keynesianism—i.e., more federal deficit spending—which is what the progressives are offering in an infinite number of disguises.

In discussing the Keynesian alternative, we should remember that it wasn't until World War II that the Roosevelt administration was able to use Keynesian economics to produce full-employment. So do the new New Dealers want a World War III for the same ends?

They wouldn't admit it, but let's be honest. No nation on earth has yet implemented a stable industrial economy. In fact, there is one honest man writing about the crisis. His name is Robert Samuelson, and he is the economics writer for the Washington Post . What Samuelson is saying is absolutely true. This is that no one knows what is going on and no one knows what to do.

He writes: “What we are witnessing, in the broadest sense, is the bankruptcy of modern economics. Its conceit has been that we had solved the problem of stability. Oh, there would be periodic recessions, but the prospects of a major economic collapse were negligible because we knew how the system worked and could take steps to prevent it. What's been so unsettling about the present crisis is that it has not conformed to the standard model of business cycles and has not submitted to familiar textbook solutions.”

He goes on to point out the major economic issue of the industrial age is not “supply” as the monetarists—a.ka. Reaganite trickle-downers—said ad nauseum , but demand : “The word that best epitomizes mainstream ‘macroeconomics' (the study of the entire economy, not individual markets) is demand . If weak demand left the economy in a slump, government could rectify the situation by stimulating more demand through tax cuts, higher spending, or lower interest rates. If excess demand created inflation, government could suppress it by cutting demand through more taxes, less spending, or higher interest rates.”

“Demand” means, quite simply, “purchasing power.” The trouble is that a modern industrial economy does not produce enough purchasing power through wages, salaries, and dividends to buy what is produced at prices that must be charged to keep the system running. There is a gap, which was Keynes' main point. The gap exists because of savings, or “retained earnings,” needed for reinvestment to keep the system operating and innovating. Without this savings, the system runs down due to entropy, or the law of diminishing returns.

Few of the writers commenting on the current economic situation—including most professional economists I've read on the subject—understand this basic point of Keynes' thesis. That's why none of their solutions ever work.

As I said, Keynes wanted to fill the gap through government deficit spending—pump priming. Supply-siders want to fill it by, well—by nothing. They don't recognize the gap. They think that if more is produced, more will be bought, and there will be more income to do it. This is because they believe in “Say's Law,” an early 19 th century formulation that worked for medieval village economies—as did Adam Smith's free-market ideas—but not modern industrial ones.

Still, the gap has been filled, except it has been filled by debt, by consumer borrowing, and by the hundreds of different kinds of exotic debt instruments dreamed up by Wall Street firms since Reagan took office in the 1980s. This debt pyramid is what is crashing today.

And behind all the exoticism is the debt-based monetary system run by the banks who own the Federal Reserve, because it is these banks that provided the leverage for it all to happen. It's the banks that leveraged the bubbles—the merger-acquisition bubble, the dot.com bubble, the housing bubble, the commercial real estate bubble, the equity bubble, the hedge fund bubble, the derivative bubble, the commodity bubble, and on it goes.

So this is what deregulation has done for us. It may very well destroy the U.S. economy. It is already destroying democracy, because the social stress the system has produced is a hot-bed for every type of illness and social break-down and also feeds the anxiety that sees a terrorist under every bed and leads to wars and international crises as well.

It's the big banks that have been the winners, at least so far. Citibank is eating Wachovia. Bank of America ate Merrill Lynch. J.P. Morgan Chase is eating Bear Stearns and WaMu. They are paying $1.9 billion for WaMu which has assets of $310 billion. Of course the latter is the bank of David Rockefeller and his family, so they are not doing too badly. The Rockefellers also own much of Exxon-Mobil, which continues to run record profits due to the oil price run-up.

But then the system was set up to benefit people like the Rockefellers and their ilk in the first place. That's why we got the Federal Reserve System, because the bankers of the world already knew in 1913 that if they could control the currency and introduce money into circulation only through public and private debt they would be the big winners when the incredible productivity of modern industry became manifest.

And what is a real solution? It's a dividend-based economy, as I have written many times, and as the Social Credit movement in Great Britain, Canada, Australia, and New Zealand have known for decades. What we should do is monetize savings and retained earnings by issuing a corresponding dividend to the consuming population to balance production and be able to purchase what industry can produce through a non-inflationary production-based monetary system.

This is how credit really should be used. You can read about it in the many articles I have written over the past year or in my forthcoming book: We Hold These Truths: The Hope of Monetary Reform (Tendril Press, 2008). Among many other benefits, we would have a rebirth of local and regional economies as well as family farming, all of which the banks, under the global monetarist regime, have wiped out.

So that's what happened today in Washington. But just remember, it's the big banks that are really the ones behind the bailouts. They are the ones who call the shots with the Bush administration and the leadership of both the Republican and Democratic parties.

But thank God a few real “mavericks” in Congress left the reservation today. Will they have the guts to continue to “just say no” and make a real change in U.S. politics? Was this the day the revolution began? Or just a final rear-guard action in the death of American democracy?

By Richard C. Cook
http:// www.richardccook.com

Copyright 2008 by Richard C. Cook

Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. His articles on economics, politics, and space policy have appeared on numerous websites. His book on monetary reform entitled We Hold These Truths: The Hope of Monetary Reform will be published soon by Tendril Press. He is also the author of Challenger Revealed: An Insider's Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age , called by one reviewer, “the most important spaceflight book of the last twenty years . ” His Challenger website is at www.richardccook.com . A new economics website at www.RealSustainableLiving.com is upcoming with partner/author Susan Boskey. To get on his mailing list, for questions and comments, or to pre-purchase copies of his new book, please write EconomicSanity@gmail.com .

Richard C. Cook Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Agcapita
30 Sep 08, 22:13
What Commodity Bubble?

Why The Secular Bull Market in Commodities is Not Over:

The equity and bond markets have benefited from a long period of low inflation, but ongoing and massive central bank liquidity injections point to a far less benign environment of elevated inflation ahead. Research by our firm, Agcapita Farmland Investment Partnership (Calgary, Canada based agriculture private equity firm – www.farmlandinvestmentpartnership.com) shows investors must be prepared to rotate into asset classes with different characteristics. During the last commodity bull market & high inflation period in the 1970’s, equities materially underperformed farmland.

- Western Canadian farmland went from around $100/acre to $550/acre (550% total return and 176% in inflation adjusted terms);

- Cash held in a money market account barely kept ahead of inflation (6% inflation adjusted return); and the

- S&P 500 index returned less than 2% per year (a loss of almost 50% in inflation in adjusted terms)

We believe the world is still in the early stages of this current commodity bull market. When agriculture commodities prices are compared against their previous inflation adjusted highs they are significantly discounted implying scope for further increases:

- Corn is US$ 5/bushel currently compared to US$16/bushel in 1974,

- Wheat is US$ 7/bushel currently compared to US$27/bushel in 1974

- Canadian farmland is C$ 660/acre currently compared to C$1,100/acre in 1981

Another interesting metric is the long-term average ratio of the Commodities Research Bureau Index versus the S&P 500 is around 1.5 times. Simplistically, this ratio indicates how much S&P 500 stock you can buy with a fixed basket of commodities. Some important points:

• During the commodity bull market of the 1970s, the ratio was consistently higher than 2 times for over 10 years – it peaked at around 4 times.

• The ratio is currently at around 0.5 times - far below the 1.5 times long-term average and far below the 4 times peak seen in the last commodity bull market. We still appear to be at an all time low relative valuation between “hard assets" versus "stocks.”

• If history is a guide, the ratio of hard assets to stocks will have moved much higher before this commodity bull market is over.

• How? Stocks will continue to fall and/or commodities will continue to climb – most likely a serious combination of both as investors, fearing inflation, rotate out of stocks into commodities – the cycle of “inflation, rotation, hard assets”.

Agcapita is a Calgary based, agriculture private equity firm that allows investors to cost effectively allocate a portion of their portfolios to hard assets in the form of Canadian farmland via its professionally managed Agcapita Farmland Investment Partnership. Agcapita Farmland Investment Partnership is the third in a family of private equity funds which has grown to almost $100 million in assets under management. Agcapita’s investment team has over 40 years private equity and fund management experience and over $1 billion in total career transactions. The team currently manages a group of private equity funds with almost CAD$ 100 million of assets under management and previously managed a group of emerging market funds with almost C$500 million in assets for one of the largest banks in Europe.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules