Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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