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Why 95% of Traders Fail

Debt Slavery is the Real Reason Behind the Bail-Out

Stock-Markets / Credit Crisis Bailouts Oct 21, 2008 - 09:20 PM GMT

By: John_Olagues

Stock-Markets

Best Financial Markets Analysis ArticleI was just listening to Ron Paul on the latest Bail-Out of banks. He disapproved of the Bail-Out because he claims that it will destroy the financial system as we know it by destroying the dollar's value and creating hyper-inflation.

Ron Paul said "you can not just create trillions of dollars out of thin air without creating inflation". Paul's conclusions are based upon the idea of demand pull inflation. This means a situation where excess amounts of money are chasing a static or near static amount of goods and services.


This monetary theory was elaborated upon by Milton Friedman for which he was given the Nobel Prize in 1976. The idea is that when the Money Regulators increase the supply of money, the increase causes consumers to demand more goods and services causing inflation. Suppliers recognize the demand and start producing more goods and services thereby creating jobs and prosperity. This idea assumes that the increase in the money supply makes its way into the hands of the consumers who create the extra demand.

Freidman claimed that the Federal Reserve allowed or caused the monetary aggregates to decrease by 33% during the 1930s, thereby creating and prolonging the Rosenvelt depression.

However, it is possible that the extra money created by the Regulators never makes its way to the consumers. If it does not, then there is no extra demand for goods and services and no inflation and no extra production, no extra jobs and no prosperity.

So the question is whether the extra money supply from the Bail-Out will reach the consumer/taxpayer. The sad answer is that very little will. Almost the entire Bail-Out will go to the banks and insurance companies, where it is intended to go. Its purpose is to secure holders of bank bonds, the holders of credit default swaps guaranteed by investment banks and insurance companies and secure past and future  excessive executive compensation paid by those banks and insurance companies.

The banking and insurance "industries" made sure of that by making enormous campaign contributions to such notables as Senator Christopher Dodd, Chairman of the Senate Banking Committee ($13 million since 1989) and to the lisping Representative Barney "My-o- My" Frank ($2.5 million).

Although the "taxpayers" will get little benefit from the trillion dollar bail-outs, they will get the entire bill as the "taxpayers" will be given more debt to repay with interest.

Now to digress a bit.

Most middle class Americans have substantial home mortgages, large credit card balances and other future required payments of Federal Reserve notes for medical care, insurance, real estate taxes, car payments, gas expenses and schooling costs for their children.

Essentially, the middle class is up to its eyeballs in debt and as a result has a short position in dollars. They are long on houses, cars and investments in the stock and bond markets. For the past year, there has been a short squeeze on people who owe Federal Reserve Notes which has accelerated in the past months as people seek to pay bills and sell assets such as real estate and stocks. At least the people received some value when they built their own debt and will get something of value in exchange for future payments if they can indeed make those payments.

Back to the Bail-Out

What the Bail-Out does is saddle the country and all its "taxpayers" with with new trillions of debt and makes it such that every "taxpayer", regardless of how wise, cautious and frugal he may be, owes loads of Federal Reserve Notes (money) to the Federal Reserve Banking system. What will the "taxpayers" receive for this new tax saddle? The answer is that they have received and will receive nothing. Almost all of the Bail-Out money goes to the corporations whose errand boys like Greenspan, Paulson, Bernanke, Dimon, Mozilo and Fuld carried out the debt trap that was set 9-10 years ago.

This Bail-Out puts a further short squeeze of dollars into play. Perhaps the 50% drop in the price of oil, gold trading below 800 and the recent strong dollar portends more ugly things to come.

Contrary to Ron Paul's forecast of hyper-inflation, which will only take place if the increased money supply goes to the hands of the consumers and does not create a corresponding amount of debt, there may be a severe demand for dollars and hyper-deflation, where the country and the people have no money to buy goods and services but only debts.

The bankers have discovered a way to force the people of America and the world into an intense form of debt slavery and that is the reason for their reckless past lending practices, credit cards for all and now this massive Wall Street Bankers Bail-Out.

In the past, only wars created that amount of national debt. But now those debt creating war mongers have found the more friendly face of public bail-outs.

John Olagues
olagues@hotmail.com
http://www.optionsforemployees.com
504-305-4449

John Olagues is the owner and principal consultant for Truth IN Options and a recognized authority on listed and employee stock options.

© 2008 Copyright John Olagues - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

John Olagues Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Bryce Webster
23 Oct 08, 16:48
Debt Slavery

When Congress decided that interest on revolving credit would no longer be deductible, but interest on mortgage loans would, I realized they were trying to make a nation of serfs. And, indeed, many of us went for the mortgage lines of credit and tossed our extravagances onto that bill, meaning, of course, that we owned a lot less of our home than we would have otherwise.

It worked at creating serfdom to a point, but apparently not well enough. So they have engineered total serfdom through the bailout and its never-ending payback by the pseudo-serfs we have all become. The definition of serfdom is a person who doesn't own land and doesn't own his or her own labor; Ta da!

Where was the press during the runup to serfdom? We did have a period of indentured servitude in which, possibly, something might have been done.

It is chilling to know how very right you are. Thank you. I think.


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