Friday, August 7, 2009

Free Money


I can smell the fear emanating from Washington. I'm sure the wolves can smell it too. Things aren't going well and our "fearless" leaders are starting to panic. The signs are everywhere. Everything under the sun is imploding and exploding at the same time. Fannie Mae, FDIC, Cash for Clunkers, Health Care reform, state financing, Geithner's cool. The only thing they seem to be able to control is the stock market.

As I have said before, the only thing they really have control over is Bernanke's mouse. And that poor thing is working overtime these days.

As we all know, no government program is cheap. Whatever the output, the cost of getting there is always many times higher. Remember the $600 toilet seat? Well, it seems that the $4,500 free money for clunkers is actually costing somewhere between $20,000 and $45,000 per car!

Not only that, but this program is destroying actual real-world capital in the US and replacing it with paper! They are destroying paid off, working vehicles and putting people in new cars they can't afford. You know, last time I bought a brand new car I first found the car I wanted, then I shopped around making low offers to various dealers to find the best deal. I ended up getting a $42,000 car for $36,000. That's $6,000 off! And I didn't even have to turn in my trusty old work horse. It's easy. Anyone can do it. But not right now. Not while Cash for Clunkers is going.

This program is simply free money for bureaucracy, car makers and the UAW. It is actually NET-DETRIMENTAL to car buyers and to the US economy. It will do nothing but harm to the economy. Where do you think these new cars will end up once the people who formerly had paid-off clunkers can no longer pay $400 per month for their new wheels? And right now, the used car business is crippled by this government program of free money competing with it.

This is possibly the DUMBEST program ever. How do I know? Well let's just say that certain CNBC personalities think it's great.

Anyone remember my New Stimulus Plan? It's getting closer!

We have made some serious progress on the road to you-know-where...

Man receives cash for clunker


Anonymous said...

Free Gold (Trichet) :

Trichet, Bank of Italy, FreeGold

At the Thursday 06 August 2009 European Central Bank press conference after the meeting of its governing council leaving interest rates unchanged at 1%, ECB president Jean-Claude Trichet said that Italy’s projected tax capital gain on the gold reserves of the Bank of Italy raises concerns as regards infringements of community law and that the ECB has a negative judgement of this piece of legislation.

FOFOA said...

Promises promises...

Cities Turn to State for Pension Relief

CHARLESTON -- City officials from around the state say their communities can no longer afford to cover the benefits of retired police officers and firefighters, so they are asking the state Legislature for help.

Specifically, they want state lawmakers to redirect a portion of state surcharges on insurance premiums to helping cities cover their retirement pension obligations. They also want to enroll new hires in new pension plans that help them save money.

If nothing changes, cities such as Huntington could have fewer police officers and firefighters on the streets as they are forced to cut back staffs because of increasing pension obligations. The city’s last six police and fire department retirees will likely draw $1.5 million each in pension benefits over the course of their retirements, even though each person made less than $900,000 during his or her career, according to Deputy Mayor Tom Bell said.

“What happened here is we just can’t afford to dedicate that amount of money” to pensions, Bell said.

Anonymous said...

Pensions : The savings that one reserves during active life (40 yrs) are eroding in PP dramatically over the timespan of 60 years (40/saving + 20/spending).

Simply because the system of a debt-driven political economy is based on "inflations",...and nothing but inflations.

A Ponzi...chain letter, event. This truth is much too hard for the masses to face.
So,...let's inflate harder as to anesthesize them.

This is the reason that the gold-demonetization is going crescendo.
To demonetize = To set free !

Anonymous said...

Really, they want it all. It's a disease I think, it has to do with the concept of 'enough' and that concept does not seem to exist.

I am aware the monetary theorists will tell you that inside a fiat debt creation system that growth is essential, and perhaps that precludes there ever being 'enough' of anything. Still I can't help wondering when the earth will shout 'enough' at our species, loudly and clearly.

In the name of efficiency, the model in which I grew up has ceased to exist. There were a subset of individuals who could make a living just being the middlemen, the jobbers, the wholesalers, the people selling parts to the repairmen who fixed the cars, television sets and radios and appliances which all seemed to break with regularity.

And money actually circulated in this system and it seemed to be self sustaining. And in the drive for efficiency, the middlemen were eliminated, the production was moved to low wage or sweatshop production venues, women had to enter the workforce as supporting family members, tax burdens were never fully imposed as the easy path was to borrow and defer the taxation necessary for the programs the government was offering. Money in circulation degenerated in value from gold then to silver and then to copper plated zinc or nickel plated iron. Now we are in a spiral whereby 'stimulus' is packaged as a good thing and the money to creat the 'stimulus' either has to be borrowed outright or monetised through the back door.

I suppose the easy answer to all this is that the exponential function will out as the logical termination to all this. Still, as the underpinnings of society are ripped apart, I can't help feeling that things might have turned out differently if some politician or corporate executive understood the concept of 'enough'

Anonymous said...

Please, stimulate some more...

Over 30,000 firms in danger of failing by end of 2010
Analysts predict that over 30,000 companies could go into liquidation before the end of next year, after official figures showed that company failures have reached their highest ever level.

Anonymous said...

Great US$-index TA/TI chart @ Jesse's :

We are definitely at a "breaking point" !

Anonymous said...

Link Jesse USD-index chart :

Anonymous said...

WASHINGTON (Reuters) - U.S. Treasury Secretary Timothy Geithner formally requested that Congress raise the $12.1 trillion statutory debt limit on Friday, saying that it could be breached as early as mid-October.

Anonymous said...

Interesting read from 321gold

Anonymous said...

@ Anon-6:31 : This is indeed "the" scenario/modus operandi. And the organized Crisis doesn't nescessarry has to become a copy of Argentina/Zimbabwe,...because "they" know exactly how to handle this plunder as the oldest profession in the world.

But,...but I'm afraid they are not going to get away with it as easely as they might think (be convinced of).

>>> Geither's incredible idiocy :

....... so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations.....

Congress needs to raise debt limit, says Geithner
Reuters on Sunday, August 09, 2009
US Treasury Secretary Timothy Geithner formally requested that Congress raise the $12.1 trillion (Dh44trn) statutory debt limit, saying that it could be breached as early as mid-October.
"It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations," Geithner said in a letter to Senate Majority Leader Harry Reid.

S said...

Don't you think the governement has throught about all this. Clearly the energy side of the equiation is paramount. they can not eject on the dolalr without an alternative course in place as regards commodities. Unless of course a devalue comes to be followed by a sucking depression to ensure the rest of the world was dragged down. So, it should be noted that the US must have a plan to ensure that if the dollar were to go down, simultaneous daisy chains would assuredly go off as well - almost by default anyway but consider the US would have to do something. Risking having itself priced down out of commodities without an alternative is simply untenable. the dislocation would be so extraordinary that only a fool would inititiate such a course.

Check out the piece written in the Atlantic by Kaplin about why the US should cut Israel loose as the interests have diverged. I think this is quite a telling piece by one of the best and balanced minds in the FP community/punditry. The strategic interests of the US are energy fiorst and formost. Look at the deal Russia just signed with Turkey via Nord stream. that is the game, not Ceder revolutions.

The Euro for all the golod talk is sitting on a huge amount of bad debt throughout the zones banks. One interesting thing to note is that the dollar denominated debt that so may worried about and claimed to be dollar favorable - it was dollar rallied - could end of being the achilles heel. IF indeed there was a dollar neagtive event, would not those cross border liabilities simultaneously devalue, thereby freeing up massive capital to indufse and reconcile the exisiting local currency bad debt? It is worth considering though I am no expert on the BIS flow tables.

i have been in agreement with you for a while that the move will be quick whenand if it happens. The drawn out scenario makes no sense. The equity market distraction will not last as the on the ground economy stagnates. The discconet is simply too great. Something has to give...the question is what and when...if only we knew

Anonymous said...


Sorry it may sounds off the topic.

But during hyperinflation, what happens to debt with fixed interests?



FOFOA said...

Hi Terry,

In most hyperinflations they are inflated away, meaning you pay them off with devalued dollars. But someone recently sent me this in an email:

Today I read a short little book titled "Fiat Money Inflation in France" by Andrew White (published 1912). My general impression is that there is no law so insane that it can't be enacted during a hyperinflation. As you may know, they even passed a law such that debts increased along with the issuance of further currency, so that for every so many additional assignats printed, one's debts increased by 25%. Thus they took away the one silver lining of currency debasement for the middle class. What a nightmare. I liked this bit:


All this vast chapter in financial folly is sometimes referred to as if it resulted from the direct action of men utterly unskilled in finance. This is a grave error. That wild schemers and dreamers took a leading part in setting the fiat money system going is true; that speculation and interested financiers made it worse is also true; but the men who had charge of French finance during the Reign of Terror and who made these experiments, which seem to us so monstrous, in order to rescue themselves and their country from the flow which was sweeping everything to financial ruin, were universally recognized as among the most skillful and honest financiers in Europe. Cambon, especially, ranked then and ranks now as among the most expert in any period. The disastrous results of all his courage and ability in the attempt to stand against the deluge of paper money show how powerless are the most skillful masters of finance to stem the tide of fiat money calamity when one it is fairly under headway; and how useless are all enactments which they can devise against the underlying laws of nature.


I am sure Bernanke will fare no better!

I don't believe they would attempt such a thing now because this is a country of debtors, not creditors. But as he says, during hyperinflations, anything is possible.


Tablemaker said...


I was wondering about your thoughts on the best businesses for a young entrepreneur to start in preparing for the soon to play out upheaval in the markets/currency? Food? Energy? How have people in the past hyperinflationary environments made out well? What sorts of businesses thrive in tumultuous times?

FOFOA said...

Hi Tablemaker,

Obviously food and energy are important. My best advice would be to mentally prepare for many arbitrage opportunities. This includes the metals. Even being a gold dealer would be a good job in the future. It will afford many opportunities for profit through the transition. And afterward, it will be a new kind of banker. But security should be a primary focus of anyone considering this.


Tablemaker said...

I have been accumulating metals for two years now. Mostly silver. I am really interested in starting my own business, but every idea I come across seems to pile on top of our over saturated service sector. Perhaps building furniture or starting a farm or co-op might be good ideas....

thanks for your response.

FOFOA said...

That's actually a very good idea. Most of the furniture in our economy came from China over the last 15 to 20 years. It will fall apart eventually as it is not made of real wood. It is "disposable".

A good business would be to learn how to restore older furniture made from real wood. That will be a real economic good that will rise quite well in value as Chinese goods stop flowing in and our economy is not yet geared up to replace them.

Older furniture from the 60's, 70's and 80's can be gotten quite cheap right now at yard sales. Restored it could be quite valuable in the near future.

Good idea!

Anonymous said...

This "Cash for Clunkers" is the same as "Subprime loans" will do nothing good.
/The Swedish Wiking

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