Domino Economics

A few days ago, I told a group of friends that the passage of the "Bailout Bill" would have a domino effect. My prediction was that the State of California would come crawling to the Fed for relief from its huge, roughly 7 billion dollar cash deficit. Well call me psychic because the Governator is going hat in hand to the Federal Government for an immediate cash bailout which of course, Kalifornia will repay promptly as its economy tanks and its deficit becomes larger. Sound familiar? Others had already predicted the "Big Three" automakers would get in line for bailouts and with the "Domino Economic Effect" it will undoubtedly trickle down to your local Dunkin Donuts. This is clearly unsustainable and the fight will be on. Maybe we'll have to bail out Starbucks who have a store on every street corner.

Let's do a little grade school economic exercise here using history which apparently, we are doomed to repeat. After WWI, Germany was hit with such huge reparations they didn't have a prayer of repaying them. The solution was to print Deutsche markS.

That didn't work very well as the money was worth exactly what Monopoly money is worth. People were literally pushing wheelbarrows full of Deutsche Marks down the street to buy a loaf of bread. In the electronic age, money isn't so much printed as it is electronically invented through clever accounting techniques like pushing a button on a computer. The end result will be the same. When you have borrowed against your tangible and intangible assets to the maximum and (in the case of housing) beyond, you don't own ANYTHING and hence, you have no value. Your dollar isn't worth anything. For example, if money to the tune of 750 billion is so readily available for bailouts, why do we pay taxes?

I bring up history because we're repeating it in many ways. Here's another example: If you print phoney Phd's in economics, they're worth nothing and we have a lot of nothings with Phd's in economics running our economy. What kind of genius came up with "mark to market" accounting which was an invitation to fraud? Well, it practically takes a genius to figure out what that little stunt is all about but something did jump out at me. It seems to have had its roots in margin accounts which allow people/corporations to leverage far more money than they actually have. It's a fool's game and guess what? We've seen it before. Can you say Great Depression?

My final comment is about "getting the government we deserve." This may or may not be true but I'm becoming somewhat of a believer of that theory. If we continue to elect people (I use the term people loosely) like Barney Franks and Chris Dodd, then we're getting what we deserve. Bush and Paulson with the help of Congress have taken the extraordinary position that we need to socialize our formerly capitalist economy. I've got news for them. It's been tried before. Remember the vanished Soviet Union?