September 30, 2008

We Won the Bailout Battle—But the War Continues

We Won the Bailout Battle—But the War Continues

By Julian Dunraven, J.D., M.P.A.

Dear friends,

In my last column, “Stop the Bailout!” I said that we all needed to contact our Congress people and demand that they vote against the $700 billion bailout plan. Thanks to all of you, and millions of other people who did just that, we were successful in pushing Congress to kill that ghastly legislation. Congratulations! Nonetheless, we must remain vigilant.

The bailout bill was dreadful. My last column already referred to some of its problems, such as massively increasing our national debt, starting us on the road to hyperinflation, swiftly devaluing the dollar to the point of collapse, and entangling the Federal government in our economy to an extent never before seen. The final version Congress put out, though, also contained no meaningful restrictions on the spending or the price. It contained several arguably unconstitutional provisions, and fretted endlessly about executive compensation packages, which are almost irrelevant given the enormous scope of this bailout. In demanding that the companies involved repay the government in five years, it also failed to remove these bad debts from the market and created unrealistic expectations which serve to discourage outside investment and virtually guarantees that we will be saddled with these ailing companies for many years to come. Everyone agrees that it was a bad bill. Everyone also agrees that it was the only bill Secretary Paulson would approve. Fortunately, the secretary does not run this country. Nonetheless, though we won the battle, the war has only just begun.

Even now, the leadership in Congress is preparing to resubmit the bailout plan. House Speaker Nancy Pelosi seems to think she can get the votes she needs if the new package includes language that would ease bankruptcy laws to allow debtors to keep more of their assets, thus making it much easier to file for bankruptcy. Making it easier for people to default on their debts is not a cure for our economy. This would not make the bill better; it would make it far worse.

Unfortunately, our esteemed presidential candidates are not helping matters either. Those of you who watched the first presidential debate saw the deer-in-the-headlights looks they gave, and heard their obfuscating answers when they were asked about the economic issues we are facing. Neither of them has a good understanding of what is happening in our economy. The fact that they both supported the bailout is proof enough of that. They both have made the mistake of listening to Bernanke and Paulson, and maintain that Congress simply MUST do something or the consequences will be dire.

Not so. Though the market will undoubtedly go through some painful readjustments as it purges itself of these poisoned assets and failed companies, its recovery, if left alone, has the potential to provide good, strong investment opportunities. With low stock prices and increased savings, Money Morning predicts that U.S. domestic capital will actually increase, reducing outsourcing and improving our deficit of payments—a good thing. This will leave us in a much stronger economic position to face the real threats coming quickly at us, such as Peak Oil and the liquid fuels crisis. However, this may not be possible if Congress and our presidential candidates keep trying to drive us into a depression with their hasty and ill conceived plans. Thus, it remains incumbent upon us to show them what they need to be doing. Here is what you can do right now to help:
1. Educate yourself. If you have not done so already, find reliable people who have been predicting these problems for a long time (that rules out Benanke and Paulson). Listen to what they have to say about what caused the problems and what we have to do to solve them. For a start, I strongly recommend Financial Sense. It has many useful articles and the Financial Sense Newshour (3rd Hour with Jim Puplava and John Loeffler) is a wonderful weekly broadcast that will keep you abreast of everything you need to know in terms that are easily understood to laypeople.

2. Keep pressure on Congress. Keep writing and calling your Congress members—and maybe even the leadership. Tell them not to pass this bailout—in any form. If they never get any support from the people, they won’t act, and they won’t ruin our country. If we slack off, though, they are likely to pass some new horror that will be even worse than the last one. A dismantling of our bankruptcy laws would be just that.

3. If you want to tell Congress what it should be doing, you might suggest that they repeal some of the bad government programs that got us here in the first place such as the Community Reinvestment Act, which actually encouraged giving loans to high risk borrowers as a social engineering project. After that, they should think about reining in the Federal Reserve and its fast and loose monetary policy which has left us with terrible inflation, forced business into high risk investments just to get a decent rate of return given our piteously low interest rates, and left the dollar on the verge of collapse. After that, they need to think about eliminating certain corporate and capital gains taxes to encourage investment.

4. Protect yourself and your family. I am not a financial advisor, so I cannot tell you what would be best for you and your family. I can say, however, that there are plenty of opportunities to be had if you are paying attention. Gold, silver, and other precious metals are very good security again failure of the currency. In an economy where energy is increasingly becoming an issue, oil and other energy investments look good. Do not have too much faith in government, its programs, or its bonds, however. We are all seeing, right now, the dangerous actions our government has been willing to take with regard to our financial systems. We were able to stop the bailout, but there is no guarantee we will stop future idiocy. If the government’s foolishness manages to utterly debase the currency, you do not want to be depending on that same government for your financial security.

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