Death by bailouts

If there is one thing 2008 will be known for in history: it will be burying future generations in mountains of debt.

The painful news of Federal government bailing out banks is coming with boring regularity and at shocking costs. When Federal government gave Bank of America and Citigroup a backstop, effectively backing them for all losses, the price of $400 billion barely registered. And hidden under the heap of comments on bank bailouts was the fact another bailout package of $850 billion was passed by Senate.

With government taking on all the residual risks of the crazy derivative deals on the gung-ho years, US is effectively bankrupt, or to put it mildly is bloody serious trouble.

The jobs are going to be worst hit as the economy continues to flounder. Obama came to power with a great slogan but it is unlikely Obama can stem the tide of Bush administration's flawed decisions. Like the Texan saying, if you are going to go bankrupt, go bankrupt over a duplex; Bush seemed to have thought big only this happened to be in trillions of dollars of Federal loans to private enterprises.

Somebody has to pay of these sometime. Of course, the bill comes due many years from now, and all the bureaucrats would have bought gold, silver and other PMs by then. But US would have to pay it and it cannot pay it without higher taxation, more restrictive practices etc; all methods which will put US in further dire straits.

The policy of government bailing out private players at the cost of welfare, heath, education, infrastructure and taxpayers would have been unthinkable few years back. But in just three months this has become a common feature. Senators are unable to stop the tide of bankruptcies, unable to revive the economy and unable to justify why they are doling out billions of taxpayers money without proper oversight.

Under all these circumstances, it is surprising, nay shocking to see Dollar has maintained and even gained against other currencies. With the tide of new bail-outs being release, further money would move to US and dollar could strengthen on repatriation. But this would be akin to creating a Ponzi scheme where in you have to keep issuing Treasury bills to be keep repatriation happening. This is not likely scenario and the Law of diminishing returns/interest will hit the buyers. But alas, it is very difficult may be even impossible to predict where this critical pivot lies, what is that which will stop the repatriation and perhaps drive the funds away from dollar. For all the greatness of US as a country, it is equally fair to say dollar has lost its value and is presently highly overpriced. This discrepancy should get corrected over a period of time, lets say 3 years, which would mean some severe depreciation of dollar values against most of the currencies.

Million trees have been cut down to write about the absurdity of US plans and perhaps million more could be cut down, but as long as politicians control the reins bailouts will still be doled out. It is for the taxpayer to bear it and pay it.