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Crisis Averted; You May Now Resume Normalcy; 24 Is On Tonight!

10 May 2010 No Comment

News over the weekend of an unprecedented bailout of the European Union and their unsustainable debt levels has markets surging this morning.

My question becomes, if printing a trillion dollars over the weekend is a good thing and stocks are up, why don’t we do it every weekend?  Why not print a trillion every weekend?  Surely, we could hit 100,000 on the Dow before long.

Zero Hedge article sums this up well:

The race to the currency devaluation bottom is now in its final lap. And gold is the only alternative to the now imminent collapse of the fiat system: the world had a chance to take writedowns on losses, punish those who took risk and failed, and refused to do so. There is now no risk left, but it only means that eventually all the risk will come back and lead all capital markets to zero. The result will be the end of Keynesian economics as we know it. Do not trade in this broken market, do not hold your money in a bank as they are all now one hour away from a terminal bank run – buy and hold real, FASB mark-to-myth independent assets.

That’s right. Everything is good.  Please go back to your regularly scheduled programming.  For me, 24 is on tonight.

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  • Little House said:

    One of my students asked this same question, why can't we print our own money? I guess I could try using this explanation. (But I don't think they'll get it! 🙂 )

  • Stephan said:

    Im not sure if agree that the system is now on its last legs and that the fiat system is doomed. This bailout package is massive and unprecendented, but it was necessary, just like the other extreme measures taken over hte last 24 months. What will decide the future fate of the economy is the lessons we learned from this and hopefulyl the steps we are taking to avoid a future meltdown.

  • wingtipwalker said:

    @Stephan, Let's say you owned a house. Well, not owned, but occupied and made payments to a bank for that right of occupancy. Then one day, you decided that if you took all the cash you had in the bank to Vegas and bet on 'red' and won, you would be able to pay off your house, your credit cards, your car, and even buy a new boat. Because this sounds like such a swell plan, you go ahead and buy that boat before you leave–even though you don't have the money to pay for it or even make payments.

    So, you go to Vegas, put it all on the table…the wheel spins….and blammo. Gone. Every penny. You came with much, left with nothing.

    Now you're back home, you're broke, you have a house you owe money on, car payments, boat payments, credit card payments, and your boss just informed you that due to "hard times" your salary is going to be reduced by 20% if you want to keep your job.

    But no big deal, you have a buddy at the bank and writes you a new loan that consolidates everything you owe money on into one low monthly payment that allows you to keep it all, even though you're broke and you are making 20% less per month. He mentions something about variable interest and a 100-year term, but who cares. I can make the payment AND keep my house, boat, cars, and start fresh with my credit cards.

    Essentially, that's what the bailouts are doing. It makes it *appear* that the bullet was dodged, when in actuality, the trillions in bailout money is just delaying at best, magnifying at worst, the ultimate collapse of the system.

    My metaphor doesn't even include the issues of inflation, fiat currency, and moral hazard.

    Your assertion that it was "necessary" is wrong, and your hope that "the lessons we learned from this and hopefulyl [sic.] the steps we are taking to avoid a future meltdown" will prevent a future collapse is (unfortunately) naiive.