Why the Bail Out

Why the Bail Out

Initially, upon first hearing of the bail out, I was indignant and proposed to all of my cats that the Rich should be made to directly fund the bail out themselves, out of their personal accounts, which could be compelled from them by raising their Tax Rates to about 99% while offering tax exemption only in the case where they voluntarily purchase Federal Bail Out Bonds. But soon it occurred to me that the very reason a Bail Out is required is that nowhere in America does there remain any big pile of money still sitting around. What happened to all the Dollars? Well, they have gone to the Near East for Oil, or they have gone to China for Goods, or even to India for Services. These Foreign People, not being as economically sophisticated as Americans, demand cash. So, the American’s made due by borrowing, and they borrowed by collateralizing what they thought they owned – they borrowed on their Houses and on their Hedge Fund Accounts. The very essence of the Emergency is that these sources of collateralized debt have now been demonstrated to be effectively valueless. There is no actual Wealth left in America.

Years ago in better times an Economics professor taught us about Monetary Velocity. He presented a pithy example – pretend that in India or somewhere a Shop Owner sells a shovel for 10 rupees, and then he stuffs the 10 rupees into his mattress. There, the effective worth of the 10 rupees is one shovel’s worth of value, or in terms of Velocity, 1 Shovel per Day. But in America, in the morning a shovel is bought for 10 dollars and then immediately the Shop Owner makes a call and spends the 10 dollars for a drum of nails, and then the nail sales man buys a couple cases of beer, and then the beer store owner buys a bundle of magazines…. On and on and on. The same ten dollars, in a High Velocity Economy is worth far more than just one shovel per day. This was seen, back then, as a good thing.

Now, what we have is High Velocity Debt. The way that works is that Collateralized Debt is used to advance further borrowing. People assert ownership of what they had only borrowed to purchase, and while barely nothing is actually paid for, they pledge their Title of Ownership as collateral for their next level of Purchases. What we eventually have is Trillions of Dollars of On-the-Book Ownership, but with almost no equity to support any of it, that is, no solid dollars of value anywhere to be found. Honestly, what does happen to the ownership status of hundreds of millions of dollars of collateralized purchases all spiraling out from a single Mortgage Deal that in the end turns sour? What we find happening is that the entire Economic Boat capsizes.

So, okay, things are indeed bad. Can there even be a Bail Out? Well, honestly not. The American Government has no Dollars. Yes, the American Government could print a great many new Dollars, but one would expect that everybody presently holding U.S. Dollars, U.S. Bonds, and assets which are indexed to the value of the U.S. Dollar, well, all these people should strenuously object at any Bail Out Plan that consists wholly in diluting the value of Dollars that are out there in the accounts of honest people across the World.

So, if anybody should be discussing the implementation of a Bail Out Plan, it should be those Nations that now hold so much in the way of Dollar Reserves, and that is Japan, China, and all of the Oil Economies. And their Bail Out Plan can be straight forward – they can purchase all of these worthless banks for next to nothing, fire all the Good-for-Nothing Americans, and place their own Managers in charge of the World Economy.

I can conclude with two statements. Firstly, if the American Taxpayer is made to Bail Out this Wealthy Top One Percent of America, then there needs to be a Transfer of Ownership. The Wealthy in America cannot be rescued from the torrent by its Wage Slaves and then still expect that the relationship will remain as it had been. A National Rescue must certainly infer an Effective Nationalization of Ownership. We will no longer expect Taxes from the wealthy. America will pay its Bills with its rightful Dividends from its asserted Ownership. As these Capitalists have always insisted, it is all just a Game of Winners and Losers and the Losers should be good sports. Well, now they are the Losers. The Nation now OWNS the Banks. That is that!

Secondly, if America has demonstrated to the entire World that it is effectively Bankrupt, then the Rest of the World needs to step up and exert its influence to prevent America from taking any further rash actions that could continue to thin down the value of the Dollars, so many of which these Foreign Powers hold in their Reserves. How could these Foreign Powers exert any leverage? Easy. America has thrived upon the Dollar’s status as the effective International Currency. Those who hold the most Reserves of Dollars could simply threaten to throw them out the windows, into the streets, to swamp the world in Trillions of Dollars which everyone will soon enough find to not be worth the paper they are printed on. You see, a U.S. Dollar is only worth what somebody is willing to give for it, and we all know very well that America no longer has anything to sell. The Value still residing in the Dollar comes largely from the effect of the Rest of the World still trading with it among each other. Therefore, if the World ever rejects the Dollar, well, that’s the End Game and Checkmate for America right there.

And what could America do about it? America, since it has no real Oil Reserves could not even afford to throw even much of a Military tantrum, and America would starve into the worst 3rd World squalor in less than 180 days. Remember how quickly the Soviet Union had collapsed? Well, America would set some new records for Speedy Demise.

And I think the American Economic Leaders know it… and that is why they are scrambling to implement some kind of a Bail Out. And I suspect they are holding their breath hoping the Rest of the World stands by and does nothing.