Well the $700 billion bailout plan was defeated. Wall Street didn’t like it and the market dropped a jaw-dropping 777 points. Was the bailout that vital to the health of the US economy?
Jim Rogers didn’t think so. Here’s a news report from the 25th of September ago:
Treasury Secretary Henry Paulson’s proposed bailout plan is “astonishing, devastating, and very harmful for America,” internationally-known investor Jim Rogers told The New York Sun.
Rogers says the current monetary climate in Washington reminds him of when then-Fed Chair Arthur Burns refused to let anyone fail.
Rogers insists Washington is making the same mistake again.
“We’re in for the worst recession since World War II, as well as higher long-term interest rates, higher inflation, higher taxes, a weaker dollar, and substantially lower stock prices,” Rogers says.
Even worse, Rogers believes it’s “embarrassing to see how little the presidential candidates know or grasp what’s going on, just like the current administration.”
But what about the almost 779-point boost in the Dow Jones Industrial Average that lasted for two days? “It’s only a matter of time before reality sets in and the market heads down again,” Rogers says.
“I wouldn’t buy now because it’s insane,” says Rogers, who believes investors “were foolishly sucked in by hysteria and a buying panic.”
Rogers, who bought dollars a couple of months ago, now thinks the greenback rally may have come to an end. He’s now buying more Chinese shares.
I’ve been insanely busy with college so I wasn’t even sure how the dynamic duo of Paulson & Bernanke came up with $700 billion. What were the calculations that led to that number? I couldn’t really find anything about it – most reports were rather vague. And if the risk-analysis departments of banks couldn’t figure out the worth of the toxic assets they owned, how did batman and robin figure them out?
A lot of people believe that printing money and turning on the cheap, easy credit spigot will keep the US from experiencing a 30s-style Depression. I really wonder if that is a likely scenario. It doesn’t seem to be working for Japan (although to be fair, they have cultural differences such as their not letting businesses fail, which is probably distorting their business cycle). Also, if its true that excess liquidity and cheap credit caused much of these problems in the first place, how can the solution be the same as the cause?
Here’s what Ron Paul said on the issue over the weekend:
This is Wall Street in big trouble and sucking in Main Street…and dumping all the bills on Main Street. You can’t solve the problem of inflation, which is the creation of money and credit out of thin air, by creating more money and credit out of thin air…
What they’re doing now, they’re propping up a failed system so the agony lasts longer. They’re doing exactly what we did in the Depression.
Saddling the American Taxpayer with an additional Trillion Dollars of Debt doesn’t seem like a good way of boosting the economy. The way things are going, the national debt is set to increase by a Trillion Dollars per year until 2017, after which it should increase by two Trillion a year!
If you still believe that bailing out foolish and greedy bankers is the right thing to do, check out my comments in a previous post. It’s a pretty interesting discussion.
So now that the bailout plan failed, is the US economy doomed? I don’t think so. Here’s an interesting article from the Heritage Foundation which suggests that the government is on a partially correct path regarding the financial markets.
And if you want something that’s even more optimistic about the US economy, I suggest reading Reality Check: The Unreported Good News About America by Dennis Keegan. He’s a hedge fund manager and he actually came and gave a speech to my class last week. While I don’t fully share his gung-ho optimism, he’s worth many millions and I’m not, so that should give you a good idea of whom to listen too! But he did say that chaos brings opportunities and people still make money in bad times, which I fully agree with.
And finally, Citi announced that it would be buying Wachovia. Isn’t that kind of strange considering that Wachovia was thinking of buying Morgan Stanley a week or two ago!