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Astonishing Incongruities: Is It Time to Bail Out of the US?

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California State Controller John Chiang announced on January 26 that California's bills exceed its tax revenues and credit line and that the state is going to print its own money known as IOUs. The template is already designed.  

Instead of receiving their state tax refunds in dollars, California residents will receive IOUs. Student aid and payments to disabled and needy will also come in the form of IOUs. California is negotiating with banks to get them to accept the IOUs as deposits.

California is often identified as the world's eighth largest economy, and it is broke.  

A person might think that California's plight would introduce some realism into Washington, DC, but it has not. President Obama is taking steps to intensify the war in Afghanistan and, perhaps, to expand it to Pakistan.  

Obama has retained the Republican warmongers in the Pentagon, and the US continues to illegally bomb Pakistan and to murder its civilians. At the World Economic Forum at Davos this week, Pakistan's prime minister, Y. R. Gilani, said that the American attacks on Pakistan are counterproductive and done without Pakistan's permission. In an interview with CNN, Gilani said: "I want to put on record that we do not have any agreement between the government of the United States and the government of Pakistan."  

How long before Washington will be printing money?


On January 28 Obama announced his $825 billion bailout plan. This comes on top of President Bush's $700 billion bailout of just a few months ago.  

Obama says his plan will be more transparent than Bush's and will do more good for the economy.  

As large as the bailouts are--a total of $1.5 trillion in four months--the amount is small in relation to the reported size of troubled assets that are in the tens of trillions of dollars. How do we know that by June there won't be another bailout, say $950 billion?

Where will the money come from?

Obama's bailout plan, added to the FY 2009 budget deficit he has inherited from Bush, opens a gaping expenditure hole of about $3 trillion.  
Who is going to purchase $3 trillion of US Treasury bonds?

Not the US consumer. The consumer is out of work and out of money. Private sector credit market debt is 174% of GDP. The personal savings rate is 2 percent. Ten percent of households are in foreclosure or arrears. Household debt-service ratio is at an all-time high. Household net worth has declined at a record rate. Housing inventories are at record highs. 

Not America's foreign creditors. At best, the Chinese, Japanese, and Saudis can recycle their trade surpluses with the US into Treasury bonds, but the combined surplus does not approach the size of the US budget deficit.

Perhaps another drop in the stock market will drive Americans' remaining wealth into "safe" US Treasury bonds.

If not, there's only the printing press.

The printing press would turn a deflationary depression into an inflationary depression.
Unemployment combined with rising prices would be a killer.

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http://www.paulcraigroberts.org/

Dr. Roberts was Assistant Secretary of the US Treasury for Economic Policy in the Reagan Administration. He was associate editor and columnist with the Wall Street Journal, columnist for Business Week and the Scripps Howard News Service. He is a contributing editor to Gerald Celente's Trends Journal. He has had numerous university appointments. His book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is available here. His latest book,  How America Was Lost, has just been released and can be ordered here.

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a low tolerance for bluntly-inflicted pain not to ... by Richard Mynick on Wednesday, Jan 28, 2009 at 8:11:34 PM
That passage stuck with me, too.  A brilliant... by UncleSim on Thursday, Jan 29, 2009 at 8:21:25 PM
I'm no economist, but I believe the Democratic... by Perry Logan on Thursday, Jan 29, 2009 at 7:37:17 AM
But without the money to pay for the jobs created,... by UncleSim on Thursday, Jan 29, 2009 at 8:04:32 PM
"Meanwhile, the Dems and Repubs have voted on... by William Whitten on Friday, Jan 30, 2009 at 1:34:31 AM
When things do not follow the conspiratorial parad... by Perry Logan on Sunday, Feb 8, 2009 at 6:16:10 AM
No matter what either the Democrats or Republicans... by Jerry West on Thursday, Jan 29, 2009 at 6:31:19 PM
The government keeps trying to redistribute the we... by UncleSim on Thursday, Jan 29, 2009 at 8:05:47 PM
Not in my definition of wealth, it isn't. ... by Jere Hough on Thursday, Jan 29, 2009 at 10:46:06 PM
?????????????????????????????WTF??????????????????... by William Whitten on Friday, Jan 30, 2009 at 1:21:29 AM
Still???????????????????????WTF!!!!!??????????????... by William Whitten on Friday, Jan 30, 2009 at 1:23:37 AM
In the real world, rising home prices are a bad th... by wagelaborer on Thursday, Jan 29, 2009 at 7:13:31 PM
"My caddy's chauffeur informs me that ban... by UncleSim on Thursday, Jan 29, 2009 at 8:08:24 PM
That is your key question, Paul.  Here is you... by Jere Hough on Thursday, Jan 29, 2009 at 10:59:16 PM
Jere...I didn't see anything but a smorgasboar... by William Whitten on Friday, Jan 30, 2009 at 1:30:36 AM
That's why they re-wrote the Constitution in 1... by Mark Watterson on Saturday, Feb 7, 2009 at 1:09:54 PM