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alstry (36.12)

The Bailed Out World vs. The NOT Bailed Out World

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September 19, 2011 – Comments (1)

We are bailing out FINANCIAL ASSETS and NOT bailing out the main population.

The primary benefit of bailing out financial assets is concentrating in the top few percent.

It is causing food and fuel prices to skyrocket driving substantial pain upon the main population.

As the main population can no longer function in due to the fact that they are not benefitting from the bailout....do they have the moral right to attack the bailed out class so they can survive?

We are about to find out in a nation where the rules say ALL MEN ARE CREATED EQUAL......

RETIREE BENEFITS FOR THE MILITARY COULD FACE CUTS...

while otherwise bankrupt bankers and stockholders get millions in bonuses....and dividends simply because they were bailed out...

1 Comments – Post Your Own

#1) On September 19, 2011 at 2:33 PM, amassafortune (29.66) wrote:

History indicates that a majority population forced to endure wide inequities for long periods of time will result in some sort of backlash. There is a chance that today's worldwide recession, along with faster communication and the ability of the middle class to electronically move their assest (except for homes and and the like) quickly, will lessen the chance of a nasty outcome. 

Compare todays' situation with that of the 1930's. People are not driving from town-to-town a la The Grapes of Wrath. Some remain in their homes without having made a mortgage payment for many months. Their diet is restricted by the limits of food stamps, but they are not begging to eat. 

The rich have not all found this situation to be beneficial. The market has gone nowhere this year. Make no mistake, many wealthy people have lost money this year chasing the high frequency market swings that make even saavy traders and investors sell at bottoms and buy at near-term tops. 

As an example, ZeroHedge has been tracking the performance of the Paulson group, commonly recognised as market insiders. Paulson bet the wrong way on China and it has cost the fund (and many wealthy followers) dearly. On the other hand, Hugh Hendry bet correctly and is reaping the rewards. Hendry also has wealthy clients who are doing great this year - so far. In today's HFT markets, that can change on a dime. 

Even insider Goldman Sachs has been struggling. I take this as a sign that being directly connected to the Fed's inner workings is not helping wealthy insiders as it has in the recent past.

The key is customers. Goldman burned so many clients - Greece, Harvard, etc. by selling them crap and then betting against the investment. No person or entity will do business with someone intent on profiting against their clients interests. 

Many of the rich thought their investments would pick up new customers in China and the BRIC countries to replace US consumers' reduced buying power, but as Hugh Hendry and Chanos predicted, the leveraged overbuilding seems to be coming to an end in high-growth countries. China's working class making less than $1/hr can't even begin to replace US teen buying power at minimum wage.   

Some of the trouble you predict might come to pass as more public employees get their benefits cut because the private sector middle class can't restore underfunded pension funds and the investment will not recover anytime soon. This will not be widespread because there's no sense for these people to risk jail time vs. a 10-20% cut in expected benefits and having to pay more for health insurance. Short-term riots as seen in Greece, Italy, etc. may happen, but I don't think any French Revolution-style event is in the cards. Enough of the social safety net will survive to prevent any massive unrest. 

What we could end up with is the rich and poor preserving wealth with precious metals as the doller gets overprinted and foreign investments prove less desireable. If the Fed had a collective brain, they'd raise rates very slowly so people will continue to roll over CDs instead of looking for alternatives. Already, it makes sense for these savers to skip bank options and loan at higher rates to relatives or local business entities. 

If the Fed continues to print, and if foreign investments continue to weaken, hard assets like precious metals, land, and real estate will see buyers. With PMs and ag land already at lofty levels, we may see the bottom of the real estate market sooner than most expect. Ironically, the Fed began the printing in an effort to prop up real estate, and in the end RE may receive an influx of investment, but not until after the Fed has destroyed much wealth, pensions, the social safety net, the national budget, bank stability, and consumer confidence. This is a huge price to pay to save speculative credit default swaps and other highly leveraged derivative markets. 

I believe Herbert Hoover will be viewed as a more visionary economist than Ben Bernanke a few decades from now. The key to economic growth and jobs creation is a collective recognition by the masses that the bottom has been reached. Mathematical theories of sustaining markets do not work because human nature will not allow the manic highs to be purposefully repressed. Politically, the highs can't be restricted. According to Keynes, increased spending during downturns is supposed to be funded by increased savings during economic expansions. Remember when Clinton took a bunch of heat when we had several years of slow, but consistent growth in the early nineties - and the last budget surplus? Type-A leadership personalities will never stand for consistent, positive results. They always push to accelerate. These are the can-do, go-getter personalities that tend to get elected. This type of leader in boom times will get you grand, Dubai-type projects, not saving for a rainy day. This is why Keynesian economics works at the family level, but not at a public level.  

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