8 Trillions Dollars and Counting

8 Trillion Dollars and Counting

by Ray on November 26, 2008

I oppose bailouts as a solution to a deflationary crash, because my theory is that the government will not be able to inject enough money to matter, and will then suffocate itself with debt in the process.

I never thought they would be this aggressively stupid.

The government has now made promises to the tune of 8 Trillion dollars (that’s eight followed by twelve zeros, BTW). That’s roughly $25000 for every man, woman, and child in the USA, on top of any other government and personal debt.

That excludes the most recent bailout of Citigroup.

Don’t let anyone fool you. None of this is going to be making the taxpayer any money. If it does, it will be because the money is worthless.

And now it’s time for a rant:

This is all done in the name of “saving the system”. I was born in Zimbabwe and I’ve seen some interesting things; I still have family there who write me some very interesting emails. When “the system” fails, people usually scratch their heads and figure something out. The entire “ATMs will stop working and people will riot” line of argument gets right up my nose. ATMs will stop working and people will figure something out, mainly because rioting while someone else figures it out costs you money.

If rioting gets you a free TV, some people will riot, probably with friends because decent TVs are really big nowadays. So, I would suggest that TV’s not be made available to rioters, or that someone try real hard to get them back. Other than that, I don’t see a big riot problem down the line. If the government is afraid banks are going to fail, it should investigate what forms of credit would keep services and transport of food going, set up a facility to provide that credit, and cut the banks loose. The implosion would be huge, and short. The rush by small and sensible banks to take over their customers and business niche will be worse than opening time on Black Friday at Walmart.

“But letters of credit will fail!” I hear. Letters of credit are failing now. Some stuff will become unavailable. The rest will become available in other ways because people will figure it out. Why? Because they like making money, and you make money by selling stuff. The worse things get, the more enthusiastic they will get at figuring it out.

The one thing you can guarantee about a deflationary crash is that it has a bottom. A deflationary crash is what happens when a massive amount of debt is destroyed when people are forced to default. They don’t pay because, you know, they can’t. You can put lipstick on that, but you can’t get broke people to borrow more money. They might have taken a while to realize they are broke, but when they get there, they figure it out how not make it worse. Giving the banks money to lend, just after they’ve had their hand burnt by stupid lending, is asinine.

Attempting to stop a deflationary crash is stupid. It’s going to stop when bad debt is written off. You can try to obfuscate that, or you can try to help get it out of the way. Stagflation does not have a time limit. Long term zero-percent inflation with oodles of pretend-not-bad-debt hanging around has no time limit (ask Japan). Debt disappearing because it can’t be paid and has to be written off has a limit. Worst case, when there is no more debt, but probably significantly before that.

In the meantime the US government is spending like a drunk sailor in Vegas, as we go into a time when people won’t be able to pay their taxes, or won’t have any taxes, because you don’t pay taxes when you don’t have income.

In the meantime, President-Elect Obama is talking about deficit spending much more than usual for the first two years of his term to stimulate the economy. That level of imbecility is going to require an entire post of its own. I don’t know where to begin.

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