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An alien perspective on the U.S. bail-out plan January 7, 2009

Posted by Daniel Downs in Barak Obama, economy, finance, monetary policy, news, politics.

Captain’s Log: Year of our Lord 2009, 6th day…

We have landed on a strange and wonderful watery planet – the third planet in orbit around the sun, a minor star in the Milky Way galaxy. Well, they say it is watery planet. Where we are, it is icy. But the locals say it warms up and the ice melts. We’re suspicious; maybe it’s just hype to attract tourists.

But what is strange about this planet is that its inhabitants all seem to
play a game of make-believe, in which they all agree to believe things
that every one of them knows is untrue. What is wonderful about it is that it seems so easy to make money here; there’s a fool on every corner just waiting for the chance to get rid of his wealth.

Recently, humans – the race that inhabits this place – believed that their lodges and living quarters would become more and more valuable – even though it was obvious that their houses deteriorated every day, as a consequence of solar radiation, wind erosion, liquor spilt on the carpets and other natural phenomenon. Then, on the back of this remarkable delusion, they built an entire world economy…including extravagantly complex financial instruments which the wisest among them called “weapons of mass financial destruction.”

Someone seems to have cut the power to that illusion a few months ago, so now they are taking up a new one: that if people are given more pieces of green paper they will all be richer.

Today’s press – the means by which delusions are shared and propagated – tells us that the government of this world’s richest nation, called the United States of America, is planning a “stimulus package” of something on the order of $1 trillion. What’s the package expected to stimulate? The idea is to get more of these pieces of paper into citizens’ hands, so that they will be encouraged to act as though they were wealthier. It doesn’t seem to bother anyone that the source of the misery of which so many now complain was the fact that, in the past, so many acted so much wealthier than they really were. Nor does it seem to disturb the collective fantasy that this stimulus plan is being created, more or less, by the same class of people who neither saw anything wrong with the last fantasy nor mentioned to anyone that it was going to collapse.

“Hopes pinned on rate cuts and fiscal packages,” says the headline in the Financial Times, a leading source of financial hallucination. It explains how the aforementioned U.S. government intends to cut taxes in order to put those aforementioned pieces of green paper into consumers’ hands.

Further in the paper, another headline – “Reports of $300 billion Obama
tax cuts lift mood” – tells us that the public is getting in the spirit of the new fantasy even before it is officially launched.

What a marvelous place! Every day is magic on this planet. Every day is a new day…with no memory of what happened the day before…nor any thought to what will happen tomorrow. People are ready to believe whatever makes their day more enjoyable…no matter how absurd.

Anyone who bothered to think about this ‘bailout’ plan for two seconds
could see that it is a hoax and a scam. Those pieces of paper are not
really wealth…they merely represent wealth. But since the U.S.
government has no wealth in reserve – indeed, it is famously borrowing to make ends meet already – it can only pass out wealth to one person by taking it from someone else. It talks of ‘tax cuts,’ but we have heard nothing of spending cuts. So, what the global consequence must be is an increase in pieces of green paper – or let us say, demand for wealth – with no actual increase in wealth itself. It is just a shared illusion, in other words….

According to the only theory we know, as supply increases – ceteris
paribus – prices decrease. In this case, as [those green pieces of paper] increase each one represents less and less wealth. The more pieces of green paper, the less each one is worth, in other words. And as we understand the earthling’s current delusion, they will intentionally increase the number of pieces of green paper until they go down in value. Yes, that is the purpose too, not only to put more ‘money’ in consumers’ hands…but to put out so many pieces of green paper that they go down in value. Why? They want to make sure consumers won’t be tempted to save them. Weird, huh? But it’s just another peculiar feature of the present dementia universalis on Planet Earth; humans believe they will all be richer if people spend their money, rather than hold onto it. Of course, every one of them knows it isn’t true; but they believe it anyway: that the more they consume their wealth the more wealth they will have. Like we said: super weird….

As we said, the U.S. government is determined – ‘hell-bent,’ some would say – to keep consumers spending those little green pieces of paper. They have a plan to bring this about – at a cost of a trillion or so more of them. If this plan does what they hope it will do, prices will begin to rise. In fact, almost all asset classes will rise in price – especially gold. Shrewd investors will seek protection from inflation by buying gold – causing the price of the yellow metal to rise.

If the plan fails to work, on the other hand, the feds will continue
emitting pieces of green paper, which will eventually call into question
the value of the paper itself. Either way, probably the surest bet on the blue planet is that the price of gold will go up.

(Why should only shiny golden rocks go up? Why not one black or white ones?)

Source: Excerpts from The Daily Reckoning, January 6, 2009. The Daily Reckoning is published by Bill Bonner chief financial advisor of Agora Financial and friend to aliens. Visit www.dailyreckoning.com to read more.



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