The 'revised' bailout bill failed. For 99% of citizens this is a good thing - the bailout was only going to treat the symptoms on Wall Street while ignoring the real problem - a bunch of Americans with too much debt. Two weeks of negotiation merely managed to turn a 3-page blank check into a 110-page blank check. Kudos to the House Republicans and Democrats who voted no. There are plenty of options that have a historically-proven chance of succeeding, this is not one of them.
I like Nouriel Roubini's HOME plan, though a Swedish-style nationalization would probably work too. In any event, the taxpayer should be guaranteed equity in the institution being bailed out. Astute observers will note this is exactly what Warren Buffett demanded when the Oracle of Omaha invested capital in Goldman Sachs.
Long Live the Bailout!
Bloomberg is reporting that the Fed has decided not to wait that the Fed has decided not to wait for our elected representatives to bailout the finance industry. They are going to 'inject' (aka print) $630,000,000,000 into the global financial system starting...now. I don't know why they'd shovel $630B through the backdoor instead of $700B. Maybe the willful violation of Congress' authority would be noticed?
Ben Bernanke is going to use the power of the press to defeat the nation's debt - by making the dollar worthless.
This kind of approach tends to piss off your lenders, like China, who may decide to stop lending. Let's hope other lenders do not follow suit because the US will default on its debt if they do.
What can/should you do?
- Pay off all credit-card debt. Borrowed money is about to get expensive.
- Re-finance all adjustable rate debt to fixed rates. When your debt is at a fixed rate, inflation works to erase it.
- Sell large assets denominated in USD and move any cash savings to (currently) solid currencies: Canadian/Australian/Hong Kong dollars, the Euro is pretty good except the Euro-zone is about to have its own subprime meltdown. You can do this at E*Trade; it's easy. Remember, just as inflation eats away at your debt, it eats away at your savings.
- Invest in commodity indices like energy (RJN) and metals (RJZ). The nice thing about investing in energy commodities is that it will offset what you are paying at the pump. Energy commodities are also priced in dollars, so they will increase in price with inflation (as will gas prices).
If you want to know more, I highly recommend the following:
Economist blogs:
- Nouriel Roubini's Economonitor
- Greg Mankiw's Random Observations for Students of Economics
- Brad DeLong Grasping Reality With Both Hands
- Peter Schiff - Crash Proof
- Jim Rodgers - Hot Commodities and A Bull in China
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