In Come the Feds After the Bubble Burst

What a wonderful time to be alive! Never has it been easier to feel superior to our fellow man! So many dopey ideas…so many preposterous delusions! So many fools…so eager to part ways with their money!

We have to pinch ourselves occasionally…and remind ourselves that it is real.

Yes, after the real estate bubble burst, we thought the fun might be over. But no! In come the feds. As you know, what brought about the housing bubble was a sort of madness that caused people to do the damnedest things with their money. But now, the feds are doing even stranger and crazier things!

Actually, we were happy to see the bubble blow up. Spending more than you make is hardly a formula for wealth-building. All in all, we figured our countrymen would be happier, over the long run, if they started saving their money rather than squandering it. Besides, we liked seeing Wall Street getting whacked – those clowns deserved it.

The savings rate in the United States is rising quickly. We reported the falling balances in credit card debt last week. And the last figure we saw showed the savings rate had jumped from about zero to over 3%. Our guess is that it is headed back to about 10%. That’s about where it is “supposed” to be.

But thank God for the feds. While the imperial citizens sober up…their government builds a still. While citizens save 3% of GDP, their government spends 15% – and more.

The feds’ budget deficit for March alone would have been enough for an entire year during Reagan’s…or even Bush’s…term. At $196 billion, it is the monstrous fruit of crashing tax revenues and soaring government expenses.

Just a few months ago, we were talking about a $1 trillion budget deficit. When the discussion began, most people refused to believe it. How could the government – in good conscience – spend $1 trillion it didn’t have? Here at Markets and Money, we guessed that the deficit would go to $2 trillion. Not that we’d done any calculations…it just seemed to us that people consistently underestimated both the downward pressure from the bear market and the upward pressure from the politicians. The bear taketh away. The jackasses giveth. Well, at least they’re trying, right? Of course, we’d all be a lot better off if they didn’t do anything. But then, it wouldn’t be so much fun to watch.

The total committed to this bailout campaign is now said to be about $13 trillion. Let’s see, that’s more than $100,000 per family. Better start working on your own ‘personal bailout’ sooner, rather than later.

It’s the “Theft of a Nation” says Stewart Dougherty:

“The United States of America, or, more precisely, the American people, are said to own 261 million ounces of gold, supposedly stored in the same Fort Knox vault that Goldfinger found so appealing. At $1,000 per ounce, the people’s gold has a value of $261 billion dollars. TARP 1 alone has cost 270% of the entire value of that singular, tangible American asset. The total $13 trillion bailout cost thus far is 4,980% of the value of America’s gold asset. Fort Knox has been robbed…”

They’re squandering $13 trillion…or nearly 49 times the U.S. gold supply. But heck, it’s worth it. The whole thing is very entertaining now…and will be hugely instructive in the future. When this is over, the next two are three generations are sure to say: well…we won’t do THAT again!


We are still a bit stuck on the $13 trillion price tag for these bailouts.

Makes you wonder where former Fed chairman Paul Volcker, who was tapped back in November by Obama to head the President’s Economic Recovery Advisory Board, is in all this.

Our friend Barry Ritholtz was pondering the same thing in a post on his blog, The Big Picture.

“If you want to know why the administration’s approach to the credit crisis has been lacking, and why the Obama bailouts looks surprisingly like the Bush bailouts, consider this: No Volcker.”

Barry mentions an interesting WSJ piece that points out that Paul Volcker was put at the head of an advisory board that has yet to meet. Says the WSJ:

“‘Paul was surprised’ at the failure to consult him, particularly on issues of financial rescue after his dominant role in resolving financial crises in the 1980s, says one person who has spoken to Mr. Volcker recently.”

“To review,” writes Barry, “You have access to the greatest Fed chief in history, and you are choosing not to use him during the greatest crisis since the Great Depression.”

Our sentiment exactly.

A dear reader poses a question:

“…if you were a single mom, with a little cash & metal in a QRP, who had cut her expenses very, very low, who is staying home to take care of her own children and do contract work to get by AND save a little…what else should I be doing? Move to the country or should I move out of the states?

“Invest in shoes and underwear for my kids now pre-inflation, prepare for self defense, food storage, learn to grow vegetables…I am doing these things, but I just can’t get myself to feel ‘safe.’ I am scared witless because I am afraid, not of a depression…that I can survive…I grew up really poor, but I am scared of the chaos that will ensue and the political/military escalation that will follow that…now that is what keeps me up at night

“What would you tell your Mom or your sister to do? I am really not feeling very well about all of this. How can I get to where I feel safe? I am thinking maybe the Appalachian Mountains or something. The government terrifies me.”

What would we say? “Hmmm…” we would probably begin. “As to the financial crisis, we can provide some ideas.”

But our reader seems to have already gotten the gist of them already. For the benefit of other readers, the central banks of the world have failed to do their jobs – to provide the world with sound, reliable money. This means that we each have to be our own central banker – stocking a supply of gold against the inevitable collapse of paper currencies. It is as if we couldn’t trust the power company to provide electricity. We have to have a portable generator on hand – just in case. We like to have some gold…just in case.

But our reader has an even deeper fear: that we can’t trust our government to provide security either. Security is the main reason governments exist – that, and larceny. Nevertheless, they don’t always do a good job of providing security. In fact, they tend to fall down on the job often – usually when security is most needed. Most of the time, not much security is called for. People get along, more or less. Most people wouldn’t kill their neighbors – even if they thought the cop on the beat could be bought. But occasionally, they get an evil urge and you need someone to step in with a blackjack and a pair of cuffs.

But government can be a source of insecurity, too. One security team attacks another from time to time. And occasionally, the security providers attack the people for whom they are supposed to be providing security. Here in Argentina, for example, there have been few genuine threats from the outside – at least not since the emperor of Paraguay, goaded by his Irish mistress, made a mad bid for control of the country in the mid-19th century. But in the 1970s, the government decided it had quite a few people it would rather not have. They were “disappeared.” No doubt, many who were not disappeared were glad to be rid of them. They were troublemakers. But our reader seems to be afraid that she may among those who are disappeared from the United States in the next go-round of violence…or maybe just that she will be caught in the crossfire.

The odds are probably against it. But who knows?

“America: a super-power no more,” says a headline at the Christian Science Monitor. Empires come and go. They don’t always go easy.

Lately, we’ve been thinking: There are only three important decisions you make in life: what you do; whom you do it with; and where you do it.

One final thing. We’re headed up into the mountains. You won’t hear from us for a week, but we leave you in the hands of Kate Incontrera and the rest of the DR contributors.


Bill Bonner
for Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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