Sunday, January 4, 2009

It's a Madoff, Madoff, Madoff World

I must say that the whole Bernard Madoff Ponzi scandal has me more fascinated than anything else these days. True, it is simply a financial version of a bus ploughing through a crowded city park. However, there is something here about how focused our trust has become. Bitten by a jaded bug, one feels constantly betrayed and searches for that one honest man or woman to entrust everything to without question. Some of the people who gave Madoff millions had little or no personal communication with him. His membership in the right clubs, his former title as president of the NASDAQ and the other people who would give him money provided an almost unbreakable wall of respect that allowed him to con for so many many years.

As more financial bodies continue to float to the surface, the need for reason in finance and public life has never been greater. Yet another stimulus, this one packed with pork, like a minor league hall of fame, can do very little. So we can't really expect much help from a flaccid, aged political class, can we? Even viewed brightly, Obama has little chance to move the entrenched political class. He could term limit them out, but this would take years and be of little immediate benefit. But the financial situation makes the political chaos look like the proverbial day at the beach.

Is it really that bad anyway ?
Class let's review
  1. Unemployment probably going to 10-15% maybe the highest since the Depression
  2. GDP set to go down 5-6% for 4th quarter, that's Monster Big!
  3. Consumer confidence the lowest since 1981
  4. No more rate cuts since FED is at 0%
  5. Government taking a stake in almost every major bank
  6. Credit markets still totally turgid
  7. And last and worst, Everybody, I mean everybody in America is demanding government cash. Rescue us, Uncle Sam, from our stupidity!!

If you lost money with Bernie, you'd want to be rescued too, but alas the coming Ponzi scheme will dwarf Bernie. Why? because this scheme, foisted on us to "create jobs" and "save our economy" will involve every last soul in this country. They'll be no chance to keep your money from this Ponzi scheme.

There are only two ways out of any financial distress: inflate or contract. Contract would mean cutting the money supply and you may have noticed the jellyfish in Washington can never cut any program of size. Inflating means printing money, lots of it. The problem here is obvious: the money is worth less. But the government has pumped out billions since this whole mess began, you say, and no inflation? Ahh, but inflation takes time, especially since the most of the money allocated so far has already disappeared down the bad loan hole. Rest assured, the government will always over do it. Greenspan did it in 2002. Since the metrics of the economy can only be seen after they happen, the Feds always pushes the peddle too long. The worst part, though, is the FED must attract money once all this bogus paper is floated. How do you do this? Raise interest rates and of course, the weak economy sputters once more. The double whammy of stagflation rears its' hideous head. I truly hope I'm a dog barking up the wrong tree. If I'm right though, we might as well have elected Madoff president for all the good it will do.

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