Category: Bill Bonner

Bill Bonner on bailing out the U.S. debt business

In today’s, Bill Bonner asks if business in America is real or simply monkey business:

We’re enjoying our vacation but we can still take a minute to reckon. And what we’re reckoning with is a growing awareness that the U.S. boom is a flim-flam…and attempts to keep it going are a menace to genuine prosperity.

“Plunge Protectors on the job,” begins an article in the NY Post. Fortune Magazine describes Wall Street as “Bailout City.” “Did Countrywide get a hand from the Fed?” asks another headline.

Some financial commentators – including our old friend Marc Faber – are beginning to see the Fed’s emergency rate cut last Friday as “Bernanke’s first big mistake.” He panicked, they say, and took the Fed in a direction it shouldn’t go. Instead of holding the line against inflation, the Fed is now bailing out Wall Street financiers and speculators.

Where the Fed is headed is the direction Wall Street wanted it to go. Cutting rates suddenly, the Fed has come to the aid of speculators and the financial industry. Doing so, it signaled that it offers what used to be called the “Greenspan Put” to investors – the assurance that it will always provide money on easy terms, when it is needed.

When do speculators need a helping hand from the Fed? When they are losing money, of course. And when do they lose money? When their bets turn out to be not as good as they thought they were. Why would the Fed want to protect speculators from their own mistakes?

Ah, dear reader, you must be either naïve…or a true capitalist. Otherwise, you wouldn’t ask such a question.

There was a time when the business of America was business. Americans made things and sold them at home and on the world market. General Motors (NYSE:GM) was our most important industry. So, what was good for GM was good for America.

Now the business of America is debt. Americans buy things they don’t need with money they don’t have. Financing debt – corporate, hedge fund, subprime, prime, mortgage, LBO, government – is our most important industry. So what is good for Wall Street, the reasoning goes, is good for America.

My comment: It will be next to impossible for the Fed and Wall Street to escape blame for causing and exacerbating this bust. History will show as they got more desperate their actions became bolder and more obvious for all to see.

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