The Launch of the Titanic

Oh, God, not another "financial" piece... but please, bear with me.

On May 31st, 1911, the Titanic slid down the greased rails at the Harland & Wolff shipyard in Belfast. That day, it was impossible for anyone to envision the fate that awaited it, less than a year later. On November 3rd, 2010, the QE2 slid down the rails of the Federal Reserve, greased by the incompetence of Benjamin Bernake, the fiduciary misconduct of the Obama administration and the criminal complicity of Congress. This time, it's possible -- no, it's unmistakeable -- to see the iceberg "right ahead".

The QE2 in this case is the second round of so-called "Quantitative Easing". What this boils down to is that the Federal Reserve has decided to "print" more money in what they believe is a move that will "promote financial growth". In essence, the Federal Reserve Chairman, Ben Bernake, decided to print up more money on the theory that this will spread more money around and therefore stimulate the economy. Sounds good on the surface, right? "But wait," as they say, "there's more!"

What Bernake and the Fed are trying to do is Keynesian economics. They are trying to spend their way out of debt. This doesn't, as I've explained before, work at all. The idea is completely discredited. It's made even worse because the value of "a dollar" does not have any intrinsic value -- it is not tied to a commodity. Instead, it represents the "good faith" of the United States.

These days, that "good faith" is sorely lacking. The economy of the U.S. is in the dumper and printing more money, as anyone with a fifth grade education (excepting, of course, those who teach at Princeton) can deduce, simply devalues every dollar even further.

There are two major problems, here: illiquidity and insolvency. I don't intend this to be an Econ 101 course (if it were, I'd invite Mr. Bernake) but I'll give a quick explanation for the layman (me!):

• Illiquidity is when you don't have "cash on hand". Think of this as when you own a car (without a loan) or a washer and dryer, but you don't have cash to buy groceries.
• Insolvency is bankruptcy. It's when you owe even on your car and washer/dryer. You don't own anything, anymore. Your debt is greater than your total worth.

Thanks to the policies of the Obama administration and a Congress of accomplices, the United States has a debt that has exploded. The candidates made promises in 2008 to anyone who would listen. They promised "money for nothing". They promised "the government will take care of you." All you had to do was vote for them, then sit back and collect your "Obama Money." Plenty of people, inculcated by over a half-century of burgeoning federal nannyship bought this hook, line and sinker.

While fiscal conservatives warned that there would be a day of reckoning, shouting "ICEBERG! RIGHT AHEAD!", the liberal intelligencia and administration "Goebbels" did their best impression of Captain Smith, increasing speed into the ice field and rearranging the deck chairs. They started handing out money (as my father would say, and keeping in the theme of this piece) like a pack of drunken sailors, increasing the debt from $869 billion in 2007 to $2.2 trillion! Just to put this in perspective, the QE2 ("our" QE2 in this story) is $850 billion.... that's nearly the ENTIRE debt from 2007!

So here's the issue - you can solve illiquidity (at least in the short term) by converting something to cash. The Federal Reserve does this not by pawning real goods, but by printing more money. But this "solution" supposes that you'll have the cash coming in to replace it so you can get your goods out of hock. It flat out does not work if you are insolvent nor does it fix insolvency.

If you don't own anything yourself then you can't hock it; and in the case of the United States, we are insolvent. So printing more money (pawning goods) does nothing! It simply causes us to owe even more and go further into debt.

To put it very simply in our analogy, Bernake is applying full power to the engines with the iceberg looming.

But we do have a chance, yet, to get the ship of state out of harm's way. A new Congress has been elected. It's up to us, the passengers, the voters who put them there, to hold their feet to the fire. It's not good enough to "compromise" -- "we'll just turn the wheel a little and we'll slow down a few knots" -- instead what's needed is full rudder and all astern on the engines. That's what we sent these people to Congress to do and its up to us to make sure they do it.

If we don't, then we may as well start singing "Nearer, My God, to Thee" because there aren't enough lifeboats to go around.

Reminder: If you're getting this via RSS or Email, check the Blog at http://wethepeoplegovern.blogspot.com for embedded links that may be omitted.

A Modest Proposal

This was passed to me by one of my readers. I wholeheartedly agree. Much like King George, our Congress sees fit to pass laws to which they, themselves (and their special interests) are exempt.

It's time to change that. I won't detract by commenting further, but I present the letter, in total, hoping some of you will pass it along.

This will take less than thirty seconds to read. If you agree, please pass it on.

An idea whose time has come.

For too long we have been too complacent about the workings of Congress. Many citizens had no idea that members of Congress could retire with the same pay after only one term, that they didn't pay into Social Security, that they specifically exempted themselves from many of the laws they have passed (such as being exempt from any fear of prosecution for sexual harassment) while ordinary citizens must live under those laws. The latest is to exempt themselves from the Healthcare Reform...in all of its forms. Somehow, that doesn't seem logical. We do not have an elite that is above the law. I truly don't care if they are Democrat, Republican, Independent or whatever. The self-serving must stop. This is a good way to do that. It is an idea whose time has come.

Have each person contact a minimum of Twenty people on their Address list, in turn ask each of those to do likewise. In three days, most people in The United States of America will have the message. This is one proposal that really should be passed around.

Proposed 28th Amendment to the United States Constitution

"Congress shall make no law that applies to the citizens of the United States that does not apply equally to the Senators and/or Representatives; and, Congress shall make no law that applies to the Senators and/or Representatives that does not apply equally to the citizens of the United States ."

If you don't have twenty, pass it on to whatever number you can.

Reminder: If you're getting this via RSS or Email, check the Blog at http://wethepeoplegovern.blogspot.com for embedded links that may be omitted.