Thus far no bailouts however massive have been big enough to get the credit markets to lend on a grand scale again. As a result our financial system in chaos.
Why won't they lend? Despite the excuses you may have heard, the real reason is because of a lack of integrity in the system. No-one trusts anyone else as a result of so many giant firms, like Fannie Mae, Freddie Mac, Citigroup and others having falsified their accounting.
Or like Bank of America, didn't disclose until after the fact the gargantuan losses of Merrill Lynch whom they acquired, nor the multi-billion dollar bonuses Merrill Lynch paid itself. Then it turned out Bank of America also had previously undisclosed enormous losses.
Recently, there have been huge asset bubbles and loan bubbless and now no-one knows for sure what's real or what those assets are actually worth. Nor do they know if all the liabilities and losses have been disclosed or whether the borrower has the capacity and the inclination to pay them back.
But it gets worse. The U.S. government also falsified its accounting. For example, last year it declared a $455-billion deficit, a stunningly big number. Yet it was actually far larger, potentially twice the deficit they declared.
How could that be? No-one holds them accountable. They borrowed their monumental shortfall from the Social Security trust fund and did not declare it. Instead, they called it an "intragovernmental transfer." This allowed them to hide from the public how bad things really are and it endangered Social Security.
Now the U.S. government is saying it could have trillion dollar deficits for years to come. However, it doesn't have the borrowing capacity to obtain the money and has begun simply printing it. This puts the dollar at risk for there is nothing behind it except people's confidence it will hold it's value.
If too many dollars get printed, it could lead to rampant inflation and the destruction of the value that people worked so hard for and devastate the dollar as the preeminent global currency. Other nations could become fearful and stop lending to the U.S. government unless they can be paid back in strong currencies or in tangible assets including gold.
Now you know the magnitude of the potential exposure. That's why it's critical that integrity is restored throughout the financial system. And also that the U.S. government gets its financial house in order.
It needs to slash spending to be in line with its revenues. Military spending must be cut dramatically and fast, and rather than expand or continue wars it must quickly get out of them. And no more "stimulus" or bailout programs when we can't afford them or any of the government's other reckless spending.
If President Obama and Congress don't soon put America's financial house in order, your currency will eventually have little value. To protect yourself in case they don't, if you can afford to, please buy some one ounce gold coins.
And if you can affort to, please invest in tangible assets such as sharply discounted or foreclosed homes, condos and apartment buildings, preferably using cheap long term fixed rate borrowed money if you can get it. Because real estate values are falling, it's too soon to buy, but an excellent time to learn about it.
I suggest you buy residential real estate because even in bad times everyone needs to live somewhere and will make it a high priority to pay their rent. Buy in primary home communities with good schools and low crime rates, near job centers and hospitals because that's where people prefer to live.
If like many people you don't have the money to make these investments, mutual investment groups will be organized to make them so people can participate with small sums. Please do your homework so that you know who you are investing with. In recent times we've all seen many frauds committed.
Here's the bottom line. Together, we will get through these hard times the worst of which haven't nearly begun and then build a far better tomorrow. Hopefully from the harsh economic lessons we will suffer, we will thereafter hold our government accountable and we will also reign in our military spending and end our military invasions as we become a wiser, more compassionate people.
Dick
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