Why washington "Privatize profits, socialize losses" Politics is so bullish for gold
Since when have American companies operated with a network?
From now on, apparently.
Our entire free enterprise system, both sides of that coin, always represented an opportunity to succeed beyond our wildest dreams … as well as fail like never before. It’s a market dynamic that has worked amazingly well – success and failure remain extremely strong motivators.
In fact, when it comes down to it, the fear of failure on this day of relentless media attention may be what drives a person or company the most.
But that fear, at least for an elite few, has gone the way of 8-track tapes, slide rules, and big cell phones. Today, Washington has put the “too big to fail” label on certain large corporations … although nowhere does it say that American taxpayers can also participate in their profitability, when those companies finally recover.
Not that we really accept a corporate brochure. For most red-blooded Americans, that would come very close to socialism. But the inequity of “privatizing profits while socializing losses” should affect anyone with a family, a mortgage, gasoline to buy, food to put on the table, and no guarantee that their success will always be backed by a rich uncle.
Use socialism to rescue capitalism?
The insightful expression, “privatize profits and socialize losses” comes from someone who knows a lot on the subject. Nouriel Roubini, a former senior adviser to the US Treasury, observed that Washington’s bailout plan for Freddie Mac and Fannie Mae is “socialism for the rich, the well-connected, and Wall Street; it is the continuation of a corrupt system. where profits are privatized and losses are socialized.“
Roubini is not the only one sounding the alarm. “When I read the newspaper yesterday, I thought I had woken up in France,” stated Senator Jim Bunning of Kentucky. “But no, it turns out that socialism is alive and well in America. The Secretary of the Treasury is asking for a blank check to buy as much debt or shares of Fannie and Freddie as he wants. The purchase of Bear Stearns assets by the Fed was likened to amateur socialism. to this. “
Still, the prospect of Fannie and Freddie failing defies imagination. The two represent about $ 5 trillion in mortgages, which, put in some perspective, approximates that of Washington. full debt. Both companies, in fact, may have mutated into something that is “too big to fail” and might well deserve special consideration. Still, the federal government did not hesitate to embarrass us taxpayers for at least $ 1 trillion of their troubles.
Let’s try to frame this image more clearly. As private companies, Fannie and Freddie were able to make huge profits on its way up making easy mortgage money available to unskilled home buyers (thereby inflating the housing bubble) …today, after the rescue, both corporations enjoy business almost as usual, as if nothing happened … and since you and I basically co-signed for them, these people will not have to stay up at night worrying about their losses on his eventual way down.
This is how a couple of private companies are living the American dream.
“The size of the Fannie Mae and Freddie Mac bailout could easily exceed a trillion dollars. But Congress has absolutely no understanding of what is about to happen,” warned analyst Porter Stansfield.
The antidote to inflation
The consequences of this and other devastations for the economy are not easy to calculate. On the one hand, as banks lose large amounts of money through customer defaults, foreclosures, and bankruptcies, deflationary forces are set in motion. On the other hand, Washington is infusing banks and the economy with at least that amount of money, which obviously has a inflationary impact.
Regardless of how it all plays out, fear, mistrust, doubt, deflation, inflation, and war all influence the strength of gold. “Notice that gold prices continue to rise, even accelerate, as the US economy enters a recession and then a depression, as inflationary and deflationary forces fight each other like two vultures fighting over which one to devour the most. juicy from the corpse, “stated MarketOracle. Alex Wallenwein from .com.
The remedy for deflation
As a counter-inflationary investment, gold plays an almost legendary role. Witness how you keep up with and even anticipate rising oil and food prices.
But gold can also shine in a deflationary world.
During the Great Depression, the deflationary Great Depression, the precious metal was in high demand both from banks (seeking to cover explosive purchases and transactions by customers with paper) and from people who wanted to secure a deposit of value during that terrifying economy.
The demand was so high, in fact, that Washington decided to end the gold standard at $ 20.67 an ounce (while confiscating privately owned gold and halting the issuance of gold coins) and then reverted to a fixed price of $ 35 an ounce for the precious metal in 1934 … all of which meant that the now-illegal-to-own gold bullion had effectively risen 69% during the first five years of the depression. Other forms of gold also flourished. Shares in Homestake Mining, for example, rose from $ 80 in October 1929 to $ 495 a share in December 1935 with a 518% return, another reflection of how people in the depressive era yearned for the precious metal.
What about non-precious metal stocks? They headed the other way. Those who own stocks saw the typical $ 10,000 portfolio sink to $ 3,600 in the depths of the 1935 depression.
Does that mean you should avoid the gold because the government could confiscate it again (thanks to a more rebellious lawsuit)? Not if he owned collectible or rare gold coins. The actual language of the Roosevelt executive order was that “gold coins that have a recognized special value to rare and unusual coin collectors” were to be exempt from forfeiture. That would also be the case today.
So, no matter what lies ahead (inflation, deflation, or some hellish combination of both), you would probably do well to make your portfolio root diversification of gold. That’s especially true if we find ourselves in the unhappy situation of co-signing more troubled banks.