THE ALCHEMIST by AL THOMAS
BAILOUTS AND BAND AIDS
Before we get into this discussion let’s see if we can get an accurate
description of what a bailout is and what it is supposed to do.
The central government of a country finds it owes more money
than it has and must get enough funds to keep it from going bankrupt. It has
several options.
1. Earn it. That is something governments don’t know how to do.
2. Sell assets. Government buildings may be sold. The buildings were
bought with taxpayer money so this is another form of theft from taxpayers.
3. Land may be sold or leased. Mineral rights may be granted.
4. Borrow it. This they are all good at. They print a piece of paper. It is
very official looking and say they will give the money back at some time
in the future. They agree to give the bond buyer a small amount of
money every period of time called interest. Quarterly, semi-annually,
annually or they will sell the bond at a discount to the face amount.
5. They create (print) money that is needed. That dilutes the currency
then in circulation and causes what is called inflation. The more that is
printed the less the individual currency unit will buy. The public does not
realize that their purchasing power is being silently stolen.
6. Raise taxes.
We have to look at how or why the central government got into this mess.
Wars, welfare, political favors by politicians with no conscions.
Money that has been printed with no asset backing of gold or silver is fiat
currency. The U.S. “dollar” is fiat currency. There is no definition of what
a dollar is.
When the government borrows or prints initially it plans to repay. When
it cannot pay it merely borrows again or prints more. It finally gets to a point
where there is so much debt they know it cannot be repaid, but they keep
on borrowing and printing. they call these by fancy names, but they are
bailouts.
This is nothing new in history. Twenty years ago Japan went bankrupt, but
instead of letting the bond holders go broke they started borrowing. Each
borrow to pay the interest was a bailout, a band aid since it could not cure
the problem. It has happened 13 times over the past 21 years. Their citizens
have been buying bonds that have become worth less and less every year,
Greece has been kept afloat by never-ending borrowing. Their politicians
continue to borrow. They do not understand that the spending will eventually
have to stop as other countries are not going to put up with their madness
forever, Those loaning the money are equally stupid.
The U.S. has borrowed itself into a hole that is a combination of Japan and
Greece. The band aids in the form of loans, bailouts and fiat money printing
always come to a drastic end.
We have come too far to be able to repay. There are no band aids big enough.
Politicians will not fix it. There is no solution. Sorry.
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Copyright 2011 Williamsburg Investment Co. All rights reserved. Reprinted by permission.
