Sunday, September 07, 2008

The Fed Just Bought Two More Businesses: We're Dead Meat!

The Fed took over Fannie Mae and Freddie Mac today. That means they are now running them and “infusing” capital. What does that mean? Where do they get the money?

The Federal Reserve System is a private business run by the banks of this country. They can do something we can’t (that is without going to jail). They can create (print, whatever) money and charge the rest of us to use it. Even though the titular head of it is appointed by the President… big deal! He or she works for the banks.

So whether they put money into Bear Sterns, or these two losers, they still have to create the money to do it with their magic wand.

Call it what you will, bond sales, whatever. It is simply Fed Magic.

What does that mean to us? We have to foot the bill, as always. How? We will have to live through another round of inflation and I guarantee somewhere there will be higher taxes. Of course, inflation is a tax, on everybody, not just the wealthy.

Just as Volker did in the 70’s by buying worthless bonds here and outside of the U.S. to increase the money supply so that by 1980 inflation was in double digits and interest rates were close to 20%, we’re doing the same now investing in losing companies (and a lot of other things). Hold onto your hats, here we go again.

Let the losers die. Someone will buy them and run them correctly. We have to quite trying to support failing businesses. That includes Amtrak and the airlines. The shareholders made their dividends, now they can take their lumps!

I could use some free money. Do you think they could wave their wand my way?

The Hammer

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