Failure of bailout

WHAT HAVE YOU DONE!!! I was shocked when I saw this. Even though I am nearing the completion of the secret project and should be focusing on that instead, the implication of this refusal is too big for me to remain calm. This is very bad.

The worst of my predictions are coming true one by one, the failure cascade has been set in motion and with this decision, it can no longer be contained. We are entering a period of cash hoarding and capital preservation. Basically, the denial of the $700 billion cash injection means one thing: Freezing of all loans and credits.

Unlike what TVs, DIGG and REDDIT or any news outlet has been pitching to the population. This bailout is not about punishing wall street or investors who gambled. It’s about preventing them from going into cash hoarding mode so that normal people like YOU AND ME can continue our little life like normal. If all you can see right now is how to teach them a lesson… well, understand that the lesson will come back to kick you in the butt too. You cannot decimate the wealthy without the poor taking an even greater sacrifice.

Before that, please have a look at this video it explains the current monetary system. In sum, the bankruptcy rate is maintained at a low level by the annual creation of credit (inflation) to pay yesteryear’s loan interest.

For the file and rank employee

That said, here’s how my train of thought goes when thinking about a freezing of credit market. Loans are made to businesses to facilitate the day to day operation of a company so that they can work on 120% of the capital and hire more employee to expand the business. When you take about that 20% of leverage of most companies, they will be forced to come up with a way to pay the loan back (as banks stops lending) or in a desperate situation, accept inexcusable terms to keep themselves from having to pay the total capital back (usually resulting to bankruptcy in the end).

The end result of this means that pink slips are going to be delivered and people’s heads will start to roll. For most small businesses, the owners can usually just fold themselves without any repercussion (If it is incorporated) because all the loans are entitled under the corporation entity. Maybe less easy on the big business, but it will end up being the same thing if this continues long enough. The ultimate losers in the situation are your file and rank employees.

Now the firms that actually have enough cash hoards to weather this will not be hiring new people due to a reduction in demand of material goods from a reduction in employment. Even healthy companies that did not borrow to expand might close down due to a lack of demand. The question you have to ask yourself is this am I ok with losing my job?

The responsible savers

You will have to start playing the “Guess which bank is going to fail next” game. Chances are, it’ll fail and when it fails, you are only insured for $100,000. Ask wallstreet and see how many of them see their $1 million reduced to $100,000 in one night.

Pensions? Guess what, they invest in all these big banks that just failed. Why don’t you call up your fund manager and ask how much you’ve lost and if you should keep on working because your pension fund is now worth nothing.

RRSP? 401k? Yep that got decimated too. Well, that is if you invest in mutual funds anyway. If not, then you also have to play the “Guess which bank will fail next”. Rest assured that when the cascade of failures start, FDIC will be tapped out of their reserves and they will have to go to the government for an infusion of money… Oh wait, you just blocked that $700 billion infusion of cash. Tough luck then.

The home buyers

Ditto. You were already in shit, now the fire sale of properties will make you go into even deeper shit.

The winners

The “living pay check to paycheck” crowd. No savings no anything and converted all their cash to material objects. Which is probably the best investment strategy ever at this moment.

Return of the troops

I don’t think it’s wise to bring back your troops during a great depression. However if things goes according to schedule, the time for troop’s eventual return trip to home will coincide with the peak of the depression. Get a bunch of hardened trigger happy soldier coming back home with nothing to do and you get dissent, resentment, not to mention over breeding.

Student

Nope, you are not insulated either. That student loan that’s been supporting you? Well, you won’t be getting one next year and since you can’t go to school without the loan, you will eventually become a non-student, at which time you will be required to pay it back.

The worst case

2nd Great depression is about 70% likely and riots about 50% but since my worst case scenarios have been coming true, here’s my recommendation. Stock up on food, buy a shot gun with lots of bullets and convert the rest of the money into gold for the eventual return of civilization.