Sunday, September 28, 2008

Bailout Needs A Bailout

Looks like Bush's bailout for the US economy needs a bailout.

The fact is that the US economy is a bubble overdue to burst. Just printing another $700 billion - based on little if any real wealth - is not going to solve anything. It will not restore confidence. It will only inflate the dollar.

Inflating the dollar might help a bit with exports... as long as prices do not go up as quickly as the dollar value goes down. But once the prices do go up, then the only effect will be that the purchasing power of US consumers will be reduced.

When consumer purchasing power is reduced, companies sell less. To increase or even just maintain profit, companies must offset their loss of income. For that purpose, they adopt cost-cutting measures like layoffs, reduced bonuses, hiring cheaper labor in another country, and so on. And that further reduces the purchasing power of US consumers.

Thus the downward spiral will continue.

Part of the solution to the problem is to maintain a more simple and transparent economy. This can be accomplished by tying the dollar value to bullion deposits and closing all speculative markets. But those measures are also only temporary stabilizers.

There is still one great problem to overcome. That problem is the ever-increasing gap between the rich and the poor that is inevitable under capitalism - a system where the individual's right to hoard vast portions of a finite aggregate wealth is largely unfettered.

The truth is that there is no fix for capitalism. The truth is that capitalism must be discarded. And so the US is fast heading toward a major social transformation. 1776 was a war of independence. Soon we will witness the real American Revolution.