Ben and Hank Want Godhood....

Todays big story is that Ben Bernanke and Hank Paulson are trying to get a $700bn blank cheque from congress in order to bailout their criminal friends on Wall Street. Understandably, this isn't going down too well with the american taxpayer. It's a lot of money to be paying the interest off on for the rest of eternity.

It's a lot of money to put your own children and grandchildren into debt for. Many commentators are outraged at the proposal, senators are huffing and puffing about it, the blogosphere has gone purple with rage, Mr. Denniger the ticker guy has put his best suit on, other bloggers have caught trains to DC to go and protest in person. The outlook is uniformly negative from almost all sections of the population that aren't bankers.

So - likely outcomes from all this -

1) They get the money and dictatorial powers. The senators will get bribed. The media will get distracted by some other event. The ardent protestors will get told to DIAF. People will be very, very cross indeed....but what are they going to do?

This means hyperinflation - how do you make money in hyperinflation? Well you don't, you aim to lose less than everyone else. What you do is hold non taxable assets until it's all over and then liquidate them and reinvest. It will also mean hyperinflation pretty much everywhere on earth because the dollar is the worlds reserve currency.

2) They don't get all the money and they don't get all the dictatorial powers or the senators add some dictatorial powers of their own to the proposal. Some minor aspect of the bailout plan is allowed by congress - they cycle "only" a few hundred billion dollars at a time, Hank Paulson gets only partial immunity and some scant oversight of his actions is done.

Same as 1), really but will take longer, because the powers once granted in a limited fashion will expand quite quickly by degrees.

3) They don't get the powers and bailout money. I hadn't actually considered this as all that likely until doing this list. What this means is that they will be asking for the powers again in a few days time and so on until they get them. As the crisis deepens, the lack of alternatives offered will mean that the powers will probably be granted out of panic.

If they never get them, then the banks will fail, including the Fed. Again this means assets you can hold onto and waiting for calmer times.

4) Incredibly unliklely imo - the outraged taxpayer gets a day in the sun. The proposal is rejected, the banks are made to confess all, bad banks go to the wall, there are no insider bailouts, the senators do the decent thing, the legal tender law is repealed, fractional banking is put back on the law books as fraud.....the good guys win.

Banking system implodes. And same again - assets you can hold onto until the world makes sense again.

5) Something really random happens, like an amazing new technology is invented that reduces the need for money or aliens invade...a black swan. With a black swan...who knows?

What's going to happen in all circumstances bar the black swan?

STATE FAILURE

Hyperinflationary, deflationary..banks survive, banks go under...central banks survive, central banks go under..all roads lead to a state failure. Not that the state will completely vanish, but what it will do is shrink to a fraction of it's current size. It needs to steal to live and it lives to order people to obey it's whims.....and currently it steals and gives orders at very low cost via the banking/inflation paradigm.

Remove that and it will have to go back to robbing people in person - higher risk, more cost, lower reward. This means a much smaller but more vicious government, less regulation, less control..the seeds for the next boom in fact!

Personally I think hyperinflation is the preferred method - the plans are all in place for a highly militarised rump state (Patriot act, civil contingencies act) that can protect the wealthy from the poor and hyperinflation will wipe out a lot of systemic debts like entitlement programs, pensions, healthcare promises, foreign debts......in fact I am convinced the whole thing has been planned that way.

'Course none of my stuff is investment advice, nor can I see into the future. I just extrapolate from past behaviour and can do basic math.