Bailout Blues
Ever since Hank Paulson made his pitch for a $700 billion slush fund to prop up teetering Wall Street financial institutions, the wails from thousands of American advocacy groups have reached an ear-splitting fortissimo.
Most of these groups have spent decades working patiently to influence one or another line item in the Federal budget amounting to a few tens or hundreds of millions of dollars—money for education, environmental protection, public transportation, or health care. Many of these organizations are working to avert what they perceive to be a national calamity of one sort or another.
And now King Henry waltzes in, announces that the bankers have gotten themselves into a bit of a bind as a result of their own greed and stupidity, and insists that each American taxpayer immediately take out a loan for over $2,500 so that he can distribute the funds secretly, with no oversight, to a bunch of financial wizards who typically make several thousand a minute in salaries and bonuses--wizards who introduced us to the wonders of derivatives and adjustable-rate mortgages.
Sounds like a great plan to me. Why would anyone balk? Just think of the futility of spending a few billion of that treasure on things like building bridges or railroads, projects that might actually hire real workers, when we can instead buy up mountains of toxic debt from a bunch of bankrupt hucksters. Now that’s a real investment in our future!
Sorry for the sarcasm. It’s hard to resist. I’ll try to ratchet it down as I explain just what $700 billion means in terms of our nation’s energy infrastructure. America has about 130 million private homes, so that’s about $5,400 per home—not quite enough to put a one-kilowatt photovoltaic system on every roof. I use that as a standard, because that’s what my wife and I have on our own house, and it basically zeros out our electricity bill for the year.
Of course, that wouldn’t be the most practical energy use of the money: not every house is appropriate for solar. So throw in a few hundred wind turbines instead, along with a few billion dollars for research into energy storage technologies. One way or another, the country would be well on its way toward ending its dependence on fossil fuels.
Realistically, another few trillion would be needed to finish the job by rebuilding the grid (which desperately needs it) as well as the transport infrastructure. But most or all of that larger installment would come from industry, given the appropriate incentives and regulatory structures.
Everyone who understands energy, who grasps that oil is in its final days and that other fossil fuels are dribbling away too, who sees the vital necessity of ending carbon emissions given the climate cataclysm we face, or who worries about the ongoing geopolitical turmoil generated by competition for access to increasingly expensive oil and gas, agrees that the energy transition away from fossil fuels is the highest survival priority for our species at this moment in our history. But evidently there are those who see a greater need elsewhere.
Oh well, it’s only money.
Except we can't spend $700 billion on solar panels, or wind turbines. We can't even spend $70 billion. The manufacturing capacity does not exist to make all of these things in a reasonable time frame.
Many in sustainability circles call for renewables as though we can snap our fingers and they will appear in limitless quantities. The reality is far different. If we want to keep the lights on, and keep supplies moving, we have little choice but to do it the way we have, at least for the forseeable future.
DK
Not to mention the critical materials that would quickly be in very short supply. PV panels, for example, are 99% pure polysilicon, a very far cry from the delusion that you can just "melt some sand" as some solar advocates would have us beleieve.
The real tragedy is that more people don't read the work of ecologists like Howard Odum. He clearly understood that our society will undergo the same kind of natural succession that other complex ecosystems do.
Periods of fast weedy overgrowth are common when an abundant accumulation of resources is available. As those resources are depleted the overgrowth dies back to sustainable levels and the system transitions to a steady state of conservation and of building much longer lasting structure.
That transition needn't be painful, but it will happen, with or without our comprehension.
Cheers,
Jerry
Last stand of the status quo. Pretty painful to watch, since it represents the hold that the past has on all of us.
This is just more in a long string of mis-investments from the war in Iraq to suburbia itself.
This bailout is probably unavoidable. Paulson sat down with the head of the FDIC and they figured out how much the total would be to make whole depositors at failed banks ... and came up with $700 billion. May as well consider the money gone ...
My question is how this $700 billion will enter the economy. The federal government depends on tax collection and issuance of bonds for revenue. It does not issue currency as such. That is the role of the Federal Reserve System, which by the way is no more federal than Federal Express. Yes, the Fed is a consortium of private banks accountable to no one. The president does choose the members of the governing board, but from a very short list of approved nominees.
So, the government must issue $700 billion worth of bonds. Some one or some thing must buy them. If the Fed buys them, it simply conjures the money and gives it to the government in return for the bonds. Those bonds are now the “reserve” in the Federal Reserve. It may now lend currency to member banks according to the reserve requirements. That is to say, that $700 billion becomes $7 trillion added to the stock of money.
None of this money is ever meant to be repaid. It can’t be. It’s the money supply. However, just as it is never repaid neither does the interest obligation ever disappear. The bond requires an interest payment from tax revenue, your 1040. The currency backed by that bond is lent at interest. When the bond matures, one would think that would end the interest obligation. Unfortunately, more bonds are issued to maintain the money supply.
All of this has the effect of creating a viscous circle of ever more money brought into existence to service previous obligations and the interest. Inflation is an integral part of the system. Have you ever noticed that when people talk of the money value of something over decades they must inevitably correct for inflation? It also means that money, as a store of value is impossible without compound interest. Saving and debt are just two sides of the same coin, no pun intended.
To sum up the problem, we can say that our common currency is just a form of tradable debt. It is not a commodity as some would like to believe. There is a solution to this spiral of debt and issuance. If we were to restore to the Treasury the power to issue, the government, not a private corporation, could issue all the currency necessary to conduct commerce without an interest obligation. All bonds could be redeemed and all Federal Reserve currency could be systematically replaced with debt-free currency. The money supply would be protected. Next, we could eliminate fractional reserve lending. This would have the effect of ending the Federal Reserve’s monopoly on legal counterfeiting. Banks would be limited to lending only what they have and not what they conjure into existence.
Obviously, there are several hurdles to overcome before such reforms could be realized. Banking interests are firmly entrenched. People with little understanding of the problem can be easily swayed to oppose reforms by scare tactics. The biggest obstacle is the decades of mistrust of government sown by the corporate propaganda apparatus.
The $700 billion bale out is just one more symptom of a monetary system rigged to bleed the economy for the sake of the banking cartel. The two presidential candidates are running on a platform of change, but they’re never specific as to what needs changing. Their promises sound good, but don’t hold your breath. If the past is any indicator, we’ll get the same old scams with catchy new names. Entrenched interests will still hold sway. As an astute observer of things economic once said, “Until you change the way money works, you change nothing.”
If only the $700Bn was real. This money is being "created" for an accounting exercise. It is shown as a + in one column and a minus in another. It is being spent of imaginary wealth represented by numbers on a piece of papaer somewhere or more liley just a few bits in a computer memory. Now if they actaully had said spare $700Bn and released it on buying actuall stuff like solar and wind turbines, there wouldbe massive inflation as the market scrambled to drawn down energy supplies to produce it. When teh marklets found that they didn't have the energy available, the result has to be inflation.
I'm not saying that this package is a good idea as it just moves the deck chairs around again, but at least that might clear up a bit of space for the band to paly one last round...
dooberheim: that's definitely an obstacle but if that money were put in place, don't you think that industry would leap to fill the supply holes? If I knew there was a guaranteed market I would be on that like flies on shit.
Yes, the sorry state of this situation is difficult to deny.
However, the perspective presented here is clouded by the misconception that there are possible treatments for the terminal condition of industrial society.
The question is not whether this bailout will be a net benefit or a net detriment, for obviously, this measure will serve only to make the situation worse in the long term. In order to gain any understanding, the real question to be answered is "why" - why bother and why now shift the debt accounting from the central banks to the American public.
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