Last Winter, when I first started writing about the Mother of All Bailouts (MOAB), I predicted that the cost of the bailout would grow inexorably. Sadly, I was all too right. In fact, the scope of the MOAB is now much larger than I had predicted, early in 2008. The latest tally thusfar is an almost incomprehensible $4.28 trillion US Dollars.
But wait, it gets worse. In addition to bailing out bankers and insurance companies, more and more entities from outside the financial sector are lining up to the Federal trough. The TARP bailout set a dangerous precedent. There is now a big queue forming. It is the “economic victims” queue. It is a growing line of highly-paid whiners with sob stories. Here are some examples:
Lets start with the “Big Three” Detroit automobile manufacturers (Chrysler, Ford, and GM.) Consider these three articles: Detroit automakers are begging for a big chunk and What Will Happen if the US Auto Industry Fails? and GM Bailout Will Be Agony for Taxpayers.
Now, on to the airlines. We’ve already been warned that as many as 30 Airlines will go broke this year. I predict that passenger airlines in the US will be next to get a big bailout. And if the Pentagon gets its way, many of those carriers deemed “too big to fail” will be those that have a large number of planes in the US Air Force CRAF fleet. Nearly everyone, it seems, has a vested interest of some sort in the MOAB.
Insurance giant AIG is getting not one but two bailouts. The latest increment announced will be $40 billion. When will this end? I suspect that lots of other big insurance firms will be lining up for their “fair share” of the dough.
Here is a real stinker: Billions of US taxpayer dollars will probably be used to bail out foreign investors. Uncle Ben Bernanke must have warned: “We mustn’t offend our creditors…”
The States – Some 29 of the 50 states are reporting budget crises. Lo an behold, most of the hardest hit states are those with bloated Nanny State bureaucracies. No surprise there. The states that had the worst fiscal management, of course, will get the biggest share of the taxpayer funds. Those that were fiscally conservative will get nothing.
Municipalities – The Wall Street Journal reports: Cash Strapped U.S. Cities Seek Emergency Bailouts
What will be “the next shoe to drop”? I suspect that it will be some of the the larger public employee pension funds, such as CalPERS. Not only have they made some spectacularly bad stock investments, but many of them have also been playing contrapreneur in real estate investments (such as REITs) and have even dabbled in derivatives, such as CDO paper. Here, perhaps, is an early warning flag: Florida pension fund loses a quarter its value.
Another likely recipient of a reserved spot at the feeding trough will be “critical industries” in defense, bulk fuel, transportation, and telecommunications. If any of these approach a crisis; we’ll surely be warned, “there could be dire consequences…” Can you see how far this slippery slope extends, folks?
The Growing Queue of Beggars
Mark my words: The queue of banking, corporate, and government beggars will continue to grow. Once organizations see how easy it is to get dump truck loads of cash from Uncle Hank, many more sectors will join the queue. The American taxpayers will be thoroughly fleeced.
As I’ve noted before, these trillions of dollars must come from somewhere. Clearly, revenue from taxes, tariffs, and borrowing will not be sufficient. This leaves only monetization–the magical creation dollars out of thin air–as a solution. Experience has shown that monetization is highly inflationary.
The bottom line: Be prepared for a MOAB that will balloon, and then amazingly balloon still larger, in an orgy of bailout beneficence that is unprecedented in human history. Following on its heels will surely come consumer price inflation. The coming decade of economic depression will be marked by inflation will make the stagflation of the 1970s seem mild, by comparison. What I’ve outlined here is just about inevitable. William H. Macy, as “The Shoveler” in the movie Mystery Men said it nicely: “We’ve got a blind date with Destiny — and it looks like she’s ordered the lobster.”