Yesterday's business news coverage was about the Madoff situation - and it certainly sounds like a Ponzi scheme. That's where the principal invested by new buyers is used to pay previous owners a "return on investment." Obviously at some point there are not enough new investors to keep the scheme going. If you ever thought your bank was a conservative place for storing your wealth, just notice that some of the big names who bought into the Madoff scheme were UBS, and Bank of America.
Hidden somewhat in the day's coverage were reports that the housing price collapse may have more distance to travel. I found this chart on the internet and added some trend lines.
With Congress in a mood to toss money at the problem, $900 billion in addition to the previous $700 billion, with all of the attendant pork Washington infamously adds to such legislation, its hard to see how we can work ourselves out of this problem in less than a year. Precious metals trader James Sinclair has written that Obama will very soon realize he has been "had" -- that there is no easy way out of the economic collapse and with the added "stimulus" he will "own the problem" politically. That may mean he is - at best - a one term president.
That will still leave the question open of 'where was the SEC during the Bush administration.' Many of us prefer a minimum of government interference in finances, but that does not mean we expect the regulatory arm in Washington to be asleep while predators like Madoff roam the markets. As one person told me: that's like having a room full of three-year olds without any discipline. Free markets should not be undisciplined markets.
Just how big is the $1.6 trillion dollars we have created from whole cloth to toss into the fray as stimulus? As Sen. Mitch Connell said, if one spent a million dollars a year since the birth of Jesus, we would only have totaled something just over $770 billion through 2,009 years. In short, the size of the so-called stimulus is mind-boggling.
U. K. Prime Minister Gordon Brown during Parliament's question time slipped and probably accurately said that the entire world is entering a depression. The scary thing is that with all the world-wide money being thrown out to solve the crisis, we may also be facing a period of hyperinflation similar to that of the Weimar Republic.
I'm making no investment suggestions here - I'm not qualified to do so - but I would suggest we all hang on to our hats for this ride over the next few years. As the Cole Porter tune goes "now I suppose, anything goes."
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