What would you do if you had seen the future? If you knew, for a fact, who was going to win the next Superbowl? I think most people would start taking out loans. A lot of them.
The president of the United States is in an interesting position. To some extent they can see the future, not because they know what will happen, but because they hold the playbook and call the shots. Unlike the time travelling gambler, the president is both under a lot of scrutiny, and has a lot of responsibilities to the nation. To some extent their power transcends the petty desire for the big payout. Put yourself in their shoes. You see the economic failings. You see the coming crash and subsequent long path back to national solvency. What do you do?
You plan. With a team of economic advisers and more information at your request than any other individual in the world.
There is a science based religion out there that exists on the premise that we strive to create increasingly realistic computer simulations of the world around us, therefore, it stands to reason that the world we live in is likely such a simulation. I would propose a similar theory. Our leaders believe that by tampering with the free market, they can make it do their bidding, therefore it is quite possible that most of the economic drama that has unfolded in recent years was not by the natural course of economic chaos, but by design. The availability of credit, the housing bubble, the crash, and the bailout, all part of a bigger plan. Think back:
We had begun losing agriculture and manufacturing to countries who were able to work with lower standards and cheaper labor. This led to a trade imbalance as it became cheaper to buy foreign goods than domestic.
So the question arises, how do we devalue our currency enough to stem the bleeding of outsourcing?
The banks don’t want inflation, it devalues their holdings. If we try to create inflation, the banks will fail as inflation goes higher than their interest. Investors, manufacturers, and rich people in general will lose money and blame the government.
How do you create inflation while looking like the hero rather than the villain? Debt. Those in debt will welcome it.
Make them think they see the future, give them their credit, and when they are overstretched?
Cut off the credit. People will stop buying, sellers will drop prices in desperation. Now what?
Threats of deflation. When deflation and debt come together you have defaults.
Defaults crash the banking system. The government gets to arrive as the hero and print money to give to the banking industry and whoever else it wants, all in the name of saving us from deflation. Those who saw the future, made the future, profit.
As we snap out of the illusion of deflation into hyperinflation, the bailouts save the banks, our debts get relatively smaller, industry returns under a weaker dollar, and those who made the future profit again.
President Bush made it a priority to get people into homes. He lowered the interest rates and made sure everyone could get loans. His administration later cracked down on subprime lending. He printed the money and bailed out the banks, and then the Harvard MBA handed over the reins and sold his phony cowboy ranch in Texas. How much of the stupid was an act?