I don’t know if this would happen, but I fear that it might. That does not mean the Paulson or Son of Paulson plan is the solution, however. I agree something must be done, but there is truth in the argument that a bailout now might well lead to a bigger fall later. The real question is, what is the likelihood of a total money market/bond market collapse? I’ve read so much stuff the past few days (not just here, but throughout the web) that I don’t know. Over at mises.org, their writers seem to think that a crash would not be so terrific and would be a better result. They were pretty spot on in predicting this bust, so I tend to trust them somewhat (though I totally disagree on their unequivocal anti-nationalist stance). On pure economic questions, however, they are pretty prescient.
The probability is good. The von Mises folks believe that once it is over, we go back to some variation of the gold standard. There is a case to be made for that, but only if you are willing to live within the limits set by the Constitution, something we haven't done since March 1933. Neither our domestic nor our overseas military postures are set up for that kind of draconian change.
I saw the following on a leftist website (Democracy Now!), and it has circulated in the gold community via Jim Sinclair's and Bill Murphy's websites.
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Army Unit to Deploy in October for Domestic Operations
Beginning in October, the Army plans to station an active unit inside the United States for the first time to serve as an on-call federal response in times of emergency. The 3rd Infantry Division’s 1st Brigade Combat Team has spent thirty-five of the last sixty months in Iraq, but now the unit is training for domestic operations. The unit will soon be under the day-to-day control of US Army North, the Army service component of Northern Command. The Army Times reports this new mission marks the first time an active unit has been given a dedicated assignment to Northern Command. The paper says the Army unit may be called upon to help with civil unrest and crowd control. The soldiers are learning to use so-called nonlethal weapons designed to subdue unruly or dangerous individuals and crowds.
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I read that, and I felt a tingle go down my spine -- and it wasn't the kind of tingle Chris Matthews got up his leg whenever he heard Obama.
I can tell you I have never been so worried in my life, it is very possible, our country is to leverage, and needs to deleverage, but not over night!! I have been in the Bussiness 15 years never seen anything like it. I am a very conservatve republican from Texas. I believe in a flat Tax, lower spending.. etc. But I am going to tell you by the time the Markets open in Asia Sunday night we must pass a plan. I am not saying the Palson plan is the best.. But we must get the banks free up. I do think if we buy this paper for $.30 on the dollar (Merrill sold theirs for $.22) then I think we will come out with not a lot of taxpayer loss, what we will have is moral hazard.
THings they need to add, increase FDIC to $200,500 per person to protect small business that need to make payrolls from banks that will fail (yes no matter what a lot of banks will still fail. We need a to create a regulated exchange market for credit default swaps!! We are still working thru failed swaps we had with LEH. There are other Ideas for later.