Most of us are aware of the sacrificial slaughter of Bear Sterns. Some people call it a bailout, but I call it a handout -- a government handout to some of the richest people on Earth, paid for by American taxpayers.

It's the survival of the richest, and the poorest be damned. There's something dismal about a society that operates by those values.

The Economy on Life Support

I understand why the Federal Reserve did what it did with Bear Stearns. The Fed was doing its job -- acting as the lender of last resort, pumping money into a dying system. It wanted to prevent a run on the bank and economic chaos. It was a very creative financing move, using the Fed's magic checkbook to pump more liquidity into a thirsty market -- sort of like a physician administering life-saving measures to a critically wounded patient.

My problem with the move is that the Fed saved this patient because it's a wealthy one. Saving the biggest investment banks in America is welfare for the rich. Would the Fed do that for you or me if we screwed up our investment portfolio? Is the Fed going to bail out the millions of people facing foreclosure because the value of their homes is less than their mortgages? If I'm a small-business owner and fall behind on my taxes, is the Fed going to pay my taxes for me? If I can't pay off my college loan, will the fed pay it for me?

Aren't these investment bankers supposed to be the smartest guys in the world? Aren't they the people we entrust with our investment and retirement money? Aren't they supposed to be financially fit? Some blame subprime borrowers as the culprits in this mess, but the supposedly brilliant investment bankers bought their mortgages. Was that smart?

A Handout for the Rich

This bailout was a signal to Wall Street that the Fed stands behind them -- that they're on the same team. It was a thumbs-up to the super-rich: "Do what you want. If you screw up, we'll cover your blunders."

Ralph Nader's father purportedly once said that "Capitalism will never fail because Socialism will always bail it out." My concern, especially in this election year, is that socialists will seek revenge. Already I can hear the war cry "tax the rich!" The problem with taxing the truly rich is that the rich simply move their money to countries that treat them and their money with undue respect. And when the rich move their money, the poor and middle class end up paying more taxes.

Not only will taxes go up, but the prices of food and fuel will increase, because the purchasing power of the dollar will continue to decline. This rise in cost of living, plus higher taxes and stagnant wages, could lead to unrest -- protests, riots, and possibly chaos. In other words, what the Federal Reserve was attempting to prevent may happen anyway.

When Capitalism Stumbles

Bailing out the rich means over $800 billion from the Fed's magic checkbook entered the market. Immediately, the stock market rebounded and the price of gold and silver declined. The U.S. dollar strengthened against the euro. While this looks like a good sign, I'm afraid the problem isn't solved. The inevitable may only have been delayed.

Our problem is a toxic U.S. dollar. Printing funny money steals from the poor and middle class, savers, and the elderly. It may be legal, but it isn't moral or ethical. As long as the Fed is allowed to wield its power at will, the prices for food and fuel will only go up.

So will the price of gold and silver. Some are calling for gold and silver to go over $2,500 and $200 an ounce, respectively. Some even believe gold will go as high as $5,000 an ounce. I hope not. While I get excited about seeing the gold I purchased for less than $300 an ounce flirt with $1,000 an ounce, I also begin to worry.

The rise in the price of gold is a sign that capitalism has stumbled. And when capitalism stumbles, workers' wages buy less and savings are wiped out. Even gains from the stock market are diminished because our dollar gains are worth less.

Troubles Past and Present

Throughout history, when capitalism stumbles chaos erupts and sometimes despots take over. For example:

  • In 1897, the Russian ruble was pegged to gold and a period of relative economic growth followed. Russia went off the gold standard to finance World War I. The government fell to the Bolsheviks in 1917, and the Russian mafia took control of the economy.
  • After World War I, the German middle class was wiped out and Adolf Hitler was voted into power in 1933.
  • In the 1930s, China was the only country on the silver standard. In 1935, the nationalist Chinese government started issuing paper money. In 1937, in order to fight the Japanese, the government began printing funny money. The value of their currency went from four yuan per dollar in 1936 to a trillion yuan per dollar in 1949. In May of 1949, the Chinese government fell to Mao Tse-Tung and the Communists.
  • In 1984, Yugoslavia hosted the Winter Olympics just as their currency, the dinar, began to devalue. In 1989, the IMF recommended more devaluation and the freezing of workers' wages. Rioting broke out, and in 1989 Communist party leader Slobodan Milsoevic was elected into power. Yugoslavia broke apart as war and ethnic cleansing began.

As capitalism falters, the rich move their money out of the country, violence increases, and politicians promising prosperity are elected. It's happened before, and I fear it's happening again. Trouble brews when we steal from the poor and give to the rich.

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