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• How to avoid the weight of debt, even as Paulson & Co. push for intervention,
• Delving into the details of the bailout bill – the hidden clauses you didn’t see,
• The “What We Really Deserve Plan” and plenty more…

Joel Bowman, reporting from Dubai in the Persian Gulf…

Yesterday we brought you some thoughts and concerns from your fellow readers regarding Hank Paulson’s proposed $700 billion emergency bailout plan for the U.S. economy. [If you missed Part I you can find it here].

Although views and opinions of the plan differ, it is important to point out that the latest bailout proposal – along with those of AIG, Fannie and Freddie and the others that preceded it – saddles the U.S. taxpayer with immense debt. This comes at a time when, as we’ve mentioned many times in this space, the U.S. is barely solvent itself.

Whether or not you agree with the government’s intervention into the “free markets,” the fact remains that these hundreds of billions of dollars represent a colossal threat to the value of the greenback. That means your savings, your wealth and your retirement nest egg are on the line in a very real way.

Here at Rude, we are often asked how – short of all out revolution – individual investors such as yourself can avoid the fallout if this epic gamble fails. How can you protect your assets?

We’ve dedicated many columns and thousands of words to identifying what we feel are sound investments in fundamentally solid, debt-free companies, resource stocks and, of course, we constantly hammer home the importance of holding at least some of your wealth in physical gold.

Today, before we jump into the regular issue below, we’d like to let you know about another way you can secure your wealth, even as the government puts your future on the line.

Right now, our friends at EverBank are offering, exclusively for to Agora Financial readers, a Debt-Free Index Certificate of Deposit (CD) that should help you shield your savings from market risk.

All the information you need to get started is included at this link, but there are a few points concerned readers should note before reading on.

As the name suggests, the CD is denominated in a basket of non-dollar currencies. That immediately rescues you from the precarious position of the greenback and ensures any risk is spread across multiple currencies. Even more important than this, the currencies are all from countries with a positive balance of payments — meaning their currency stands a good chance of appreciating over time against the U.S. dollar.

If, as many expect, the dollar trends downward with the weight of all these bailouts on its back, the value of your CD will appreciate accordingly.

Addison Wiggin, the man who literally wrote the book on this very issue, Demise of the Dollar…and why it’s good for your investments, had this to say about the greenback’s current situation:

“Despite all the bankruptcies and bailouts, the U.S. dollar is still holding up fairly well. That’s not likely to last. The world’s central banks are running out of tricks… and they’re short on time.”

So, if you are concerned about the health and safety of your savings, we urge you to consider protecting at least a portion of your wealth with EverBank’s unique, debt-free investment vehicle. For the smart individual, it’s a great dollar hedge. To learn more, read on here.

And, we almost forgot, because you’re a Rude regular, you can open your account with half the usual required deposit, provided you do so before October 1. Details on this exclusive offer here.

And now, on to a few more thoughts from your fellow readers regarding the latest bailout plan. Enjoy and send comments to the address below…

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From Todd Selle, in response to the question we posed in Wednesday’s issue…

The bailout plan, though it may be modified during the week, was originally written to include some very disturbing language.

As the bailout bill was originally written, it authorizes the Secretary of the Treasury “to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States,” and “to take such actions as the Secretary deems necessary to carry out the authorities in this Act”.

“Mortgage related assets” are defined as “residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.”

Finally, near the end of the bill, one section reads “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

The biggest concerns I see here are threefold: The proposed legislation, in its original wording would (a) put a huge some of money (nearly three quarters of a trillion dollars) under the control of one person, who (b) is answerable to no one except the President, and (c) who could, with a good team of lawyers, twist the meaning of “other instruments that are based on or related to such mortgages” to mean things as far removed as stock in a global fast-food franchise owning many retail outlets, or shares in a real estate investment trust owned by the President’s favorite lobbyist. With no recourse to regulatory agencies or the courts, the Secretary need not be concerned about consequences of ineffective or even corrupt decision making.

This strikes me as a really bad idea.

Maybe, before the members of Congress adjourn at the end of this week, they’ll pass a version of this bill that has some safeguards and constraints. Maybe they’ll go with a smaller-scale interim bill for now, to buy some time until they can design a more suitable long-term solution. Less likely but still possible is a decision to let the markets control things from here on out, with the chips falling where they may.

But given the history of the Presidency and the Congress over the last two years, I will not be a bit surprised if after a lot of steam and rhetoric, the Paulson/Bernanke bill passes in essentially its original form. And then Henry Paulsen will become the most powerful man in America. That’s Henry Paulsen, Secretary of the Treasury, former CEO of Goldman Sachs, and the man who just this past July said “It’s a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.” (This last comes from The Associated Press and CBS News, found here ).

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Afam Edozie argues in favor of the plan…

It’s not about right or wrong, its about good or bad.

The plan is good for three reasons:

1. It creates more inflation. Most Americans are debtors. Inflation is good for debtors. The US government is a debtor, voters (US house owners, credit card holders, etc.) are debtors, all financial institutions are debtors. If we can inflate 10% a year, our debt will be halved before Obama or McCain are out of office.

2. It hurts the Chinese (and the Japanese, Russians and Arabs.) They are America’s biggest lenders and they lent dollars and they lent willingly and knowingly because American spenders are good for their economies. Anyway they can’t vote.

3. It helps rich people at the expense of all people – not just the poor so its kind of fair in a way. And that is the capitalist way! Most of us pretend that Marx was on cheap drugs when he said that the capitalist system exploits labour. What we fail to acknowledge is that capitalism as an economic system is fine but in any human system (it is the way we are wired) you can not separate money and power. And the people with money will always buy power to protect it.

4. And the Bonus reason is. Its easier for everyone to become 10% worse off compared to 10% of people being 100% worse off (pardon the sloppy math.) It spares us having to clean up the blood on the carpet.

Will it work. Of course it will work, $700 bn is only the first tranche, we’ll be back for more in spring. Go take a look at Japan

One last point if it were poor people who needed money to survive their mistakes we’d all be reaching for our cheque books, how many times have we been asked to bail out a rich geezer.

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Bill Gruenwald, summoning some classical Austrian economics, reports…

Will the American people be guillable enough to buy Paulson’s plan? Without a doubt.

There might be some tweaking here and there but the basic plan will pass. It’s just the next chapter in the socialization of our country. I am reminded of Frederick Hyack’s “The Road to Serfdom”. As you look at what has happened to this country since Woodrow Wilson passed the Federal Reserve Act and the Income Tax we have steadfastly progressed along the lines of Karl Marx’s plan. This is but another gigantic step in that direction.

Unfortunately, I do not believe it is possible to turn this supertanker around. The direction is established. Reagan was able to turn it around for a short time but I think that time has passed. Democracy doesn’t work. Were it possible to go back to the original intent of our Founders and return to a Republic we might have a chance, but I think only a revolution will do that and that would likely turn into a dictatorship.

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[Rude Endnote: Thanks to all the concerned readers that contributed to this “public service announcement” two-parter. Although we can’t respond to each letter individually, we very much appreciate the contributions from the Rude population.

On a final, final note, some of you have seen the email forwarded around over the past few days proposing a “We Deserve It Plan.” The author of the email, unknown to us, advocates sharing the AIG $85 billion fund with the 200 million (or so) Americans aged 18 and over. After what should be some pretty simple math, the author then goes about dividing up everyone’s share of the windfall (including a 30% tax for, you know, the government’s share) and proceeds to follow the money along it’s virtual journey.

Among the plan’s other flaws, the one that struck us was a fairly sizable error in calculations: $85 billion ($85,000,000,000.00) divided between 200 million people equals $425 per person, not $425,000.

(This accounting slip probably came about due to confusion over the value of one billion. In the US, we use the “short scale” value with nine zeros. Other places, including the UK, use the “long scale” value, with twelve zeros.)

Nevertheless, it is easy to see why this email has passed through so many hands. After all, who wouldn’t want nearly half a million bucks posted to them?

But the plan also misses one other vital point. The confiscation and redistribution of wealth (be it equally, as with the “We Deserve It” plan, or selectively via the “Paulson Plan”) is not what true laissez-faire capitalism is about.

Left to his own devises and assuming that all men start our equally (i.e. with a brain in his head and the unfettered opportunity to use it in achieving his own desired ends), this is exactly what each and every person experiences in life.

What we really deserve is not free healthcare, free education, free lunches and free housing at the expense of others. Instead, we really deserve the freedom and opportunity to acquire these things for ourselves without interference from others…and, of course, the satisfaction that comes along with knowing we really earned them.

Until next time…

Cheers,

Joel Bowman

The Rude Awakening
aussiejoel@the-rude-awakening.com