Those people who get by month by month on a fixed income should know that the way that the economy is being restored will, in fact, help corporations and banks and get things back in order. However, the way the bailout is structured simply leaves no doubt behind that your dollars will be worth less in a short amount of time.
Think about it like this, banks are going under because of speculation on the prices of real estate, and the easy ways people had of acquiring loans and mortgages, all the while not being able to actually pay them back thanks to a variety of reasons. Money, which traditionally held value thanks to actually backing in gold and silver, can now be easily created using a press of a mouse button. The Internet has also created an easy way to shop, where consumers can spend money they don’t have easily and conveniently from the comfort of their own home. The average savings was abhorrently low, and most people were barely getting by on each pay check.
The result was what we now call the credit crunch, as money had vanished as speculative wealth was evaporated as prices readjusted after the bubble had popped. Some banks went under, but most major banks were given bailouts, large sums of money (in the billions), and the government decided to buy out bad assets. The burden of this bailout was placed on the taxpayer and an increase in the money supply to help alleviate the credit crunch. Interest rates were lowered to about zero, and wild programs such as ‘cash for clunkers’ were hurriedly enacted.
The problem with all this spending and the bailout plan is that the exit strategy is flawed. They plan to simply remove capital (cash) from the system after it recovers. How exactly are they going to do that? Instead, we will see a great increase in prices of oil, food, and other commodities as what more any more seems like ‘play money’ is injected into the system.
How do you protect yourself from this? As the old saying goes, if you can’t beat them, join them. Most of the people making these policy decisions have more than average savings and investments. Investments in the stock market especially in banks would be particularly lucrative as they are the ones that are being handed literally tons of cash, other investments include oil futures and commodities. It causes those who earn mediocre salaries that do not allow for savings to be at a disadvantage, as they are being left out on the beneficial side of inflation and government hand outs and instead on the disadvantageous position of slowly learning less real value per month.
As John Maynard Keynes puts it,
By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens…. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.
