The Bailout has bailed

A few hours ago, the US House of Representatives voted down the proposed $700bn bailout package, sending the Stock Markets into freefall:

The Dow Jones index lost 770 points – 6.9% – its biggest one-day point drop yet as Congress surprised observers by not backing the rescue plan.

Meanwhile the Nasdaq index fell 9.1% and London’s key market lost 5.3%.

Confidence had already been smashed by the rescue of US bank Wachovia and Bradford and Bingley’s nationalisation.

The Dow Jones closed at 10,365.4 points after the bail-out result threw efforts to calm the US financial crisis into disarray. The tech-heavy Nasdaq ended down 200 points at 1,983.7.

Analysts said that until there was certainty over the future of the bail-out bill, there would be tremendous unease.

It is becoming steadily more likely that there could be a run on the dollar, pushing it into hyperinflation and causing a global economic collapse. And that’s even before mentioning the Derivatives bubble, which lies behind much of this chaos and the desperation for this bailout:

Until recently, most people had never even heard of derivatives; but in terms of money traded, these investments represent the biggest financial market in the world. Derivatives are financial instruments that have no intrinsic value but derive their value from something else. Basically, they are just bets. You can “hedge your bet” that something you own will go up by placing a side bet that it will go down. “Hedge funds” hedge bets in the derivatives market. Bets can be placed on anything, from the price of tea in China to the movements of specific markets.

“The point everyone misses,” wrote economist Robert Chapman a decade ago, “is that buying derivatives is not investing. It is gambling, insurance and high stakes bookmaking. Derivatives create nothing.”1 They not only create nothing, but they serve to enrich non-producers at the expense of the people who do create real goods and services. In congressional hearings in the early 1990s, derivatives trading was challenged as being an illegal form of gambling. But the practice was legitimized by Fed Chairman Alan Greenspan, who not only lent legal and regulatory support to the trade but actively promoted derivatives as a way to improve “risk management.” Partly, this was to boost the flagging profits of the banks; and at the larger banks and dealers, it worked. But the cost was an increase in risk to the financial system as a whole.2

Since then, derivative trades have grown exponentially, until now they are larger than the entire global economy. The Bank for International Settlements recently reported that total derivatives trades exceeded one quadrillion dollars – that’s 1,000 trillion dollars.3 How is that figure even possible? The gross domestic product of all the countries in the world is only about 60 trillion dollars. The answer is that gamblers can bet as much as they want. They can bet money they don’t have, and that is where the huge increase in risk comes in.

The whole rotten system is beginning to unravel, the whole economy of debt that has funded civilisation is imploding. As I said in a previous post, it is time to sieze back the economic system and base it again in local, zero-growth principles. But the scale of this upcoming collapse if the derivitives bubble does collapse is so large that I would also reccomend being as prepared as you can to survive some turbulent months – stock up on food, water purification systems, seeds etc. This could be pretty big when it goes off, and it’s our job to survive, adapt and thrive.