Captain's Log: Year of our Lord 2009, 8th day...

We have landed on a strange and wonderful watery planet - the third planet in orbit around the sun, a minor star in the Milky Way galaxy. Well, they say it is watery planet. Where we are, it is icy. But the locals say it warms up and the ice melts. We're suspicious; maybe it's just hype to attract tourists.

But what is strange about this planet is that its inhabitants all seem to play a game of make-believe, in which they all agree to believe things that every one of them knows is untrue. What is wonderful about it is that it seems so easy to make money here; there's a fool on every corner just waiting for the chance to get rid of his wealth.

Recently, humans - the race that inhabits this place - believed that their lodges and living quarters would become more and more valuable - even though it was obvious that their houses deteriorated every day, as a consequence of solar radiation, wind erosion, liquor spilt on the carpets and other natural phenomenon. Then, on the back of this remarkable delusion, they built an entire world economy...including extravagantly complex financial instruments which the wisest among them called "weapons of mass financial destruction."

Someone seems to have cut the power to that illusion a few months ago, so now they are taking up a new one: that if people are given more pieces of green paper they will all be richer.

Today's press - the means by which delusions are shared and propagated - tells us that the government of this world's richest nation, called the United States of America, is planning a "stimulus package" of something on the order of $1 trillion. What's the package expected to stimulate? The idea is to get more of these pieces of paper into citizens' hands, so that they will be encouraged to act as though they were wealthier. It doesn't seem to bother anyone that the source of the misery of which so many now complain was the fact that, in the past, so many acted so much wealthier than they really were. Nor does it seem to disturb the collective fantasy that this stimulus plan is being created, more or less, by the same class of people who neither saw anything wrong with the last fantasy nor mentioned to anyone that it was going to collapse.

"Hopes pinned on rate cuts and fiscal packages," says the headline in the Financial Times , a leading source of financial hallucination. It explains how the aforementioned U.S. government intends to cut taxes in order to put those aforementioned pieces of green paper into consumers' hands.

Further in the paper, another headline - "Reports of $300 billion Obama tax cuts lift mood" - tells us that the public is getting in the spirit of the new fantasy even before it is officially launched.

"Optimism about central bank and government efforts to revive the global economy helped improve investor risk appetite yesterday," continues the article.

"Fed Officials Endorse Big Stimulus to Battle US Recession," adds another source - Bloomberg .

What a marvelous place! Every day is magic on this planet. Every day is a new day...with no memory of what happened the day before...nor any thought to what will happen tomorrow. People are ready to believe whatever makes their day more enjoyable...no matter how absurd.

Anyone who bothered to think about this 'bailout' plan for two seconds could see that it is a hoax and a scam. Those pieces of paper are not really wealth...they merely represent wealth. But since the U.S. government has no wealth in reserve - indeed, it is famously borrowing to make ends meet already - it can only pass out wealth to one person by taking it from someone else. It talks of 'tax cuts,' but we have heard nothing of spending cuts. So, what the global consequence must be is an increase in pieces of green paper - or let us say, demand for wealth - with no actual increase in wealth itself. It is just a shared illusion, in other words.

But we have to say too, after visiting this planet for a few weeks, we have fallen in love with it. We feel so superior. Almost everyone we talk to is a dope.

Besides, where else in the universe is it so easy to make money? As you know, dear reader, the easiest way to make above-market profits is to help the fools part company with their money. What other planet has so many fools?

We paraphrase one of the smartest of the humans, George Soros, who puts it this way: 'The way to make profits is to find the premise that is wrong and bet against it.' As far as we can tell, almost every major premise is wrong...or at least the over-arching premise of this new post-bubble era is as loony as the one that preceded it. Just as you can't really get rich by borrowing and speculating... you can't recover from a bust-up by borrowing and speculating more.

But heck, we don't make the rules down here on Planet Earth...we just try to have some fun with them.

Bill Bonner
The Daily Reckoning