Economic stupidity is no
solution By The Mogambo Guru
I was not surprised that the International
Monetary Fund has come out with its
recommendations for the subprime crisis, and with
its usual socialist/Marxist/fascist flair says
that the government/taxpayers should bail
everybody out. Yawn.
What is more
surprising is that the idea resonates with Krishna
Guha in a Financial Times editorial titled "Why
the Financial System Must Tap The Taxpayer". If
that was not enough, he astonishingly says that
what is required is inflation because it will help
the housing crisis, and indeed "the more
inflation, the less nominal house prices will have
to fall to deliver a required change in real house
prices". Hahahaha! I love it when an equation
comes to the rescue!
To that end, perhaps,
he says that in order to stop the spiral
of
the
whole de-leveraging process, as losses lead to
selling which leads to losses which leads to more
selling, we need "one thing above all: additional
capital for the financial system to stop the
process of balance sheet contraction"! Hahahaha! I
love it! Make up for losses by creating enough new
debt and money to bid prices of assets back up!
I really wish that this could possibly
work, because then you can have continuous booms
forever because if the boom ever started to slow
and move into the inevitable bust, it can be
prevented by the government buying up all of the
losses, which starts the boom all over again!
Hahahaha! Wonderful!
At the end of his
essay, he is obviously getting peeved at me
getting on his case and making humorous farting
noises, and he ludicrously challenges: "For those
who oppose the use of public money, time is
running out to prove that the private sector can
recapitalize and calm the credit crunch without
taxpayer funds - the best solution."
In
response, I can only say that I strongly oppose
the use of public money to try and bail out the
economy because that means that the money supply
will expand, and the same idiotic, maladjusted,
distorted, Big Government economic system will
merely start all over again, but everything will
be even more sickly, gangrenous, malformed and
twisted.
But I also strongly reject the
idea that I have to prove anything as idiotic as
saying that the private sector has the wherewithal
to "recapitalize and calm the credit crunch", or
that there is some salvation "out there" if only
someone would do some unknown "right thing", when
instead I have always staunchly maintained that
there always comes a time when NOTHING can be
done, and that the only thing that should be done
is to prevent the problem by keeping the damned
money supply and debt levels constant, as when
they are constrained by gold, so that you don't
end up in this damned situation in the first
damned place!
Then, in a weird attempt to
be "fair", I guess, he says that "advocates of
public intervention must determine how much money
is needed and how to employ it to greatest
effect". Hahaha! It's like it's 1934 again, and
I'm reading a speech by FDR! Hahaha!
If
you thought inflation is bad now, you ain't seen
(as the saying goes) nothin' yet, because the
sheer tonnage of money necessary to pay off
everybody's debts here at the end of a long
economic boom caused by, as usual, the creation of
excess money and credit by the banks over a long
period of time with lax governmental supervision
is so huge (audience calls out "How huge,
Mogambo?") that it probably totals over a
quadrillion dollars (a thousand trillions), and if
converted into a pile of $100 bills, is so huge
and so heavy that not even Superman could lift it,
which explains why you never even see him try it.
And even if you COULD pay off everyone's
debts, to have another boom with the existing
structure left intact would require the same
degree of economic stupidity all over again! And
nobody is that stupid. Are they?
Not
unless my wife is right that I am the only halfwit
in the whole world who is stupid enough to make
the same mistakes over and over again. Anyway,
let's hope!
Richard Daughty
is general partner and COO for Smith Consultant
Group, serving the financial and medical
communities, and the editor of The Mogambo Guru
economic newsletter - an avocational exercise to
heap disrespect on those who desperately deserve
it.
Republished with permission from
The Daily
Reckoning .
Copyright 2008, The Daily
Reckoning.
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Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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