Tuesday, December 30, 2008
Coming To A Government Near You
http://www.gazettetimes.com/articles/2008/12/28/news/community/1aaa02_road.txt
Mencken On Politicians
"The only way to success in American public life lies in flattering and kowtowing to the mob. A candidate for office, even the highest, must either adopt its current manias en bloc or convince it hypocritically that he has done so while cherishing reservations in petto. The result is that only two sorts of men stand any chance whatever of getting into actual control of affairs -- first, glorified mob-men who genuinely believe what the mob believes, and secondly, shrewd fellows who are willing to make any sacrifice of conviction and self-respect in order to hold their jobs."
Monday, December 29, 2008
Hold On To Your Hats
The Coming Hyperinflation?
Posted by Lew Rockwell at December 28, 2008 07:28 PM
Bob Higgs writes:
During recent months, the Fed has flooded the banking system with reserves, which the banks have chosen to accumulate as (legally) excess reserves, rather than using the funds to add to the volume of their outstanding loans and investments. The Fed’s recently adopted policy of paying a small rate of interest on bank reserves accounts for some of this accumulation, but the amount is so gigantic that it seems much more likely that the banks have greatly increased their assessment of the risk involved in lending and investing as usual and therefore have chosen the lower yielding but less risky alternative of accumulating more and more reserves. Since August, the amount of excess reserves has risen from $2 billion to $559 billion. A graph of this astonishing development shows an abrupt transition from a virtually horizontal line (approximately zero excess reserves for decades) to a virtually vertical line (a quick jump of $557 billion in three months).
So far, this explosive increase of reserves has had only a small effect on the growth of the money stock as measured by the conventional monetary aggregates, such as M2, although the rate of growth of the monetary aggregates is beginning to increase substantially, as shown in this graph.
Because the public’s demand for cash balances has also risen, the recent increases in the money stock have not given rise to increased prices in general. In fact, the major price indexes have fallen slightly in recent months, although the bulk of this decline has occurred because of the decline in the price of oil and related products since July. Price indexes for goods other than energy have declined very little - certainly not enough to justify the many expressions of fear of impending deflation (setting aside whether an actual deflation ought to be feared or not).
At matters now stand, by far the greater threat is rapid inflation, notwithstanding the ongoing recession. When the banks begin to feel more comfortable with expanding the volume of their conventional loans and investments, they will have more than $550 billion on hand to employ for that purpose. The multiplied effect of such a vast amount of lending, as newly created deposits make their way through the fractional-reserve banking system, portends a gargantuan increase in the money stock and hence a correspondingly enormous jump in the general price level. As the public responds to the acceleration of inflation by reducing its demand for cash balances, the increased velocity of monetary circulation will contribute to even more rapid price inflation.
So much potential new money is now impounded in the commercial banks’ holdings of excess reserves that it is difficult to see how the Fed will be able to stem the flood once the banks begin to transform those excess reserves into normal loans and investments. If the Fed attempts to sell enough government securities to soak up the growing money stock, it will drive down the prices of Treasury bonds and hence drive up their yield, increasing the government’s cost of borrowing to finance the huge budget deficits the government will be running because of its various bailout commitments and so-called stimulus programs. This scenario holds the potential for a complete monetary crackup.
I have never been inclined toward touting doomsday financial scenarios. I raise the possibility now only because, as I consider the situation portrayed in the graph of excess reserves linked above, I am unable to foresee how the Fed and the Treasury can navigate through these treacherous waters - waters that their own previous actions have whipped to a foam - without creating terrible financial and economic harm. If the dollar survives the ministrations of Bernanke, Paulson, Bush, and the Obama gang, its survival will be something of a miracle.
Posted by Lew Rockwell at December 28, 2008 07:28 PM
Bob Higgs writes:
During recent months, the Fed has flooded the banking system with reserves, which the banks have chosen to accumulate as (legally) excess reserves, rather than using the funds to add to the volume of their outstanding loans and investments. The Fed’s recently adopted policy of paying a small rate of interest on bank reserves accounts for some of this accumulation, but the amount is so gigantic that it seems much more likely that the banks have greatly increased their assessment of the risk involved in lending and investing as usual and therefore have chosen the lower yielding but less risky alternative of accumulating more and more reserves. Since August, the amount of excess reserves has risen from $2 billion to $559 billion. A graph of this astonishing development shows an abrupt transition from a virtually horizontal line (approximately zero excess reserves for decades) to a virtually vertical line (a quick jump of $557 billion in three months).
So far, this explosive increase of reserves has had only a small effect on the growth of the money stock as measured by the conventional monetary aggregates, such as M2, although the rate of growth of the monetary aggregates is beginning to increase substantially, as shown in this graph.
Because the public’s demand for cash balances has also risen, the recent increases in the money stock have not given rise to increased prices in general. In fact, the major price indexes have fallen slightly in recent months, although the bulk of this decline has occurred because of the decline in the price of oil and related products since July. Price indexes for goods other than energy have declined very little - certainly not enough to justify the many expressions of fear of impending deflation (setting aside whether an actual deflation ought to be feared or not).
At matters now stand, by far the greater threat is rapid inflation, notwithstanding the ongoing recession. When the banks begin to feel more comfortable with expanding the volume of their conventional loans and investments, they will have more than $550 billion on hand to employ for that purpose. The multiplied effect of such a vast amount of lending, as newly created deposits make their way through the fractional-reserve banking system, portends a gargantuan increase in the money stock and hence a correspondingly enormous jump in the general price level. As the public responds to the acceleration of inflation by reducing its demand for cash balances, the increased velocity of monetary circulation will contribute to even more rapid price inflation.
So much potential new money is now impounded in the commercial banks’ holdings of excess reserves that it is difficult to see how the Fed will be able to stem the flood once the banks begin to transform those excess reserves into normal loans and investments. If the Fed attempts to sell enough government securities to soak up the growing money stock, it will drive down the prices of Treasury bonds and hence drive up their yield, increasing the government’s cost of borrowing to finance the huge budget deficits the government will be running because of its various bailout commitments and so-called stimulus programs. This scenario holds the potential for a complete monetary crackup.
I have never been inclined toward touting doomsday financial scenarios. I raise the possibility now only because, as I consider the situation portrayed in the graph of excess reserves linked above, I am unable to foresee how the Fed and the Treasury can navigate through these treacherous waters - waters that their own previous actions have whipped to a foam - without creating terrible financial and economic harm. If the dollar survives the ministrations of Bernanke, Paulson, Bush, and the Obama gang, its survival will be something of a miracle.
Wednesday, December 24, 2008
A Rationale For Thrift
My guess is that the goverment will continue to find ways to penalize saving. Afterall, the govenment needs for us to spend at high levels to keep tax dollars flowing.
http://www.cbsnews.com/stories/2008/12/23/politics/otherpeoplesmoney/main4684774.shtml?source=RSS&attr=_4684774
http://www.cbsnews.com/stories/2008/12/23/politics/otherpeoplesmoney/main4684774.shtml?source=RSS&attr=_4684774
In A Nutshell
This is a concise statement of why only a total economic crisis will change our system, which is inherently flawed.
From the Independent Institute:
Republicans often say we need a successful businessman, small-town leader, or citizen whose accomplishments are outside politics to shake things up in Washington or the state capitals. But those who work in the market labor under a totally different system, set of incentives, and institutional dynamic.
The government’s defining character renders it immune to fundamental reform by outsiders. Unlike the market, government finances itself through coerced taxation, not honestly earned profits. It maintains dominance through the threat of violence—police and imprisonment—not through voluntary exchange. Government power corrupts and cannot be purged of its intrinsically coercive and political nature. Outsiders cannot stay outsiders long once inside the halls of power.
From the Independent Institute:
Republicans often say we need a successful businessman, small-town leader, or citizen whose accomplishments are outside politics to shake things up in Washington or the state capitals. But those who work in the market labor under a totally different system, set of incentives, and institutional dynamic.
The government’s defining character renders it immune to fundamental reform by outsiders. Unlike the market, government finances itself through coerced taxation, not honestly earned profits. It maintains dominance through the threat of violence—police and imprisonment—not through voluntary exchange. Government power corrupts and cannot be purged of its intrinsically coercive and political nature. Outsiders cannot stay outsiders long once inside the halls of power.
Tuesday, December 23, 2008
Bush "Logic"
From the Daily Reckoning:
George W. Bush said last week that he had to kill capitalism to save it:
"We abandoned free market principles to save the free market system," he is quoted as saying.
Let's see, how does that work…perhaps you could try a little hanky pank with your neighbor's wife in order to save the sanctity of your marriage? Or rob a bank in order to prevent theft? Or eat a few extra desserts at Christmastide in order to keep slim
George W. Bush said last week that he had to kill capitalism to save it:
"We abandoned free market principles to save the free market system," he is quoted as saying.
Let's see, how does that work…perhaps you could try a little hanky pank with your neighbor's wife in order to save the sanctity of your marriage? Or rob a bank in order to prevent theft? Or eat a few extra desserts at Christmastide in order to keep slim
Friday, December 19, 2008
Let's Say Good-bye to Bush The Lesser
From Karen DeCoster
George Bush in July 2008: "Should the government bail out private enterprise? The answer is no, it shouldn’t,” Bush said. As for high gasoline prices and energy conservation, Bush’s opinion is “People can figure out whether they need to drive more or less; they can balance their own checkbooks.” After listening to Bush promise GM and Chrysler a bailout on NPR, just moments ago, one thing keeps coming back to smack me in the face. Something ya just can't miss but no one seems to want to discuss. Here is something that is a bit dated (June post, June market cap, March financials), but things have only been worse for GM since this graphic was put together.
Here is GM's Restructuring Plan for Long-Term Viability which was submitted to the Senate Banking Committee & House of Representatives Financial Services Committee. Page 8 correctly states that GM had a ($60) billion negative net worth position at September 30, 2008. $60 billion negative. Not one time has any media commentator or government official proposed how this can be overcome, allowing GM to continue to operate in the long term. No one dares to address one of the largest elephants in the room. Can you tell that government is run by lawyers and not businessmen or accountants?
George Bush in July 2008: "Should the government bail out private enterprise? The answer is no, it shouldn’t,” Bush said. As for high gasoline prices and energy conservation, Bush’s opinion is “People can figure out whether they need to drive more or less; they can balance their own checkbooks.” After listening to Bush promise GM and Chrysler a bailout on NPR, just moments ago, one thing keeps coming back to smack me in the face. Something ya just can't miss but no one seems to want to discuss. Here is something that is a bit dated (June post, June market cap, March financials), but things have only been worse for GM since this graphic was put together.
Here is GM's Restructuring Plan for Long-Term Viability which was submitted to the Senate Banking Committee & House of Representatives Financial Services Committee. Page 8 correctly states that GM had a ($60) billion negative net worth position at September 30, 2008. $60 billion negative. Not one time has any media commentator or government official proposed how this can be overcome, allowing GM to continue to operate in the long term. No one dares to address one of the largest elephants in the room. Can you tell that government is run by lawyers and not businessmen or accountants?
Saturday, December 13, 2008
Too Big To Fail?
By Don Boudreaux on Seen and Unseen
Bankruptcy doesn't make assets -- such as factories, machines, contractual options to buy raw materials, workers' skills -- disappear. If markets still exist for products produced by these firms, Chapter 11 is the best way to discover this. Some workers might lose their jobs and some suppliers might lose their markets, but there would be no industry-wide collapse of the sort portrayed by the bailout's cheerleaders.
But what if refusal to bail out these firms results in their complete failure? Even then -- especially then -- the case for a bailout crashes. Really big firms such as GM, Ford and Chrysler are really big users of productive inputs, like rubber and steel. Almost all of these inputs have alternative uses and could be used by other firms or in other industries.
A government bailout of the Big Three keeps huge amounts of productive inputs in firms that can't use them efficiently. Forcing taxpayers to subsidize the continued employment of gargantuan quantities of raw materials, labor and capital goods in unproductive pursuits is a recipe for economic stagnation. The popular and politically convenient myth has matters backwards: The bigger the unprofitable firm, the more vital it is that it be allowed to fail.
Bankruptcy doesn't make assets -- such as factories, machines, contractual options to buy raw materials, workers' skills -- disappear. If markets still exist for products produced by these firms, Chapter 11 is the best way to discover this. Some workers might lose their jobs and some suppliers might lose their markets, but there would be no industry-wide collapse of the sort portrayed by the bailout's cheerleaders.
But what if refusal to bail out these firms results in their complete failure? Even then -- especially then -- the case for a bailout crashes. Really big firms such as GM, Ford and Chrysler are really big users of productive inputs, like rubber and steel. Almost all of these inputs have alternative uses and could be used by other firms or in other industries.
A government bailout of the Big Three keeps huge amounts of productive inputs in firms that can't use them efficiently. Forcing taxpayers to subsidize the continued employment of gargantuan quantities of raw materials, labor and capital goods in unproductive pursuits is a recipe for economic stagnation. The popular and politically convenient myth has matters backwards: The bigger the unprofitable firm, the more vital it is that it be allowed to fail.
Thursday, December 11, 2008
The Great Albert Jay Nock On The State
The history of the State being what it is, and its testimony being as invariable and eloquent as it is, I am obliged to say that the naive tone of surprise wherewith our people complain of these matters strikes me as a pretty sad reflection on their intelligence. Suppose someone were impolite enough to ask them the gruff question, "Well, what do you expect?" – what rational answer could they give? I know of none.
Polite or impolite, that is just the question which ought to be put every time a story of State villainy appears in the news. It ought to be thrown at our public day after day, from every newspaper, periodical, lecture platform, and radio station in the land; and it ought to be backed up by a simple appeal to history, a simple invitation to look at the record. The British State has sold the Czech State down the river by a despicable trick; very well, be as disgusted and angry as you like, but don't be astonished; what would you expect? – just take a look at the British State's record! The German State is persecuting great masses of its people, the Russian State is holding a purge, the Italian State is grabbing territory, the Japanese State is buccaneering along the Asiatic Coast; horrible, yes, but for Heaven's sake don't lose your head over it, for what would you expect? – look at the record!
Polite or impolite, that is just the question which ought to be put every time a story of State villainy appears in the news. It ought to be thrown at our public day after day, from every newspaper, periodical, lecture platform, and radio station in the land; and it ought to be backed up by a simple appeal to history, a simple invitation to look at the record. The British State has sold the Czech State down the river by a despicable trick; very well, be as disgusted and angry as you like, but don't be astonished; what would you expect? – just take a look at the British State's record! The German State is persecuting great masses of its people, the Russian State is holding a purge, the Italian State is grabbing territory, the Japanese State is buccaneering along the Asiatic Coast; horrible, yes, but for Heaven's sake don't lose your head over it, for what would you expect? – look at the record!
Wednesday, December 10, 2008
Why Don't People Understand This?
From Declan McCullagh
The indictment of Gov. Rod Blagojevich offers more than a sketch of a man drunk on power. It should remind us that the more power politicians have to bail out private companies, the more likely they are to abuse it....Blagojevich is charged with threatening to withhold government funds from the Tribune Company, which apparently wanted financial assistance in connection with Wrigley Field (it owns the Cubs). The governor allegedly was willing to consider extending aid from the Illinois Finance Authority -- but only if the Chicago Tribune fired editorial board members who had dared to criticize him in print.
The indictment of Gov. Rod Blagojevich offers more than a sketch of a man drunk on power. It should remind us that the more power politicians have to bail out private companies, the more likely they are to abuse it....Blagojevich is charged with threatening to withhold government funds from the Tribune Company, which apparently wanted financial assistance in connection with Wrigley Field (it owns the Cubs). The governor allegedly was willing to consider extending aid from the Illinois Finance Authority -- but only if the Chicago Tribune fired editorial board members who had dared to criticize him in print.
The State Knows No Bounds
From Lew Rockwell
Rep. Joe Barton (R-TX) wants to mandate a college football playoff. Now, I know that no one in Parasite City (except Ron Paul) sees any area of private life as beyond the federal government's writ, but isn't this slightly ridiculous, even for a neocon? (Thanks to Jason Newbury)
Rep. Joe Barton (R-TX) wants to mandate a college football playoff. Now, I know that no one in Parasite City (except Ron Paul) sees any area of private life as beyond the federal government's writ, but isn't this slightly ridiculous, even for a neocon? (Thanks to Jason Newbury)
Tuesday, December 9, 2008
From Gary North
Obama said this on Sunday's "Meet the Press": "The auto industry is the backbone of American manufacture."
The Big three automakers are not the backbone of the American manufacture. Rather, they are located just below the backbone.
The Big three automakers are not the backbone of the American manufacture. Rather, they are located just below the backbone.
Goodbye To Free Markets
By Russell Roberts on Politics
As we prepare to partially nationalize the American automobile industry, it is a good time to remember that George Bush is not a free market ideologue and that he did not pursue free market policies. Please remember that in his last year in office he initiated and condoned measures that helped destroy the natural feedback loops that allow markets to recover from the inevitable mistakes that human beings make. And tell your children. I know. It seems obvious. But twenty and thirty years from now, there will be people writing about how George Bush's free market ideology caused the mess we're in.
Here is the kind of problem that we are going to see more and more of as politicians respond to incentives rather than to some idea of the "public good" (HT: Travis Page). Basically a Wisconsin member of Congress, Steve Kagan, wants the bailout of Chrysler to be contingent on another company involved with Chrysler re-opening two paper mills the company had closed.
Oh what a tangled web we weave when billions of dollars are up for grabs.
Will no one stand up to stop this?
As we prepare to partially nationalize the American automobile industry, it is a good time to remember that George Bush is not a free market ideologue and that he did not pursue free market policies. Please remember that in his last year in office he initiated and condoned measures that helped destroy the natural feedback loops that allow markets to recover from the inevitable mistakes that human beings make. And tell your children. I know. It seems obvious. But twenty and thirty years from now, there will be people writing about how George Bush's free market ideology caused the mess we're in.
Here is the kind of problem that we are going to see more and more of as politicians respond to incentives rather than to some idea of the "public good" (HT: Travis Page). Basically a Wisconsin member of Congress, Steve Kagan, wants the bailout of Chrysler to be contingent on another company involved with Chrysler re-opening two paper mills the company had closed.
Oh what a tangled web we weave when billions of dollars are up for grabs.
Will no one stand up to stop this?
It's Good To Live In a "Freeish" Country
On Monday, December 1st, a SWAT team with semi-automatic rifles entered the private home of the Stowers family in LaGrange, Ohio, herded the family onto the couches in the living room, and kept guns trained on parents, children, infants and toddlers, from approximately 11 AM to 8 PM.
The team was aggressive and belligerent. The children were quite traumatized. At some point, the “bad cop” SWAT team was relieved by another team, a “good cop” team that tried to befriend the family. The Stowers family has run a very large, well-known food cooperative called Manna Storehouse on the western side of the greater Cleveland area for many years.
There were agents from the Department of Agriculture present, one of them identified as Bill Lesho. The search warrant is reportedly supicious-looking. Agents began rifling through all of the family’s possessions, a task that lasted hours and resulted in a complete upheaval of every private area in the home. Many items were taken that were not listed on the search warrant. The family was not permitted a phone call, and they were not told what crime they were being charged with. They were not read their rights. Over ten thousand dollars worth of food was taken, including the family’s personal stock of food for the coming year. All of their computers, and all of their cell phones were taken, as well as phone and contact records. The food cooperative was virtually shut down. There was no rational explanation, nor justification, for this extreme violation of Constitutional rights.
The team was aggressive and belligerent. The children were quite traumatized. At some point, the “bad cop” SWAT team was relieved by another team, a “good cop” team that tried to befriend the family. The Stowers family has run a very large, well-known food cooperative called Manna Storehouse on the western side of the greater Cleveland area for many years.
There were agents from the Department of Agriculture present, one of them identified as Bill Lesho. The search warrant is reportedly supicious-looking. Agents began rifling through all of the family’s possessions, a task that lasted hours and resulted in a complete upheaval of every private area in the home. Many items were taken that were not listed on the search warrant. The family was not permitted a phone call, and they were not told what crime they were being charged with. They were not read their rights. Over ten thousand dollars worth of food was taken, including the family’s personal stock of food for the coming year. All of their computers, and all of their cell phones were taken, as well as phone and contact records. The food cooperative was virtually shut down. There was no rational explanation, nor justification, for this extreme violation of Constitutional rights.
Monday, December 8, 2008
Leave It To The Government To Kill Initiative
State Silences 8-Year-Old GuitaristPosted by Chris Brunner at December 8, 2008 04:24 PM
Tallan Latz is an American blues guitar prodigy. He received his first musical instrument, a drum kit, at the age of three and began playing acoustic guitar at age four. By the age of eight, he had played on-stage with performers the likes of Jackson Browne and Les Paul.
He's in two blues bands and used to play in public, until bureaucrat Robert Anderson of the Wisconsin Labor Standards Bureau found out.
You see, in Wisconsin it's perfectly legal for Tallan to drink in a bar with his father present. It is not, however, legal for Tallan to "perform" in the same setting.
Tallan was quoted in a local article saying, "It feels pretty bad because that just broke my dream. My dream is to play guitar."
Bureaucrat Anderson could care less: "The kid is definitely a prodigy, and you'd like to see him have opportunities. But if I'm made aware of a violation, I have to enforce the statute." One has to wonder if he makes the same attempt to enforce all of the other stupid laws in his state.
Bureaucrat Robert Anderson can be reached at 608-266-3345.
Tallan Latz is an American blues guitar prodigy. He received his first musical instrument, a drum kit, at the age of three and began playing acoustic guitar at age four. By the age of eight, he had played on-stage with performers the likes of Jackson Browne and Les Paul.
He's in two blues bands and used to play in public, until bureaucrat Robert Anderson of the Wisconsin Labor Standards Bureau found out.
You see, in Wisconsin it's perfectly legal for Tallan to drink in a bar with his father present. It is not, however, legal for Tallan to "perform" in the same setting.
Tallan was quoted in a local article saying, "It feels pretty bad because that just broke my dream. My dream is to play guitar."
Bureaucrat Anderson could care less: "The kid is definitely a prodigy, and you'd like to see him have opportunities. But if I'm made aware of a violation, I have to enforce the statute." One has to wonder if he makes the same attempt to enforce all of the other stupid laws in his state.
Bureaucrat Robert Anderson can be reached at 608-266-3345.
Sunday, December 7, 2008
Why The U.S. Economy Will Decline
Writes Robert Higgs:
It is clear that the government’s frantic actions of the past several months have created a situation in which investors have little confidence about the character of future property rights in the United States. The takeovers of Fannie, Freddie, and AIG, the massive interventions into finanancial markets, the huge bailouts of banks and other financial institutions, mixed with letting Lehman Brothers go down and resisting a bailout for the Big Three auto manufacturers (so far, at least) — all these actions, and others, imply that a rational investor would do well to attach a huge risk premium to any money he puts into investments even for the intermediate term, not to mention the long term.
One of the clearest expressions of this outlook that I have seen so far was made recently by Lou Jiwei, the chairman and chief executive of the China Investment Corporation, who expressed a lack of confidence in Western financial institutions and said that his giant fund would make no new investments in them in the foreseeable future. As the New York Times reported:
“Right now we do not have the courage to invest in financial institutions because we do not know what problems they may have,” Mr. Lou said as part of a panel discussion on the second and final day of the Clinton Global Initiative conference [in Hong Kong].... Mr. Lou said that the sheer pace of new initiatives and new rules issued by Western regulatory agencies was disconcerting and made it even harder for him to choose worthwhile investments. “If it is changing every week, how can you expect me to have confidence?” he asked.
It is clear that the government’s frantic actions of the past several months have created a situation in which investors have little confidence about the character of future property rights in the United States. The takeovers of Fannie, Freddie, and AIG, the massive interventions into finanancial markets, the huge bailouts of banks and other financial institutions, mixed with letting Lehman Brothers go down and resisting a bailout for the Big Three auto manufacturers (so far, at least) — all these actions, and others, imply that a rational investor would do well to attach a huge risk premium to any money he puts into investments even for the intermediate term, not to mention the long term.
One of the clearest expressions of this outlook that I have seen so far was made recently by Lou Jiwei, the chairman and chief executive of the China Investment Corporation, who expressed a lack of confidence in Western financial institutions and said that his giant fund would make no new investments in them in the foreseeable future. As the New York Times reported:
“Right now we do not have the courage to invest in financial institutions because we do not know what problems they may have,” Mr. Lou said as part of a panel discussion on the second and final day of the Clinton Global Initiative conference [in Hong Kong].... Mr. Lou said that the sheer pace of new initiatives and new rules issued by Western regulatory agencies was disconcerting and made it even harder for him to choose worthwhile investments. “If it is changing every week, how can you expect me to have confidence?” he asked.
Saturday, December 6, 2008
On The Nationaization of American Industries
From Michael Rozeff:
We are entering upon a sequence of events that will, in the end, transform the American economy even more than now into a slow-growth, no-growth, inflationary, regulated, stalled, and inefficient economy. It will be a miracle if the Fed’s expansion is brought under control and reduced. The Fed will maintain its lending and even expand it. This can only atrophy both the banking system and the capital markets. Inflationary pressures are bound to build up, and that will lead to economic controls. The Treasury will look for ways to regulate capital markets still further, and this will undermine them. There is no worse signal than the Treasury’s intrusion into maintaining zombie institutions that should fail and be re-organized. This has already happened in the cases of Fannie Mae and Freddie Mac.
This all means that efficient institutions, companies, and persons will be penalized at the expense of the inefficient ones or the deadbeats. More and more will buy tickets to Washington to beg for relief. The end of the road is government control of the means of production. When companies can no longer finance themselves through the standard private means of capital markets and banks, they turn to government. When government can no longer handle the bankruptcies, it seizes the means of production.
We are entering upon a sequence of events that will, in the end, transform the American economy even more than now into a slow-growth, no-growth, inflationary, regulated, stalled, and inefficient economy. It will be a miracle if the Fed’s expansion is brought under control and reduced. The Fed will maintain its lending and even expand it. This can only atrophy both the banking system and the capital markets. Inflationary pressures are bound to build up, and that will lead to economic controls. The Treasury will look for ways to regulate capital markets still further, and this will undermine them. There is no worse signal than the Treasury’s intrusion into maintaining zombie institutions that should fail and be re-organized. This has already happened in the cases of Fannie Mae and Freddie Mac.
This all means that efficient institutions, companies, and persons will be penalized at the expense of the inefficient ones or the deadbeats. More and more will buy tickets to Washington to beg for relief. The end of the road is government control of the means of production. When companies can no longer finance themselves through the standard private means of capital markets and banks, they turn to government. When government can no longer handle the bankruptcies, it seizes the means of production.
Friday, December 5, 2008
A GOOD WAY TO THINK ABOUT BAILOUTS
FROM BILL BONNER:
There are only so many resources in the world - only so many workers…only so many tons of steel and only so many barrels of oil. In a real, free-market economy, ordinary people decide how these will be used. They vote with their money. They buy a beer, for example…and send a signal to the whole world. "Beer is what we want!" So, the hop growers get hopping…the beer truckers get trucking… and the brewers get brewing. The 'hidden hand' directs resources to where they are needed. People get what they want.
And then, along comes the U.S. Congress…in its all its majesty. We don't care what Mr. Market says, it declares, 'It is cars from Detroit that the people shall have.' And then, the money that would have gone into making beer is diverted to the auto industry. Resources follow the money. The steel delivery trucks head for the auto plants, not to the brewers. The oil that might have been used by a distillery is instead siphoned off to fire up an auto plant. The capital that might have been used to build more breweries in Anaheim is instead used to prop up old assembly plants in Detroit. And then, the consumer pays more for his beer - because the brewers didn't increase production - and more for his cars too…Detroit knows the game is rigged in its favor; why bother to cut costs?
Of course, subsidizing the domestic auto industry is just what economists have been cautioning other countries NOT to do for decades. Typically, a woebegone country in Africa or Latin America wants its own airline and its own auto industry. Its citizens could perfectly well buy their sedans on the open market…and count on the commercial airline industry to move them through the sky. But where's the prestige in that? Where are the sweetheart contracts…the bribes…the payola…the baksheesh?
There are only so many resources in the world - only so many workers…only so many tons of steel and only so many barrels of oil. In a real, free-market economy, ordinary people decide how these will be used. They vote with their money. They buy a beer, for example…and send a signal to the whole world. "Beer is what we want!" So, the hop growers get hopping…the beer truckers get trucking… and the brewers get brewing. The 'hidden hand' directs resources to where they are needed. People get what they want.
And then, along comes the U.S. Congress…in its all its majesty. We don't care what Mr. Market says, it declares, 'It is cars from Detroit that the people shall have.' And then, the money that would have gone into making beer is diverted to the auto industry. Resources follow the money. The steel delivery trucks head for the auto plants, not to the brewers. The oil that might have been used by a distillery is instead siphoned off to fire up an auto plant. The capital that might have been used to build more breweries in Anaheim is instead used to prop up old assembly plants in Detroit. And then, the consumer pays more for his beer - because the brewers didn't increase production - and more for his cars too…Detroit knows the game is rigged in its favor; why bother to cut costs?
Of course, subsidizing the domestic auto industry is just what economists have been cautioning other countries NOT to do for decades. Typically, a woebegone country in Africa or Latin America wants its own airline and its own auto industry. Its citizens could perfectly well buy their sedans on the open market…and count on the commercial airline industry to move them through the sky. But where's the prestige in that? Where are the sweetheart contracts…the bribes…the payola…the baksheesh?
ON THE AUTOMAKER BAILOUT
By Russell Roberts on Politics
This (HT: Drudge) is supposed to be serious rather than funny. At the top of the article, the head of Chrysler threatens that if the government doesn't bail out the auto companies, it could trigger a Depression. Then this:
Congressional leaders are reviewing three separate survival plans from the automakers in preparation for hearings Thursday and Friday, as they weigh whether to call lawmakers back to Washington for a special session next week to vote on an auto bailout.
Officials at the White House and the Treasury and Commerce departments are also scouring the automakers' plans. White House press secretary Dana Perino said it is "too early to say" whether the companies have outlined a path toward viability that justifies new federal assistance.
"It sounds to me like the companies have given this a lot of thought and are willing to make some tough decisions," Perino said. "We just need a little more time to pore through the documents.'"
Let's look at the verbs: reviewing, scouring, poring, weighing.
To what purpose?
Congress and the White House are going to decide whether the plans are sufficient for a viable future of the auto companies?
Why don't the Big Three save the money it takes to put together Congressional testimony and the time it takes for the people in charge to make the trip. Why don't they just take out ads in the Wall Street Journal and the New York Times outlining what they're going to do with the money. Then they can try this really novel idea. They can sell bonds and borrow the money. If the plans look good, people might lend them the money. If the plans are lousy, they won't get the money.
Now I understand it's hard to borrow money when things don't look so good for your future. But that's why Congress shouldn't be lending them any money. Particularly because politicians don't have an incentive when they're spending other people's money to weigh, review, scour and so on with an eye toward the profitability of the plans.
When people have lost faith in you because you've performed poorly, you have to pay a premium to get them to invest. That's a feature not a bug.
The other thing I'd tell those execs: why don't you spend less time begging and more time trying to save your companies the old-fashioned way, by improving your product?
This (HT: Drudge) is supposed to be serious rather than funny. At the top of the article, the head of Chrysler threatens that if the government doesn't bail out the auto companies, it could trigger a Depression. Then this:
Congressional leaders are reviewing three separate survival plans from the automakers in preparation for hearings Thursday and Friday, as they weigh whether to call lawmakers back to Washington for a special session next week to vote on an auto bailout.
Officials at the White House and the Treasury and Commerce departments are also scouring the automakers' plans. White House press secretary Dana Perino said it is "too early to say" whether the companies have outlined a path toward viability that justifies new federal assistance.
"It sounds to me like the companies have given this a lot of thought and are willing to make some tough decisions," Perino said. "We just need a little more time to pore through the documents.'"
Let's look at the verbs: reviewing, scouring, poring, weighing.
To what purpose?
Congress and the White House are going to decide whether the plans are sufficient for a viable future of the auto companies?
Why don't the Big Three save the money it takes to put together Congressional testimony and the time it takes for the people in charge to make the trip. Why don't they just take out ads in the Wall Street Journal and the New York Times outlining what they're going to do with the money. Then they can try this really novel idea. They can sell bonds and borrow the money. If the plans look good, people might lend them the money. If the plans are lousy, they won't get the money.
Now I understand it's hard to borrow money when things don't look so good for your future. But that's why Congress shouldn't be lending them any money. Particularly because politicians don't have an incentive when they're spending other people's money to weigh, review, scour and so on with an eye toward the profitability of the plans.
When people have lost faith in you because you've performed poorly, you have to pay a premium to get them to invest. That's a feature not a bug.
The other thing I'd tell those execs: why don't you spend less time begging and more time trying to save your companies the old-fashioned way, by improving your product?
Tuesday, December 2, 2008
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