Well, that worked! The overnight collapse of world stock markets, led by a seven percent one-day drop in the US Dow Jones index, shows just how well the trillion-dollar bailout worked to arrest economic collapse.
In two words: It didn't.
One trillion dollars of printed money just disappeared down the black hole marked "failed economic theory."
The lesson is obvious to those who know what they're looking at. The naked emperors of mainstream economic theory have no clothes. To everyone else however -- and sadly, "everyone else" seems to describe most of the emperors themselves: the people with their fingers in the till, their heads up their arse and their hands on the legislative tillers -- the failure of the bailout is only going to lead to more calls for more bailouts, more regulation and even more government control of the economy.
And like the leeches and blood-letting of an earlier age, the cures will only exacerbate the disease, and credit crunch will lead to credit crunch which will eventually lead to near-complete state takeover of the financial system.
For most of the ignorati in positions of power and influence, the state played no part in the economic collapse. No part in the government-sponsored mortgage banks and the state's insistence on lending to people who couldn't pay for it; no part in the state's restrictions on land and lack of restrictions on their own destructive spending; no part in setting up and backstopping the inherently bankrupt fractional reserve banking system ,and Alan Greenspan's pumping of the money supply. For people with bone where their brain should be, all this was the product of "deregulation."
Talk about ignoring the obvious: especially the multi-billion dollar golden shower that Alan sprayed over financial markets in his post-Dot.Com "bailout" from 2001 to 2004. What we're left with is economic destruction combined with widespread economic ignorance -- which means, as Sharon Harris observes, we now face "The biggest assault on free market ideas since the 1930s New Deal. That's what we're facing with the current economic crisis. Overnight, decades of hard work building public support for free markets has been threatened. Enemies of economic liberty are gleefully using this crisis to discredit free market ideas and ram through a Big Government agenda. We're hearing them everywhere."
We sure are, some from people who should know better, but most from people in a position to do even more damage:
- "Raw capitalism is dead." -- Henry Paulson, U.S. Treasury secretary, TIME magazine, September 18.
- "The high priests of capitalism are in sackcloth and ashes, their belief in markets shattered, their catechism of risk-taking renounced. From Wall Street to Detroit, once-devout believers in unfettered private enterprise are running from their religion. ... Perhaps the pendulum is finally swinging back to a widespread recognition that government has a role to play in regulating markets, protecting consumers and providing a social safety net. ... The worship of unfettered private enterprise has been exposed for what it is -- just another cult." -- Cynthia Tucker, syndicated columnist and editor of the opinion page of the Atlanta Journal-Constitution, the South's largest newspaper.
- "[The idea that] the market knows best -- that era is over. Market fundamentalism is taking a beating in policy circles and the public mind." -- Lawrence Mishel, president of the Economic Policy Institute.
- "This can bring about a turn toward a new era. If we have the money to bail out Wall Street, we can provide funding for health care, childhood poverty, infrastructure and sustainable energy." -- avowed socialist U.S. Sen. Bernie Sanders, I-Vermont.
- "... The free market in finance, unregulated and unsupervised, has failed." -- New York Times.
Well, no it hasn't, but it's going to be a hard job convincing the ignorati of that.
The plaintive cries are almost messianic -- a clear and present danger when the present US election pits two economic ignoramuses against each other, one of them with a messianic aura not seen since Franklin Roosevelt hit the White House and began to strangle the US economy.
Roosevelt is a reliable litmus test of statism: as an unreconstructed apostle of big government, exuberant interventionism, voodoo economics, and state welfare used as an electoral club, anyone who calls himself an admirer can be seen immediately as a statist of the first water.
There are two admirers just one election away from the White House.
We are in a crisis of political economy. The crisis is economic; it was caused by politics. As Chris Sciabarra argues, "The current state and the current banking system require one another; neither can exist without the other. They're so reciprocally intertwined that each is an extension of the other."
The present banking system needs the state's imprimatur to maintain its dangerously fraudulent (and fragile) fractional reserve system, and the credit spigot of the world's central banks; and the state desperately needs the smoke and mirrors and the inflation of the fractional reserve system, and it regularly mainlines from the banking system's credit spigot (and as of yesterday afternoon we've all been reminded of just how much NZ's engines of state need the products of that credit spigot).
The crisis was caused by governments. It will be exacerbated by governments. Just as there is no escape from the crisis, there is now way out from the intellectual battle against those who would squelch recovery and make the crisis worse. Said Ludwig von Mises:
No one can find a safe way out for himself if society is sweeping towards destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result.
When we see the destruction caused by the depression of the thirties and the means by which the Roosevelts of the world both extended it and then used it to permanently enthrone big government, it should be clear to anyone with eyes to see that what politicians do in the next few months will effect us all for good or ill for at least a generation.
I urge all readers of NOT PC who do understand the issues at stake to make your voices heard. Loudly!
As Ayn Rand writes in “What Can One Do?”: “When you ask ‘What can one do?’—the answer is ‘SPEAK’ (provided you know what you are saying).”
A few suggestions: do not wait for a national audience. Speak on any scale open to you, large or small—to your friends, your associates, your professional organizations, or any legitimate public forum. You can never tell when your words will reach the right mind at the right time. You will see no immediate results—but it is of such activities that public opinion is made.
Speak up: Write blog posts -- and comment on blogs that toe the statist line. Write letters to the editors of newspapers and magazines, to TV and radio commentators and even to politicians (who depend on their constituents). If your letters are brief and rational (which will be an unusual pleasure for them to receive), they will have more influence than you suspect. Take every opportunity you can to debunk the lies, and to tell the truth about the failures of government intervention
UPDATE 1: "Regulators cannot avert the next crisis," says Johan Norberg in The Australian, but they can make it much, much worse.
UPDATE 2: European commentators are now screaming for the printing presses to be turned up high to rescue all the blunderers. Screams one idiot in The [UK] Telegraph:
We are fast approaching the point of no return. The only way out of this calamitous descent is “shock and awe” on a global scale, and even that may not be enough.
Drastic rate cuts would be a good start. Central bankers still paralysed by a misplaced fear of inflation – whether in Europe, Britain, or the US – have become a public menace and should be held to severe account by our democracies. The imminent and massive danger is now self-feeding debt deflation...
Well, no, the imminent and present danger is more of what caused the problem in the first place, which is more and more money pouring off the government's printing presses. The Telegraph commentator quotes approvingly US Fed chairman Ben Bernanke from his 2002 "helicopter" speech extolling the virtues of his inflationary central bank:
The US government has a technology, called a printing press(or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost... under a paper-money system, a determined government can always generate higher spending and hence positive inflation.
As Lew Rockwell explained a year ago, when the cost of Bernanke's printing press was already obvious to those who knew what they were looking at:
Picture the Joker from the movie Batman throwing money from his float on the parade and you can see where this is going. Or imagine the alchemist of medieval lore, attempting to conjure up wealth from chemical mixtures.
The sea of inflationary credit is the core problem behind the falling dollar, the subprime crisis, the housing meltdown, not to mention the rise in the national debt and a thousand other problems.
And how do they deal with it? More credit and more calls for controls. No one in Washington seems to understand the reason for the crisis, much less how to fix it...
A good indication is President Bush's [December '07] freeze on subprime mortgage rates. It is a classic case that provides serious lessons for all of us. It shows the political penchant for intervening in the market, the market response, and the further interventions that are called forth when the first round doesn't bring the utopia they imagine.
Here is the great mortal threat that intervention poses to the economy: not the first round, not even the second round, but the relentless dynamic of political rescues that drive us further into the pit of state planning...
As Austrian economists, and some of the saner mainstream economists have been saying to little notice, the pain caused by Bernanke's printing press is now inevitable -- the only choice is whether the pain is dragged out for years and even exacerbated by meddling and interventionism, as Roosevelt did in the thirties; whether it's dragged out for a decade of stagflation, as it did for Japan in the "lost decade" of the nineties; or whether we bite the bullet and have our correction, including the necessary correction in wage rates, and get back on track as swiftly as corrections such as that of the early twenties were effected.
UPDATE 3: NZ politicians don't even appear to look like they've realised there's a tsunami on the way. Yes, they've all noticed that the money coming their way is looking somewhat slimmer, but there's little sign they see it as a any reason to slim down -- and no indication at all from any of them that they even see the wider world beyond Molesworth St.
In this interview on Leighton Smith's show this morning, the finance minister who pulled NZ out of a hole in the eighties, Roger Douglas, sounds like he's at least halfway to understanding what needs to happen this time. Listen here courtesy NewstalkZB - Douglas starts about 34:00 in.