Wednesday, November 19, 2008

Are we entering Great Depression 2? Did government start it?

Paul B. Farrell of Marketwatch gives “30 Reasons for Great Depression 2 by 2011: New-New Deal, bailouts, trillions in debt, antitax mindset spell disaster” at this link. As the 1950 World Book Encyclopedia says, "Business depression" is the new "terror." All societies that have money systems have experienced economic downturns.

Farrell starts with a discussion of the dot-com bubble in 2000 followed by the housing bubble, morphing into a megabubble of bubbles, rather like a multiverse of universes.

Ben Stein has been writing columns saying that only government can stimulate the economy enough to get things moving again. For example, Nov. 17, "Reflate the Economy, Now", link here.

The most touted reason is a basic failure of “market fundamentalism,” which was also the case as the Great Depression followed the 1929 crashes. Is this a renouncing of libertarianism? Well, I think that libertarian principles would still require that “securitization” of investor money be transparent to them. I don’t think people should need repeated calls from financial planners to manage their money with basic portfolios. (Day trading is different; you do have to know what you’re doing.) I think people ought to understand what funds will do with their money. I think retirees ought to be able to see what employers do with their pension funds.

The Cato Institute has a Briefing Paper by Lawrence H. White, “How Did We Get Into This Financial Mess?”, Nov. 18, 2008, PDF link here. The paper discusses unsound policy on interest rates (in conjunction with the Taylor Rule) but goes on to criticize the pressure by government on banks, starting with the Community Reinvestment Act at least, to make unsound mortgage loans to low income people. The paper is critical of public policy that tries to make “free” luxury housing available to unqualified borrowers ultimately at the expense to others. It sees this as redistributionist expropriation, or playing Robin Hood. It seems like this started with the Democrats. But then the Republicans looked the other way on reckless securitization practices, out of sight of investors.

The gloomy Federal Reserve minutes were released today here, although they refer to data that was known before the end of October.

Visitors should note the Treasury Department's Emergency Economic Stabilization Act Website.

And we all know about "Democratic lame duck Congress to Big 3 Auto Makers: Drop Dead!"

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