Things are vastly worse than most are willing to believe: this financial crisis isn't about a cyclical up and down. We've reached limits, limits created by thieving and incompetency, we've been maneuvered into this dead end of a system by those who have made massive profits by directing traffic into the pile-up, aided by those who are happy to let them do that just as long as they then are in control.
...the primary economic policy of the U.S. government as well as many others around the world is an extend and pretend strategy that is economic suicide primarily in that it keeps the irresponsible in their assets and it makes the responsible shudder and shun productive investments. Whether it be a homeowner that is subsidized to stay in a home that he cannot afford or a bank that doesn't want to come clean on the extent of its bad assets, the result is the same. Complete economic inertia.
While I don't agree with much of what Mr. Krieger says in his article - I do not see the Fed as a socialist organization - there is a lot of insight into what he does say.
This is especially important:
...the banks or anyone else for that matter playing a spread by borrowing at near zero to buy long-term treasuries is doing irreparable harm to this nation. They are complicit in the gross misallocation of capital to the government, capital that can then be doled out at will to favored interests. So all we have today is essentially a creation of money and credit out of thin air that is allocated to two major constituents. First, it has primarily been used to maintain the people of wealth, power and political connections (on both sides of the isle) before the crash entrenched in their socioeconomic roles. Second, is to pay off political favors. Those who supported the President in his campaign have been paid back handsomely and are today much more powerful and secure than before whether we are talking unions or the oligopoly banks. If we wish to have any hope of a sustainable recovery preventing the inevitable social unrest to come from truly getting dangerous we must restore the free market and end the union of big business and government, which historically has presented an extremely dangerous situation.
To coin a phrase: the business of America is business.
Now, obviously, that's not from me, but rather from Calvin Coolidge, as explained here:
The real statement comes from a speech by Calvin Coolidge called "The Press Under a Free Government" which was given before the American Society of Newspaper Editors in Washington, D.C. on January 17, 1925. The quote is really: "After all, the chief business of the American people is business." However, Coolidge goes on to say that, "Of course the accumulation of wealth cannot be justified as the chief end of existence." He discusses journalism and the thought that the business interests of newspaper owners should not taint reporting. He continues, "American newspapers have seemed to me to be particularly representative of this practical idealism of our people."
That, in a nutshell, is what drives the economy: not the accumulation of wealth as the chief end of existence, but of business, of creating jobs, creating value, creating something tangible and real out of raw materials (including services).
It is also that which is quite clearly missing today:
For those that are in big business and think they have made a great move by joining forces with the state I suggest you go back and read your history. You never will possess the ultimate power, you will be seduced into thinking you do and then when the time is right government can eliminate you and your fortune with the stroke of a pen. Power is granted to you by this authority when you engage in this unholy union and it can be taken away on whim and your wealth confiscated. Selling out freedom and your fellow citizens for some extra money or government contracts will come back to haunt you. Your legacy to the United States will be a neo-feudalistic, gulag casino economy that has already begun. Below is a link to an excellent interview with Bill Moyers on PBS about our financial oligarchy (I believe many industries here are becoming oligarchies but the financial one is the most powerful) and the need to stop its cancerous growth.This is the legacy of the Chicago political machine, of sucking in businesses, who think they are getting in on the ground floor, that they have gamed the State, only to find that they now have parasites latched onto them that cannot be removed with out killing the patient.
All this said, while I am a small government person, I am no anarchist. I think government can do a lot of good. I merely think government must be used a tool, a complement to the freedom, independence and individuality. Once the government becomes so big that is the primary driver of capital and investment we are in big trouble. This is where the individual's economic creativity becomes stifled and things shut down.
Like I said, I don't always agree: but this is the core point that needs to be made again and again and again, as when the State becomes the economy, then the economy ceases to work. This is inevitable: the State follows its own reasons and goals, and they are never the goals of the common man or the even the people as a whole.
The important point also raised is this:
...the biggest wealth destruction in the next 1-2 years will be in my opinion without a doubt in the sovereign/municipal debt markets. Whether it be through inflation or deflation this stuff can't possibly be paid back in real money or anything close to it. The biggest fallacy I hear from people I know that own government or municipal paper is they say they are "comfortable just collecting the yield." Ok, they may be comfortable with that now, but what if inflation escalates in a major way which is in my opinion a one of the more likely outcomes to all this. It means that clipping 3.7% per year on a 10 year note will not be so comforting.
People investing in sovereign debt are indeed setting themselves up for a fall, because there is no way for this to be paid back. Let's repeat that one more time.
Sovereign debt cannot be paid back. It will be either eliminated via default or via inflation. Sovereign debt, at this point, is unsustainable and as such deserves junk status, not the highest ratings status. This is yet another case where the standard rating system fails, as it fails to take into account the sheer levels of debt until that debt has already been accumulated. Ratings have to look forward for them to be of any real use to an investor: watching your investments get de-rated after they go tits-up is not much of a help at all.
The welfare state, the creation of a modern lumpenproletariat kept enthralled with food stamps and American Idol and deliberately dumbed-down to create dependent voting blocks that vote in the same thieves and frauds year in, year out, is at the core of the malaise. This dysfunctional aspect of the United States carries with it the seeds of its own destruction.
The solution? No one is going to like it: hard work, savings, poverty and despair for those unwilling to work. Charity for those actually unable to work. For those indulgent in their life styles, no further subsidies, no more billions spent on trying to find a cure for AIDS (ultimately a life-style disease, one with an easily controlled vector that is defeated by dark rooms and heavy promiscuity), and above all: putting adults in control.
Because they certainly are not in control right now.