The whole world “followed” the beast (Rev 13:3).People think that we are living in the age of democracy,
The rich hate capitalism because it threatens to take away their money. The poor hate it because they think it keeps them from getting any money in the first place. And everywhere you look, the chiselers are offering bailouts, boondoggles and bamboozles. With so many people trying to improve on capitalism, it’s a wonder they’ve never come up with something better.From Hoorah for Capitalism by Bill Bonner
When you leave people alone: some people watch TV...some blabber about politics...and some build wealth. The rules are simple: Thou shalt not steal, it saith in the Bible. Do unto others as you would have them do unto you, Jesus added. Everything else - from hedge funds to derivatives - is merely an elaboration. People make deals with their neighbors in order to get what they want. One plants the wheat; the other bakes the bread. As long as they respect each other's deals and each other's property, everything goes tolerably well.
The western, capitalist economies are in the midst of their own perestroika. They are being restructured. But not by the world-improvers. Instead, they are being restructured by capitalism itself... Leave capitalism alone and it will do the job far faster and far better than the meddlers could ever do.
..many governmental actions -- including several pursued by Franklin Roosevelt during the Great Depression -- can make things worse. I wish I could be confident that the array of U.S. policies already in place and those likely forthcoming will be helpful. But I think it more likely that the economy will eventually recover despite these policies, rather than because of them.Wisdom from Robert Barro at the Wall Street Journal. Read the full article
This is a crisis brought on by our collective profligacy, which manifested itself in too much spending, too much debt and no savings. The normal way to get out of a situation like that is to spend less, reduce borrowing and save more. I’m wondering why we haven’t taken that approach – well, I know why, but I still question the response.Julian Robertson quoted by Rolfe Winkler at Option Armageddon
We know that interest rates are going to go up eventually. But no-one wants the cost of borrowing to go up right now - least of all the world's overextended governments. That's why the ructions in the US government bond market this week has people nervous.......Stephanie Flanders at BBC.
But the second lesson is more fundamental: we all have higher interest rates in our future. And when I say higher, I don't just mean higher than the record lows they are at today, I mean higher than they were before the crunch. An era of cheap money partly got us into this mess. Thanks to the mountain of public debt now sitting on government balance sheets, it's a fair bet that money is going to more expensive when we come out the other side....
The financial crisis has generated a "scrambling for public funds of war-like proportions". Other things equal, basic economic theory suggests that a rise in government borrowing on that scale will push up the long-term cost of borrowing once the recovery gets going. Of course, that might not happen overnight, especially with so much slack in the big economies due to the recession. But even sceptics about the effect of borrowing on rates would probably accept that this kind of rise in government debt will have an effect on the cost of debt....
When the advanced economies pull out of this crisis, the level of public debt is going to be the central fact of economic and political life for years to come.
For what we're doing instead is surely a folly of historic proportions. The Bank of England is about to start printing money. We're piling government debt on top of debt. Our leaders seem to have decided that the only solution is to inflate away the UK's crippling liabilities – while spinning a yarn the danger is deflation instead.
Well, the money market won't have it. The UK's foreign creditors, in particular, won't buy gilts if they see our currency being debauched. Then we'll be in serious trouble – facing an IMF bail-out and with our credit rating shot. But don't worry – the bankers will still get their bonus …
There is confusion between the "disease" — high levels of debt — and the "cure" — the reduction of the level of debt now under way (deleveraging). Debt within the financial system is falling as some borrowers default, destroying existing debt and also limiting the capacity for further credit creation. Total losses from the crisis are estimated by the International Monetary Fund at about $US4.1 trillion ($A5.4 trillion), of which $US2.7 trillion will be borne by financial institutions.Satyajit Das at The Age on End of the Age of Plentiful Debt.
Government ownership, or de facto nationalisation, has become the primary option to recapitalise the banking system in many countries. Even after recapitalisation there is likely to be a capital shortfall in the global banking system of about $US1 trillion-plus, forcing a contraction in global credit of about 20-30 per cent from existing levels. This is much more than a banking problem. At this point it affects the real economy.
In this morning’s paper is a front-page article describing how Japan “wasted trillions” on its various stimulus programs.Japan’s rural areas have been paved over and filled in with roads, dams, and other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s (The International Herald Tribune).Public spending was so aggressive, it boosted Japan’s government debt to 180% of GDP – more than two times the current U.S. level. But did all that cement buy Japan out of its slump?
You be the judge. Housing prices in Japan are now back down to where they were in 1975 – nearly 90% below the late-’80s peak. And stocks? The Nikkei index is back down to where it was a quarter century ago. Stocks sell for half their book value – and they’re still considered too expensive for beaten-down, hyper-fearful Japanese investors. The downturn began in 1990. Over the following 19 years, it did more property damage than the Great Tokyo Fire of ’23 and the Enola Gay combined, wiping out wealth equal to three times the country’s GDP. This was despite interest rates at zero...and a heroic effort at Keynesian stimulation.
If America were to follow Japan’s example, it would have to leave its interest rates near zero for the next decade...and add about $10 TRILLION to its public debt. And if it got the same results, you’ll be able to sell your house in 2026 for the same price you paid in 1992.In a nutshell,Japan’s experience suggests that infrastructure spending, while a blunt instrument, can help revive a developed economy, say many economists (The International Herald Tribune).Are these, perhaps, the same economists who thought America’s super-consumption, eternal-debt economy would never fail? The same economists who thought the bankers were providing a public service, by offering so many people so much credit...and then planting their debt bombs all over the planet? The same economists who forecast rising stock prices in 2008?
What the Federal Reserve and Treasury have set in motion is the mother of all crowdings-out. The Fed is compelled to buy substantial amounts of Treasuries to prevent the federal deficit from turning into a $1.8 trillion black hole that sucks in all the free savings of the world and then some. The moment that yields start to rise, the stock market reacts negatively. There is no “give” in the economy for any substantial rise in yields: the penalty to growth expectations is exacted immediately.From Seeking Alpha.
By ballooning the deficit and tying the credit of the United States to the balance sheet of the banking system, the Fed has avoided panic, but has crippled the economy for the long term. There is no way to finance the deficit except by suppressing financing for everyone else. The massive amount of liquidity created by the Fed has no inflationary effect as long as the market does not want to hold real assets — and it will not as long as the federal government sucks up the available savings. The most likely scenario is a paralytic, zombie-like stasis.
Fractional Reserve Lending (FRL) is fraudulent. Indeed, FRL in conjunction with micro-mismanagement of interest rates by the Fed is the root cause of the financial crisis we are in.Mish Shedlock at Global Economic Analysis. This is really worth reading.
Perhaps the most important proposition in the economics of property rights is that people will not care for a resource they do not own as well as they will care for a resource they do own. It is amazing how much fashionable economic belief — for example, nearly everything ever advanced in support of socialism, as well as the bulk of what passes for environmentalist policy proposals — fails to take adequate account of this virtually axiomatic proposition.Robert Higgs at the Independent.
But don’t take my word for it — or even the word of any of my illustrious former collegues at the University of Washington. Take the word of Jesus of Nazareth.
In the tenth chapter of the Gospel According to John, Jesus is trying to make a point, but his listeners are not getting it, so he finally gives them a parable he can be sure they will understand (verses 11-13):The good shepherd lays down his life for the sheep. The hired hand, who is not the shepherd and does not own the sheep, sees the wolf coming and leaves the sheep and runs away — and the wolf snatches them and scatters them. The hired hand runs away because a hired hand does not care for the sheep. I am the good shepherd. I know my own and my own know me.Hired hands must be monitored closely if the owner is to prevent them from diminishing or destroying the value of the capital he has provided for them to work with.
Economist Robert Higgs has convincingly argued that the real tendency is not toward pure socialism, but toward a mixed economy and corporate liberalism. This means a corporate state where big business, special interests and the governing elite together rule over an economy of heavily regulated and politically connected crony capitalism. The public also tends to be included in a semi-democratic fashion -- unlike in outright totalitarian regimes of the past, there is wide enfranchisement and encouragement that the people engage in the system.From The Mixed Economy in Crisis by Anthony Gregory at Campaign for Liberty.
There is just enough of an opening for business and just enough of an illusion of public involvement that neither economic law nor public opinion will cause the government to fold over, despite its many tyrannical vagaries and encroachments on the liberties of the people. Higgs calls this system "participatory fascism" -- the economics of corporatist central planning coupled with a democratic form of government -- and says it is the dominating tendency in the modern developed world.
Discussion of fascism, like socialism, is often dismissed as hyperbolic, but the fundamental features of fascist central planning can be seen in our economic system. Politically protected big business, cartels, nominal private property rights, a welfare state and socialized risk -- crony capitalism and social interventionism -- mark both systems.
Martin Wolf - whom finance ministers and leading economists read in order to find out what to think - had a nice turn of phrase. Derivatives, he said, did not - as advertised - transfer the risk to those people most able to manage it. "They transferred the risk to those least able to understand it."Bill Bonner at the Daily Reckoning.
But when Wall Street's vaults were open, what did they find? They hadn't transferred it at all! So much risk was left in the hands of the people who created it that - when it blew up - it flattened the entire investment banking industry.
To the extent that "hoarding" or, more accurately, an increase in the demand for money for cash holding takes place, it is not because people have decided to save. What is actually going on is that business firms and investors have decided that they need to change the composition of their already accumulated savings in favor of holding more cash and less of other assets.George Reisman
For example, an individual may decide that instead of being 90 percent invested in stocks and other securities and having only 10 percent of his savings in cash in his checking account, he needs to increase his cash holding to 20 or 25 percent of his savings.
Similarly, a corporation may decide that it needs to increase its cash holding relative to its other assets in order to be better able to meet its bills coming due. Indeed, this is happening right now as more and more firms find that they can no longer count on being able to borrow money for such purposes.
The 1929 crash exposed the naivety and ignorance of bankers, businessmen, Wall Street experts and academic economists high and low; it showed they did not understand the system they had been so confidently manipulating. They had tried to substitute their own well-meaning policies for what Adam Smith called ‘the invisible hand’ of the market and they had wrought disaster. Far from demonstrating, as Keynes and his school later argued—at the time Keynes failed to predict either the crash or the extent and duration of the Depression—the dangers of a self regulating economy, the degringolade indicated the opposite: the risks of ill-informed meddling.Paul Johnson in Modern Times. I doubt that the G20 has done any better.
The search for profit and the avoidance of loss is the essence of the capitalist process. In a market economy, individuals and firms have incentives to discover products and services that consumers want and then produce them at the lowest cost. Profits become a signal of success and a reward for serving consumers efficiently. Contrariwise, when losses appear, they signal failure and inflict a penalty on firms for producing poor products or having bloated costs of production.Dom Armentano (Professor Emeritus at the University of Hartford CT) on Bailout Baloney
Do you not see, first, that — as a mental abstract — physical force is directly opposed to morality; and, secondly, that it practically drives out of existence the moral forces? How can an act done under compulsion have any moral element in it, seeing that what is moral is the free act of an intelligent being? If you tie a man's hands there is nothing moral about his not committing murder. Such an abstaining from murder is a mechanical act; and just the same in kind, though less in degree, are the acts which men are compelled to do under penalties imposed upon them by their fellow men. Those who would drive their fellow men into the performance of any good actions do not see that the very elements of morality — the free act following on the free choice — are as much absent in those upon whom they practice their legislation as in a flock of sheep penned in by hurdles.Auberon Herbert quoted at Christian Libertarianism.
Truth is, socialism is not the wave of the future. Indeed, it is already almost as dead as the dodo. Hardly anybody in a position of political power or influence now wants to establish socialism along the lines of the Soviets or the Maoists. Everyone knows that doing so is a one-way ticket to widespread poverty, which leaves precious little surplus for the political kingpins to rip off.Robert Higgs says We are Not All Socialists Now.
No, the world is converging ever more visibly, not toward socialism, but toward what I (following Charlotte Twight’s usage) have for many years been calling participatory fascism. The hallmarks of this system are, on the political side, the trappings of democracy (parties, elections, procedural niceties, etc.), and, on the economic side, the form of private property rights (though not much of the substance that characterizes the real thing).
The beauty of this system is that the political system can easily be corrupted so that the power elite retains a firm hold on the state, despite the appearance that they rule only with the consent of the governed. The major political parties appear to compete, but for the most part they coalesce and conspire; on the basics, they are in complete agreement. The apparent “consent” they enjoy they actually manufacture by their control of the mass media, the schools and universities, and other key institutions, and no political opinion outside the 40-yard lines ever receives a hearing in serious political circles.
And while the ruling establishment retains an iron grip on state power, it allows entrepreneurs just enough room for maneuver so that innovators can continue to produce the new products, new methods of production, new raw materials, and new organizational forms that move the economy forward.
The most enterprising entrepreneurs can still get rich, although even they will see a large chunk of the fruits of their labors ripped away by the state. Productivity will increase sufficiently to keep a growing supply of creature comforts and amusements flowing to the masses, who are content with these things, along with the illusion of security that state functionaries induce in the people....
How do you think we got into our present situation, anyhow? It’s not as though the masses were repeatedly given what they didn’t want. They had plenty of opportunities to say no to dependency on the state, but they turned away; and they do not intend to go back any time soon to what they imagine to be an unbearably harsh style of life. Rugged individualism might have been okay for their great-grandparents, but they want no part of it.
All of which leaves us—by which I mean nearly everybody on earth—converging on the only form of politico-economic system that has a stable equilibrium in our present ideological circumstances: participatory fascism. I am not saying that this system is the only one possible, forever and ever, amen. I am saying, however, that until the world’s people abandon en masse the collectivist ideologies that now determine their social cognition, policy evaluation, political practices, and personal identities, any hope for moving to a freer form of economic order as a stable equilibrium is virtually nil.
