The Debate

We don't dabble in political chatter as a rule. The economic situation and the bold rhetoric from most of the Republican candidates is forcing us to weigh in. The popular ideas from last night centered on several basic themes. 1) The Fed is bad. Bernanke should be fired. The Fed "fixes" the price of money (and at the wrong level-some said too high some too low). 2) Debt - Gov., student, or mortgage is bad. 3) Managing  businesses and people into bankruptcy is good.

I do not understand the first in any context. A central bank is a mandatory institution of an advanced economy and an independent one is better. Greenspan's actions are far more responsible for the present situation than Bernanke's actions post crisis. Greenspan was a Time Magazine cover boy, "world saver" and incredibly popular. The credit prosperity was a winner on Main St. and Wall St. The Fed, in fact, "fixed" the price of money (through the funds rate) under Greenspan. No longer. That structure is the key difference between an interest rate and a quantitative regime. (The lack of comprehension of this should scare many). No person was suggested as replacement, so no analysis of a different monetary policy can take place. [Cain wants to bring Greenspan back]

The anti-debt crusade is a head scratch-er for us. No candidate seemed to grasp that no economic advance since the Industrial Revolution has occurred without the creation of and acceptance of credit. The debts in all three categories have already been taken on. To say you are "against" them is nothing more than side stepping a reality.

The third point plays off the second. Failure may be a necessary characteristic of capitalism but that does not mean it is harmless. Systemic failure is different from hypothetical failure. I was amused to hear how many blame "people who bought homes they could not afford." Strangely, this fear never came up from a seller at a closing in 2006. That any of these policies can be construed as growth oriented is astounding. The economic policy would look like this: Hike rates, restrict borrowing and default on the existing debt mountain. But change the tax code some to create jobs and grow the economy. Good luck with that.

We are radical pragmatists ideologically. The Democratic candidate, sometimes known as the POTUS, owns the economic situation. If this is the "solution", we are in big trouble.

One thought on “The Debate

  1. Tuvaorbst

    There is nothing “advanced” about a central bank that prints money in collusion with the state. The US has had 2 previous central banks who were denounced as an engine of corruption, and the current FED has been uncomfortably close to some recent headlines –MF Global’s Corzine primary dealer status via lobbying Dudley, $60billion printed and shipped to Iraq and subsequently lost, lending to Gadaffi’s central bank in 2008. How can you defend an entity that controls trillions of the people’s money in secrecy without audit by the GAO, this is the itch you need to scratch.

    No one is against credit for credit’s sake, but borrowing is the bringing forward of future consumption and young people with their lives ahead of them are worried that this generation is maxing out the nations credit for the benefit of some and leaving them with a bankrupt system. If you think the current debt levels is sustainable then say so and explain why. If you think inflating out of debt at the expense of savers is the way to go forward then dare say so publicly in your blog you support the inflation tax on savers. To claim that the conservative message is archaic and irrational is intellectually dishonest demagoguery.

    Debt crises are nothing new, Latin America, Iceland, Sweden, Russia, South-East Asia, South Korea all at one point or another borrowed too much, promised too much, malinvested too much, and the solution chosen was a sharp contraction in GDP for a couple of years, and start over with a more solid base. Those economies are thriving now.

    But somehow “Developed” nations can’t bear the humiliation of owning up to past mistakes, so a different set of economics apply, economists who didn’t have a clue during the bubble now somehow are certain of what must be done and defend the indefensible, keep the bad debts, print the money, kick the can down the road. Good luck with that too, as the next generation becomes more and more aware of this gig.

    Have the courage to take the pain, it will be sharp but over before the current freshmen graduate college. Keep the status quo and watch the indentured youth unrest swell.

    Reply

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