海角大神

Yesterday, Europe was back in the news. Whenever Europe is in the headlines, the headlines are bad. And the ideas behind the headlines are absurd. In fact, it is amazing how many crackpot ideas the press can throw at you in a single day.

The immediate problems in Europe were two:

First, it looked like Portugal was going the way of Greece. It would soon need another bailout, said the papers.

Second, the Greeks themselves, were still having trouble settling up with their creditors 鈥� despite years of negotiation, bailouts, rescue plans, and mouth-to-mouth resuscitation.

Bloomberg was on the story yesterday afternoon:

鈥�a stalemate between European policy makers and Greek bondholders over debt relief increased concern that the European credit crisis will spread.

鈥�finance ministers balked at putting up more public money for Greece, calling on holders of its debt to provide more relief. The International Monetary Fund cut its global economic forecast as Europe slips into recession and growth cools in China and India.

鈥淭he Greek debt impasse is weighing on the market,鈥� said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. 鈥淭he IMF warning this morning dampened any economic optimism.鈥�

At the heart of the market鈥檚 nervousness was what Bloomberg calls 鈥渄emand fears.鈥� As near as we can figure, 鈥榙emand fear鈥� is the worry that there aren鈥檛 enough people who want things and have the money to pay for them.

Why not be satisfied with the demand as it is? Why not accept the decisions of willing and able consumers as to how much stuff they need and how much they can afford to buy? Why is it important that they buy more than they need with more than they have?

Because it could lead to another Great Depression, says Christine Lagarde.

No kidding. That鈥檚 what the head of the IMF told Germany鈥檚 Council on Foreign Relations. The Washington Post:

International Monetary Fund Managing Director Christine Lagarde warned of a 鈥�1930s moment鈥� for the world economy if Europe does not solve its financial problems and said Germany must contribute more money to rescue efforts if a disaster is to be avoided.

Without such funds, Lagarde said, 鈥渨e could easily slide into a 1930s moment. A moment, ultimately, leading to a downward spiral that could engulf the entire world.鈥�

She said the 17 euro-zone countries also must move quickly to integrate their economies as deeply as they integrated their monetary systems with the creation of the common currency. Failure to act, she said, could precipitate a crisis comparable to the Great Depression.

And here鈥檚 one of our favorite economists, Larry Summers, writing in The Financial Times. Mr. Summers is concerned by a lack of confidence鈥�and 鈥渦ncertainty about future growth prospects,鈥� which he thinks are the causes of the demand shortage.

What? You can see the problem with Summers鈥� pensee right here. If 鈥渦ncertainty about growth prospects鈥� is a problem, it is equivalent to uncertainty about how long our liquor supply will last in a snow storm. It鈥檚 an uncertainty we have to live with. The future is unknowable. We鈥檙e always uncertain about growth prospects 鈥� particularly now, when the developed economies are doing so little growing.

Europe is expected to contract by 0.5% this year. The US is expected to grow, but only at a 1.8% rate. Japan鈥�the other major developed economy鈥�hasn鈥檛 grown in 21 years and most likely won鈥檛 growth this year either.

So, you can forget your 鈥渦ncertainties about growth?鈥� The entire developing world, as a whole, is not growing. Get over it鈥�

Instead, Summers thinks these uncertainties should be addressed鈥�yes, by government! Of course, government is the sector that never produces any real growth. It鈥檚 a consumer, not a producer. And it can only consume what it extracts from the real economy. It diverts resources from real, growth-creating activities into zombie redistribution, make-work, and work-squelching regulations.

(An aside鈥� A friend of ours just started up a new bio-tech company. He moved out of Georgia to Toronto, Canada, to start the business. Why? 鈥淭oo much regulation and red tape in the US,鈥� he says. 鈥淵ou鈥檇 have to be crazy to start a business in the US.鈥�)

Still, Summers believes that government has no higher purpose than to get people to shop.

鈥淕overnment has no higher responsibility than insuring economies have an adequate level of demand,鈥� he says.

What? Luring people to the mall is more important that protecting them from annihilation? Is it more important that people buy more toaster ovens and more super-size bottles of cherry cola than they are able to live in peace in a just and honest society?

Apparently.

But how can government increase demand? How can it make people richer and more confident? Of course, it can鈥檛. Government is not a producer. So, it can鈥檛 make people wealthier.

All it can do is to bamboozle them. Summers quotes the Great Bamboozler himself, John Maynard Keynes:

鈥淸The] public authority must be called in aid to create additional current incomes through the expenditure of borrowed or printed money.鈥�

Let鈥檚 see. The feds borrow $5 from Peter to give it to Paul. How is demand increased?

鈥淧eter was a rich guy,鈥� you say. 鈥淗e wasn鈥檛 going to spend it. Better to give it to Paul.鈥�

Well, we don鈥檛 know what Peter was going to do with his money. He might have invested it to create more jobs and output. Or he might have spent it himself. Either way, we鈥檇 be better off than if he lent it to the feds. We know what they do with it. Maybe it ends up in the pockets of a rich lobbyist in Washington. Maybe it is used to build a drone that crashes in the desert. Nothing good comes from it.

The other demand-increasing choice is to print the money. Hey鈥�what kind of money is this that you can just create on a printing press?

We鈥檙e not going to dignify that question with an answer, dear reader. We all know what kind of money it is. It鈥檚 make-believe, counterfeit money鈥�the kind of money that you鈥檇 go to jail for creating on your own.

And you鈥檇 deserve to go to jail. So do the feds who gin it up.

Regards,

Bill Bonner
听蹿辞谤 The Daily Reckoning