How to 'contain the depression?' More credit, economists claim
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Bill Bonner Guest blogger
And oh yes鈥ur new book is also going to explain why economists are completely incompetent. They claim to know things they could never really know鈥nd to be able to do things they couldn鈥檛 do in a million years. As a result of their conceits and delusions, trillions of dollars have been clipped from the world鈥檚 GDP鈥illions of people are poorer鈥heir lives shorter, meaner鈥ith less stuff.
Economists were largely responsible 鈥� usually in their policy-making roles 鈥� for the huge credit bubble that took debt to GDP in the US from 112% in 1972 to 296% in 2008. They told the feds that they needed a 鈥渇lexible鈥� currency. What they got, of course, was one that was flexible in one way only 鈥� it stretched out鈥ut never came back. Credit expanded 50 times in the last 50 years.
Then, when the debt bubble blew up in 鈥�08-鈥�09, economists stepped in again鈥his time to prevent the private sector from setting things right. Instead of letting a crash and quick depression wipe out the excess debt quickly, the feds engineered a 鈥渃ontained depression鈥� which can go on for decades.
What contains the depression? More credit!
Deficits鈥ailouts鈥ubsidies鈥nd the lowest interest rates ever. You can look throughout the developed world; the highest interest rate offered by central banks for short-term money is only 0.75%.
And now economists are warning that the US tax economy could fall off a 鈥榝iscal cliff鈥� at the end of the year. Tax rates will go up. Automatic spending cuts will come down hard. This will allow the depression to break out of its cage鈥r so they worry.
鈥淪top, before it is too late,鈥� they say.
Over at the Pentagon, for example, contractors are forced to worry that their next boondoggle might be cut off. Military cuts threaten Barack Obama鈥檚 program of 鈥淪trategic Guidance,鈥� says an article in today鈥檚 Financial Times. In addition, one million jobs could be lost! The US would fall into real depression!
If only!
Since the crisis began, private sector debt has gone down鈥ut only to 250% of GDP. That鈥檚 still more than 2 times what it was when the US still had honest money. Much of that debt must be 鈥渂ad鈥� 鈥� in the sense that it couldn鈥檛 withstand a financial crisis鈥r wouldn鈥檛 still be on the books were it not for the feds鈥� clumsy meddling. That鈥檚 why nature, in her wisdom, provides us with natural debt-cleansing episodes鈥lso known as depressions.
More to come鈥�
Regards,
Bill Bonner
听蹿辞谤 The Daily Reckoning
