Posted: May 24th, 2009 by Militant Libertarian
I have been milking the MSNBC cow heavily this week but with headlines like these it’s hard to pass up. This has got to be the biggest understatement of the year:
Meltdown will leave vastly changed economy
Duh. Where the author truly misses the mark is in his failure to grasp the true significance of this change and its source. The economy was the dry tinder, liberalism the lit cigarette that touched off the conflagration and Obama the lunatic who is throwing gas on the whole thing.
The author begins the article by posing a germane question:
With the economy showing early signs of stabilizing, it’s time to start wondering: What is the ‘new normal’ economy going to look like?
A lot people are wondering what the “new” normal will look like once the worst of the financial crisis and recession have passed. Even the most optimistic scenarios see only very gradual improvement in economic growth, with unemployment remaining high for the next several years. The only honest answer is that no one really knows.
His answer seems appropriate, no one really does know where this roller coaster ride will end or if our lunch will still be in our stomach or in our laps when we get there. But one thing is certain our maniacal carnie (aka Obama) has his own plans and it doesn’t bode well for us.
Even beyond the specific forecasts for growth, it’s pretty clear that the economic collapse of the last year will bring profound changes in the global economy and financial system. We’re still in early innings, though, so much depends on how we respond from this point forward.
Given the impotent excuses for a response thus far, the bailouts, the stimulus plan and a morbidly obese budget, I say our future prospects are less then encouraging. But with the mad rush to socialize the nation change is a guaranteed certainty.
If you see the glass as half full, the “new normal” could bring long-overdue positive changes. When lenders make bad loans, they lose money. This time they lost big piles of it, which means they’re going to be a lot more careful in the future. That’s a good thing, unless they’re too careful and make it too hard to get a loan.
The problem is that they have not suffered the consequences of their actions. They have not lost money, at least not in any real sense of the phrase. The losses have all been ours, the tax payers. Those who held stock in these companies lost money, we lost again when our government fed them money by the dump truck load and we will all lose again when the inflation caused by all this spending finally catches up with us. Where is the impetus to be careful when good ole Uncle Sam is waiting to bail you out when you act recklessly? This is where the author breaks with reality and barrels full throttle into fantasy land.
Other changes are long overdue. For government, cutting taxes without cutting spending turned out to be a multitrillion-dollar mistake. Consumers who thought that a credit card was a savings account and a home was a piggy bank have learned the hard way that neither of those things are true.
You see Obama will not make this mistake for two reasons. First he will never cut taxes, at least not in any substantive way and second he will never cut spending. You see he clearly avoids that pitfall altogether.
The only ones who have learned a lesson is consumers. At least I hope they have. Don’t live beyond your means even if your government is leading you to do so by its own terrible example.
Those lessons are pretty hard to unlearn. (Though you could argue that, three generations after the Great Depression, that’s exactly what we did.)
Consumers weren’t the only ones to forget those lessons. Obama is careening down the same fruitless path as FDR and will likely reap the same reward; an extended recession.
The “new normal” could also bring some unpleasant changes. To stop the downward spiral, the government has flooded the economy and financial system with more than $1 trillion in loans from the Federal Reserve and roughly the same in new spending from Congress. That may put the fire out, but there’s going to be a major mess to clean up.
Adding $1 trillion to the money supply in a matter of months, for example, creates a major risk of inflation down the road. Successfully sopping up that much money from the economy without tipping it back into recession is a feat the Fed has never tried before.
The author seems to have had a moment of clarity here. Inflation is coming and there is not much we can do to stop it. Spending has not slowed even in the face of what is to come. It is likely that inflation will rear its ugly head just in time to crush any recovery that may have been brewing in the wings.
If Congress and the White House try to balance the budget too quickly with spending cuts, tax increases or both, that could also send the economy back into a downward slide. But over the longer term, if they can’t figure out how to whittle away at the massive pile of government debt, investors could lose faith in the dollar. That would drive up interest rates and put a major lid on economic growth.
Well we already know that spending cuts are a pipe dream. Nothing this administration has done thus far would indicate even a modicum of fiscal responsibility. We already know that tax increases are a sure bet, although they will be called things like cap and trade and health care.
As far as racking up massive federal debt, been there done that. Bush would have gone down in history as the biggest spender if not for Obama. Thank God for small favors right?
In any case, the events of the past few years will have a lasting psychological impact. No matter how well they’re still paying themselves, most financial industry professionals have been humbled by the disastrous effects of the financial alchemy they unleashed on the rest of us. If nothing else, it’s in their own self-interest to avoid another rogue wave of risk-taking.
It may have humbled the CEOs but it has done nothing less than embolden politicians who were at the root of this fiasco to begin with. They have usurped unprecedented power all the while asking us to forget it was the political push to make loans to those who were not creditworthy that precipitated this mess to begin with. Until we humble our politicians the problem will not go away, it will just change shapes. Who wants to guess what the next bubble will be?
The financial meltdown has also created a broad consensus that the system of regulating the financial markets is badly broken. The debate over how to fix that system will have a major impact on what the “new normal” looks like.
The system was not broken, it was never enforced. Adding a laundry list of new regulations will have no effect if they are enforced in the same lax manner as the existing laws. Oversight took on a new meaning under the likes of Barney Franks and Chris Dodd. Thus far the “new normal” seems to be taking shape in the form of government control of private industry. I am not so fond of this new look.
Finally, the impact on consumers, investors, savers, workers and homeowners can’t be understated. For the past 30 years, we have lived with the mistaken belief that we can buy stocks and houses without any real risk of losing money over the long run. Lesson learned.
Lesson learned by everyone except Washington where spending and borrowing continues unchecked and at an accelerating rate. It would be nice to see our leaders do just that, lead and lead by example. You and I cannot write checks for money we do not have and we cannot borrow indefinitely on our good name. Washington needs to abide by the same laws that govern the rest of us.
It’s also becoming clear that we can either expect less services and benefits from our government or pay more in taxes. Borrowing the difference isn’t a sustainable plan.
I will leave on that note as the author seems to have once again experienced a fleeting moment of lucidity. I only hope that our exalted leaders get it.
For more of this protracted trip into fantasy you can find the original MSNBC article here:
Got comments? Email me, dammit!
Permanent link for this article which can be used on any website: