Is History Repeating Itself, Or Is It Just Stuttering?
Posted on June 1, 2012 12:10 pm by nemo paradise
I have spent many, many hours now reading and re-reading a section of a very interesting book that does not attempt to predict the future — in fact, the book was written in 1990 by Ron Chernow and it’s called “The House of Morgan.”
Normally, I would rather chew off my own forearm and feed it to pigeons before I would read another book on business or finance, let alone read it over and over again. But I find this one strangely compelling, because it describes in wonderfully dispassionate detail how the financial structure, public and private, of the United States evolved from the late 19th century until the 1980s.
What I am re-reading is the stuff about the period from the 1920s to 1940. The Boom. The Bust. The Depression. What banks, private and central, did, worldwide. What governments did. How people reacted. What drove behavior. How things went wrong.
Well, I could go on and on about the labors and labyrinths, the blunders and the buffoons, the what-ifs and why-nots, but I come to a surprisingly simple conclusion.
At the end of the day, it was all about confidence. When confidence was lost, so was all else.
The meltdown of the great Depression required several errors:
1. A credit bubble (yup, we have one of those, all right),
2. Catastrophic credit tightening at exactly the wrong time (seems familiar), and
3. Trade wars (Smoot Hawley and reciprocal measures) that strangled international commerce and hence the ability of debtor nations to earn sufficient income to service their debts (not yet).
The administration in the US acted in much the same way as Bush and Obama have, at least initially. It pumped tons of money into banks, initiated vast new public works programs (we haven’t done exactly that, but we have attempted to “create” jobs through subsidies), and assured people that things were getting better (because they were, actually).
The killer was the Smoot-Hawley bill. Once we put up trade barriers, Europe retaliated by taxing US imports, and America’s biggest customers stopped buying. This killed growth, jobs and any hope that Europe could service its still-outstanding WWI loans. Boom. Crash. Pow.
We did this for the best of reasons — to “protect” American jobs — in steel and other core industries, when industry was the core economic driver of the country. We did it because the unions demanded it. And no one was getting elected if they pissed off the unions.
Now, we have a similar kind of crisis, but it’s not really the leverage/deleverage scenario that Quick just cited. I think all of that is in fact manageable.
What isn’t manageable is this:
I think it must be very, very hard for people — people like me — who have tried to point out the senselessness of infinite credit, and the very real dangers that fiscal irresponsibility creates, to accept a very, very noxious notion: that, in spite of our aversion to rewarding profligacy and our disgust with those who have abused our trust (and robbed us blind), we have no choice at this point but to bail them out.
Right now, this very minute, there is a run on Spanish banks. If this continues unchecked, it will in fact bring Europe to its knees. As odious as it might be to many of us to appear to cave into the screeching demands of the left — and that’s not what we would be doing — we must check this run as quickly and effectively as possible. That’s the only thing that matters right now.
Forget Hollande’s silly demands that the biggest and most important companies in France — its banks, its utilities, etc. — henceforth be managed by third-tier boobs working for peanuts. Forget Greece’s flatulent insistence that the rest of Europe has to finance a tax-free every-day’s-a-holiday and every-meal’s-a-banquest lifestyle for its citizens. Forget all the hysterical screeching and agenda-waving inanity of the entitled left and their hapless dependents. Restore credit. No matter what.
Then, and only then, can we begin to extract a toll. Right now, Europe is selling for bargain prices, and we need to do what we can, where we can, to be sure that we are in a position to profit from this. Scorched earth isn’t worth much.
So — what can we do? Many will retch at the notion, but — we lend. The fact is, the US has not even come close to its borrowing capacity. Yes, we have an enormous debt, but we also have enormous productivity, and — here’s a little-known fact — unlike almost all other nations, we have a balance sheet secret.
Nowhere on our list of assets do we account for the fact the 75% of the land in this country is federally owned. That includes the vast natural resources that land contains. Don’t worry — no one is suggesting that we open up Yellowstone to logging and fracking. I’m just pointing out that it’s there. The total value of these resources really cannot be estimated, beyond the certainty that the amounts run into hundreds of trillions of dollars.
Demands by fiscal hawks that we reduce our deficits and balance our books are not realistically predicated on fears of an immediate national bankruptcy, but on the realization that this insanity has to stop somewhere. We cannot continuously increase the ratio of our debt to our GDP without running into a wall somewhere, and when spending increases are predicated more on electoral politics than any real utility, we correctly do all in our power to oppose them. This is certainly the case now, as we watch a government with little or no economic understanding (sorry, Valerie, but it’s true) blithely bake new bread and trot out more circuses under the pretext that “we can afford it — or, at least, some of you can.”
But this is different. Breaking the downward spiral of national default is essential to our own economic recovery and future well-being. Restoring confidence is critical. We are in a position to do these things, and, ultimately, to profit from them. But to do this will require a major re-think by politicians on both sides of the aisle, which is at this time, at least, unlikely.
http://www.dailypundit.com/2012/06/01/is-history-repeating-itself-or-is-it-just-stuttering/
