Mr. Sensitive

September 22, 2011

Eat The Can

Filed under: Uncategorized — lbej @ 14:54

It’s time to stop, Ben.  You put up a helluva fight, but history is winning.  Here’s what happened to us, in a nutshell:

  • The 1990s was a period of tremendous economic growth spurred by the triumph of global capitalism and the transformative growth of information technology, and markets responded positively, as they should have done;
  • That healthy, positive response fed on itself and became an enormous bubble, just as big as the one that ruined the fortunes of a generation when it burst in 1929;
  • The Federal Reserve, then led by Alan Greenspan, was determined to avoid a repeat of the crash that led to the Great Depression, no matter the cost;
  • When the Nasdaq bubble did burst in March 2000, the Fed began almost immediately to slash interest rates, eventually to historically low levels;
  • The low rates engineered by the Fed averted a deep recession at that time, and led to a construction and mortgage refinancing boom that produced 20%-plus annual increases in home prices for a period of several years (2004-2007);
  • The housing bubble Greenspan inflated to save us from the bursting of the Nasdaq bubble was bigger and more all-encompassing than its predecessor, and both homeowners and mortgage lenders of all stripes behaved like drunken idiots for the better part of two years, totally unimpeded by the government regulatory agencies gutted by the Bush Administration;
  • The housing bubble burst in 2007 and the Fed took short-term interest rates to zero, this time to no avail, with massive banks failing right and left and the economy falling into a deep recession;
  • The government bailed out the banks and the Fed began quantitative easing/printing money recklessly, again deciding that there would be no holds barred in the effort to avoid a prolonged (and necessary) economic retrenchment;
  • Now we’ve tried fiscal stimulus, cutting taxes (Bush did that preemptively, remember?), monetary stimulus, partial nationalization of industry (that’s what TARP was, folks), and all we’ve done is kick the can down the road.

We can’t avoid the 1930s.  This is the 1930s, only strung out over two decades instead of one, and with an extra bubble (housing) thrown in so the economists can find out whether that makes it better or worse.  Like the 1990s, the 1920s were a period of powerful, real growth spurred by the end of a global conflict (World War I instead of the Cold War) and unprecedented technological advances (radios and automobiles instead of computers and cellphones).  Like the 1990s, the 1920s saw a healthy bull market—anchored to growth in the economy and corporate profits—become a malignant stock market mania.  The financial authorities in the 1920s and early 1930s didn’t move quickly enough and the public came to believe their leaders were too clueless, too corrupt, or too impotent to help them.  Now we have the opposite problem, with men and markets expecting too much from the Fed and the Fed believing too much in itself.  It’s been a valiant effort, especially by Bernanke, but it’s time to stop kicking the can.  It’s time to eat the can.

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2 Comments »

  1. You’re smart.

    Comment by Charlotte — September 22, 2011 @ 21:27 | Reply

  2. I agree!

    Comment by Ruby Machi — September 23, 2011 @ 09:08 | Reply


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