A sample text widget

Etiam pulvinar consectetur dolor sed malesuada. Ut convallis euismod dolor nec pretium. Nunc ut tristique massa.

Nam sodales mi vitae dolor ullamcorper et vulputate enim accumsan. Morbi orci magna, tincidunt vitae molestie nec, molestie at mi. Nulla nulla lorem, suscipit in posuere in, interdum non magna.

Government Invervention Caused U.S. Economic Mess

The U.S. is on the brink of perhaps the greatest depression the world has ever known, and I get the feeling that no one in charge has any real understanding of what’s happening or how we got here. It’s as if the politicians really believe money can just be printed and spent and promised away with IOUs made on the taxpayers’ backs indefinitely and with impunity.

But now the jig is up. From the Government Sponsored Entity Act of 1992 that pushed Fannie and Freddie into the business of subprime mortgages to the yo-yo’s on Wall Street who made money off other people’s money, they all gambled and lost.

And if it were just the crooked politicians and pseudo-capitalists that would suffer, we could all say we’re mad as hell and not going to take it anymore — (“it” being runaway government/deficit spending and a currency backed by nothing but nervous smiles).

But the run on the banks they’ve caused now means that the trillions of combined dollars (the ones in your bank account, plus my bank account, plus the accounts of everyone else who has ever worked and saved all their lives) is quite possibly about to disappear — literally — as if it never existed beyond the pixels you see on your online bank account.

One of my favorite economists, George Resiman (of Capitalism.net), writing in his essay Our Financial House of Cards (March 2008) observes:

The potential deflation of checking deposits, if nothing were done to stop it, is the difference between their present amount of $2.5 trillion and the $40 billion of reserves that stand behind them. The potential deflation of the money supply as a whole, if nothing were done to stop it, is the difference between $3.3 trillion and $840 billion, i.e., approximately 75 percent.

This present state we are in is both unconscionable and horrifying at the same time. Of course, Reisman is an objectivist and Austrian economist and as such is a staunch advocate (like Greenspan was in the 1960s) of a return to the gold standard (or, as he puts it:  the use of gold as a “major asset” in our banking system).

People scoff at the idea, saying it could never be done (even though it pretty much was done until 1971). Most people think the gold standard advocates are daft. I think it could be done. It just won’t be done. It won’t be done for the reasons Greenspan detailed in his 1966 essay Gold and Economic Freedom: Having money backed by gold puts limits on government’s spending. The last thing a power-hungry politician in Washington wants is limits on spending.

No, the gold standard is only good for people who like to know that their hard-earned money won’t just go *poof* in the night, that it will actually be in the bank when you want to take it out and when you do take it out, it will have real value.

For what it’s worth, I salute Dr. Reisman for his courage in saying what needs to be said, even if no one is listening. In the article, which I highly recommend, he explains how he thinks we could return to a gold standard and get out of this crisis.

Another good article worth reading is How the Democrats Created the Financial Crisis, although I think this mess is pretty bi-partisan. (You could arguably blame FDR, Nixon, Bush Sr. and Sens. Dodd and Schumer for their parts in getting us to where we are today. ) But the blame does lie with government intervention into the economy.

(Hat tip: Powerlineblog.com)

Comments are closed.