Sunday, September 21, 2008

About that bailout...

I hate it. Some are calling it economic treason. Others a de facto coup. Karl Denninger calls it "The Mother of All Frauds" and warns that the price tag will be much bigger than they're letting on.

One of the denizens of The Oil Drum, Jerry McManus, pointed out a book called Since Yesterday. It's an account of the Great Depression, written by someone who lived through it:

The theoretically necessary adjustment became a practically unbearable adjustment.

Therefore Hoover was driven to the point of intervening to protect the debt structure -- first by easing temporarily the pressure of international debts without canceling them, and second by buttressing the banks and big corporations with Federal funds.

Thus a theoretically flexible economic structure became rigid at a vital point. The debt burden remained almost undiminished. Bowing under the weight of debt -- and other rigid costs -- business thereupon slowed still further. As it slowed, it discharged workers or put them on reduced hours, thereby reducing purchasing power and intensifying the crisis.

It sure sounds like we're following in Hoover's footsteps.

But...isn't Bernanke supposed to be an expert on the Great Depression? How could he make this mistake?

Downsouth points out these two guys from PIMCO, who think the Depression is misunderstood by Helicopter Ben & Co.:

The summer of 1932 marked the trough for US economic growth, which was well in the midst of the Great Depression starting in 1929. Global sovereign defaults were well underway by 1931. Turkey, China, Bolivia, Peru, Cuba, Brazil and Colombia all defaulted on their debts in 1931. Hungary, Yugoslavia, and regrettably Greece defaulted in 1932. In 1933, Austria and Germany joined the club. And, by 1934, all debtor countries except Argentina, Haiti, and the Dominican Republic had suspended debt service. Are we to accept the conventional wisdom that a mistaken, overly restrictive monetary and fiscal policy in the US created the Great Depression and led to these global sovereign defaults? It seems equally, if not more likely, that an imbalanced global trade system jarred by restructuring in Germany and Great Britain, and by prior revolutions against free markets in Russia and China may have been the initial and crucial culprit. The global constriction of trade was the result of several dependent and independent political and economic upheavals during the decade following World War I. It is a massive presumption to state that a more stimulative Federal Reserve (a la 2001-2002) could have prevented the course of events in the early 1930s.

The lessons for present-day policymakers are stark. Recent anti-deflationary policy in Japan, the US, and Europe are all predicated upon the conventional analysis emanating from the Great Depression. We feel these are mistaken and misguided.

(Yes, the date on the paper is 2006. They predicted this two years ago. A lot of people saw it coming.)

This is a freakin' disaster. Dunno how much good it will do, but should you feel inclined...

Contact your representative

Fill out your state and zip+5, and you will be directed to the web page of your representative. You can e-mail him or her, or get information to write or phone. (Which is probably more effective than e-mailing.)

Contact your senator

Use the pulldown to choose your state, you'll get the contact information, including e-mail, for both your senators.

I did contact my congress critters to air my views. I usually don't do that. The last time I did it, it was to tell them that invading Iraq was a terrible idea.

They went ahead anyway, and I expect they'll go ahead this time, too. But at least I can say I spoke out.

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