A Good Crisis Wasted
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What would have happened if the government had not stepped in? We might not have the barely contained rage that has surfaced with—among other manifestations—Occupy Wall Street, the Bundy ranch standoff, and the immigration debacle, and will explode when the day of reckoning we delayed in 2008-2009 finally arrives. That is the crowning folly of our refusal to face the music: it prevented nothing, it will have only forestalled and intensified the eventual cataclysm. Institutions that were too big to fail back then are bigger and more failure prone now. Debt that was unsustainable then has grown and is more unsustainable. The fake solutions of bailouts, money creation, and government debt have been exhausted, but not the venality of the hucksters who peddle them or the impervious-to-reason credulity of those who believe in them.
What would have happened if the government had not stepped in? We might not have the barely contained rage that has surfaced with—among other manifestations—Occupy Wall Street, the Bundy ranch standoff, and the immigration debacle, and will explode when the day of reckoning we delayed in 2008-2009 finally arrives. That is the crowning folly of our refusal to face the music: it prevented nothing, it will have only forestalled and intensified the eventual cataclysm. Institutions that were too big to fail back then are bigger and more failure prone now. Debt that was unsustainable then has grown and is more unsustainable. The fake solutions of bailouts, money creation, and government debt have been exhausted, but not the venality of the hucksters who peddle them or the impervious-to-reason credulity of those who believe in them.
Things might have come unhinged and some may have suffered more, but they would have been mostly those responsible for the problem. All may have seen a more extreme short term problem, but history has demonstrated that a recovery would have occurred more promptly. It has only prolonged the problems and added to the overall insolvency that will surely return with a vengeance. I would prefer to get it over with and move on. Stagnation is only a precursor to the eventual payment to the piper. I hope I am wrong, but it feels like it is the calm before the storm. Naturally, most people, especially those that advocate for the easy fix, hope the payment will happen after they are gone...
Regards,
O.A.
Based on my macroeconomic analysis of America's bubbly economy, I expect 2015 to be the year of the Aftershock. Get ready for high inflation, high interest rates, and falling asset prices...
Yes, almost no one asked.
In general I agree with the idea of using monetary policy to manage the economic cycle. Set aside for the moment that most people here find the very notion of monetary policy wrongheaded. During the bailout, they were bailing out specific industries and businesses, not just priming the pump, not just offsetting deleveraging. I wrote to my Congessmen urging them not to pass the bill.
They said things would be much worse if the large financial institutions failed. I question that. People would still look for investment money and people would still have wealth to invest; it's just the intermediary would change from being the existing institutions to something new. As you say, that would be painful, but it's that what capitalism is supposed to do: destroy businesses that aren't working in favor of ones who server their customers better. Policymakers were comparing the existing financial system with *no* financial system. That's wrong to do, of course, b/c something would have filled its place. It would have shaken up the industry, though, and many people had a vested interest in the current industry staying intact.
I have become more positive about what happened, though, because they paid back most of the TARP money and maybe it's true that the stimulus and QE just replaced all the private-sector leverage that disappeared. If the economy keeps growing for a few years and we repay some of that debt (hard to imagine now), then I will say I was wrong and the plan worked. We can't say it worked as long as the fiscal debt stays this high and short-term rates are close to zero.