Common sense about the bailouts

Not everyone has bought in to the idea that printing more and more Federal Reserve Notes is the solution to our economic crisis. Two articles published today are especially good:

Robert Romano at The Daily Grind* calls it “Stimulating Debt, Abandoning Hope.” :

“Never mind that the government has ducked any responsibility for creating the current mess. Or that it has failed to enact—or even propose—reforming and repealing the very policies that caused the financial system to crack in the first place: too much credit, too low interest rates, regulations by government to force banks to give out loans that ultimately could not be repaid... ad infinitum, ad nausea[m].

“Beneath this abdication of accountability is a complete lack of faith by politicians in the very people they represent. And, of course, in the American spirit of free enterprise.”

The “stimulus” package, Mr. Romano writes, is not based on increased revenues, but on “a desire by politicians to exacerbate the self-same economic policies that caused the crisis to begin with.”

“It was not government that invented the steam engine that powered factories and mills, locomotives and steam boats; it was the individual initiative of several engineers over the course of hundreds of years, including James Watt and Richard Trevithick. Nor was it government that forever revolutionized the process of making cars—and just about everything else that is manufactured; it was the initiative of Henry Ford and his assembly line that created millions of jobs and made the 20th Century the era of the automobile. And again it was not government that transformed and made more efficient the use of computers; it was independent innovators like Steve Jobs and Bill Gates.”

Basic truth: Government cannot create wealth -- never has, never will.

The second is Glenn Sheller’s piece in today’s Columbus Dispatch. He applies some good old-fashioned Ohio horse-sense, first by using a medical analogy:

“The economy is sick because its arteries are clogged with bad investments, bad debt, bad financial managers and bad companies. And these things grew to such toxic levels because they got a pass from bad regulators and from bad politicians who short-circuited the market forces that would have punished such foolishness long before it grew big enough to shake the financial underpinnings of the entire planet.

“The economy seeks to purge itself of these toxins, and only after it does can it regain health and resume growth. But all efforts so far seem directed toward preventing that from happening. We don't want to let foreclosure eliminate bad mortgages, we don't want to allow the failure of financial institutions that are built on bad decisions and rotten assets. We don't want to let companies that are ill-managed, overburdened and underperforming go bankrupt.”

“It's like saying that the cure for hangover is to drink more alcohol. A hangover can be postponed by more drinking, but that ‘solution’ leads to fatal alcohol poisoning. Assuming that nobody wants that, then sooner or later the agony of the hangover must be endured in order to return to sobriety and health.”

He concludes that we are acting like lemmings. We are trusting the same people who got us into the mess to get us out of it. His conclusion: “That's sounds more than just counterintuitive. That sounds crazy.”

Why does it sound crazy? I don’t know the exact M1 figures, but I do know that the bailout has created at least $2 trillion since last September out of nothing. Continuing along this path will flood our economy with too many dollars chasing too few goods and services – which is the definition of inflation. Flooding it too much will cause the patient to die of congestive heart failure, or hyperinflation.

If you want to know what that’s like, check out this article about Zimbabwe dollar from Agence France-Presse, which uses numbers I have never seen outside of astronomy.

* The photo is also from The Daily Grind.