Too Little Spending or Too Much Debt?

Chris Martenson once again clearly highlights the risks of the Washington “solution” to our current economic mess in “The Wrong Diagnosis”. He is not convinced by the apparent general consensus in Washington that the solution to our economic challenges is taking on massive new levels of additional debt.

He quotes from the Minyanville article “Stabalization” which suggests that:

“If you add up all the government bailouts, explicit and implicit, along with actual government purchases of assets (debt from banks) it comes out to a surreal $30 trillion. Markets are cheering that things have “stabilized” and “things are getting less bad”. I ask you seriously when the government throws $30 trillion at the “crisis” (one which bankers are now claiming is over), can you call that stable? That is like declaring a patient being kept alive on a heart-lung machine healthy.”

“Of course we have stabilized. The government has bankrupted our future to do it. The government(s) control the LIBOR market, the swaps market, the bond markets with all the “money” they are printing. They are feeding “money” to banks under the table at an alarming rate.”

The folks in Washington seem to think that just by making everyone feel good enough so we start spending again, things will once again return to how they were in the boom times. Personally I don’t run into anyone who feels confident those times are ever coming back. Everyone I know is trying to get out of debt as fast as they can, not find more stuff to buy. Perhaps things are just different in the Washington echo chamber.

Many folks I run into seem to realize we have been living through a bubble and that bubble has burst and likely won’t be coming back any time soon. Though not quite as extremely irrational perhaps, our situation is not entirely unlike the aftermath of the famous tulip mania in Holland. Wikipedia reports that  “at the peak of tulip mania in February 1637, tulip contracts sold for more than 10 times the annual income of a skilled craftsman. It is generally considered the first recorded speculative bubble.”  And since that bubble burst almost 400 years ago, the price of tulip bulbs has never come anywhere remotely close to recovering.

Folks holding those ridiculously expensive flower bulbs must have woken up after the crash saying to themselves “what was I thinking?”  As an owner of commercial real estate in 2009, I know that feeling.

Martenson concludes a his analysis with:

“Where the US government and its Wall Street partners have decided that we suffer from a condition of too little spending, the alternative diagnosis says that we suffer from too much debt.  Given our debt based monetary system these are exactly diametrically opposed conclusions and each implies solutions that are exactly in opposition to the other.”

“So if it turns out that we suffer from too much debt, and the wrong solution of MORE DEBT is applied, then we are making the situation worse, not better.  It would be the same as a drunk trying to drink themselves sober.”

“……………….. The hangover is going to be severe.”

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1 Comment

Filed under Economic Policy

One response to “Too Little Spending or Too Much Debt?

  1. Very good simile, a drunk trying to drink himself sober. I’m not sure though, that the economy corresponds to the use of alcohol. What about fire? You may actually fight fire with fire by blowing up all fuel and oxygene. Then the fire is gone and you can start the reconstruction work.

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