Desperate to Get US Economy Moving
By Staff News & Analysis - August 09, 2010

Quarterbacks Get Out 'Hail Mary' Economy Passes … July's dismal jobs report poses a dangerous dilemma for the country's officials. The government has exhausted traditional measures to get the economy growing more briskly, having already cut interest rates to near zero and committed to more than $800 billion in fiscal stimulus. … But new spending would spark an outcry in the face of trillion- dollar budget deficits and no plan in place to reduce them. Republicans prefer tax cuts— permanent ones—but they also face deficit constraints. Laura Tyson, a professor at University of California, Berkeley's Haas School of Business who served as President Bill Clinton's chief economic adviser, favors a big, long-term investment program funded through Build America bonds, federally subsidized taxable municipal bonds, and a national infrastructure bank, something President Barack Obama (left) has proposed. The government would put in capital and the bank would raise its own debt to fund projects, sometimes partnering with private businesses. The catch: This also adds to government debt. – WSJournal Online

Dominant Social Theme: The wise people in government are determined to find something that works.

Free-Market Analysis: It is getting toward desperation time for the Obama Administration. While there is nothing much the public sector can ever do to "create" jobs or to make an economy more prosperous, the public sector in this day and age can surely make things worse. The dominant social theme being proposed by this Wall Street Journal article is that "the US executive branch is pulling out all the stops to get things moving again. Maybe it will happen, maybe it won't." We're betting on "won't."

And what is the administration mulling? The Obama braintrust would like to push another large spending bill through Congress, with the idea of creating a kind of government partnership with the private sector to try to produce more jobs on a regular basis. Only the money has to come from somewhere. Even if it is merely printed and made available by the Federal Reserve, it becomes a tax of sorts, eventually, as further spending will generate price inflation. And actually the jobs that will be generated will not be "real" jobs created by the economy but "make work" jobs.

For free-market thinkers, there is no doubt about it. Nothing government does can make things better though there is much that can make things worse. Of course one can point out that cutting taxes and spending are positive moves that can revivify an economy but in fact from our point of view these efforts merely rectify previous mistakes. Anyway, the Obama administration is not thinking along these lines. They want more big government spending programs, which will only mire the economy further in debt.

And unfortunately, the flurry of potential activity is not limited to the Obama administration. The Federal Reserve is being urged to do something (anything?) as well. The Fed has lowered interest rates and reserve rates and funneled trillions in the market to no avail. Now the Fed is mulling action in the mortgage market:

Fed ponders next recovery move on economy … A disappointing jobs report Friday has intensified speculation that the Federal Reserve could take steps this week to stimulate the faltering recovery. The Fed's most dramatic move would be to purchase new mortgage-backed securities or Treasury bonds to lower interest rates, but such an initiative is staunchly opposed by inflation hawks on the Federal Open Markets Committee. Far more likely, many economists say, is that the central bank will take a middle-ground, largely symbolic approach at its meeting Tuesday and prevent its vast holdings of securities from shrinking, to keep interest rates from rising slightly.

There even have been reports that the Obama administration is contemplating its own mortgage-oriented effort, which might involve a one-time reset on mortgages of those who "are under water" – their mortgages being worth more currently than the underlying real estate. What it comes down to is that the powers-that-be cannot rest. They are hyperactive right now, and we know why. The economy is not getting better either in the United States or Europe.

Yes, the crack-up boom has arrived, just as Austrian economist Ludwig von Mises said it would. It was in our opinion 100 years in the making and it will be as virulent as predicted, in part because it has been so long coming. Western central banking regimes have so distorted the economy with their excessive money printing that it is now impossible to tell a viable business from a bankrupt one.

Ordinarily, this would not be so difficult; a bankrupt one would eventually go out of business. But here, too, there are complications. Western governments have made things very difficult by providing additional funds to ruined businesses, thus keeping them limping along. This happened in Japan as well, resulting in what is called the "lost decade" – which as one Bell feedbacker recently pointed out might be called the "lost quarter-century."

Japan has a terrible unemployment problem as a result of sustaining its "zombie" businesses and banks. The US will soon follow in its footsteps as the economic structures and policies are similar. If the US (and Europe) wanted to take action to make things better, the leaders of these vast entities would stop the eternal money stimulation and market distorting bailouts and let their respective tortured economies begin to respond to the marketplace.

But that is not likely going to happen. One way or another various different programs will be launched that will further distort Western economies. In Europe, stringent measures are being taken to cut public services and employment, but taxes are going up at the same time. America is even messier from a fiscal and monetary perspective. It is the victim of one botched stimulus package and the overhang of money with which the Fed has stuffed banks presages virulent price inflation.

After Thoughts

As arguments rage over who is to blame for the current economic crisis, and how it happened, we wonder if there is still a larger issue to be debated eventually. We would predict that questions about the "debt" that countries face – money that countries owe international banks – will become more pressing before these global financial difficulties fade. Money structure was not a big issue in the 20th century, but we wonder if it will become the seminal issue of the 21st. It's one reason the power elite struggled so hard to retain control of the media and its messaging. The Internet is a critical reason why they have lost it.

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