Rep. Barney Frank (D-Mass.) said lawmakers will attach several conditions for Detroit automakers in return for $25 billion in federal aid. Frank said Sunday that automakers will be required to submit to Congress their plans for future economic viability and environmental efficiency. He defended the aid, warning that the economy would receive a painful shock if policy makers allowed automotive giant General Motors, which is running out of cash, to go bankrupt. "When you talk about the negative shock that would result from bankruptcies of these companies right now … There are suppliers out there who are owed money, smaller businesses. They get hurt in a bankruptcy," he said on CBS's "Face the Nation." "And we all agree that they need to make fundamental changes," Frank said. "The question is how much pain can the rest of the economy take while those changes are being implemented." It remains up in the air whether Democrats will have enough votes to overcome GOP opposition to the bailout, but Senate Majority Leader Harry Reid (D-Nev.) has decided to bring the $25 billion in aid combined with a $6 billion extension of unemployment benefits to the floor Monday. – The Hill
Dominant Social Theme: The American Congress prepares to whip American industry into shape.
Free-Market Analysis: The kind of mixed economy that the West has adopted is showing more stresses and strains every day. Nowhere is that more apparent than in the United States, the leaders of which have paid extensive lip service to free markets over the years. The current gap between rhetoric and reality is thus more remarkable in the United States, especially given that nation's constitution with its carefully enumerated powers.
Last we looked, there was not much in the American Constitution about bail-outs for car-makers or even for banks. And while we thought an initial, targeted bail-out involving bad bank loans might be helpful to ease the transition from good times to bad – given that central banking had created the mess to begin with – the whole bail-out thing is becoming a mania of itself. It reminds us of the brief craze for writing a "bill of rights" in the United States whenever things went wrong with a given industry. There was at one point, a bill of rights for frequent flyers, for instance, though last we looked, it hadn't done much good.
We found the "bill of rights" craze pretty offensive because it tended to trivialize the real American Bill of Rights, which was intended to constrain government. But politicians being who and what they are, such an idea is only adoptable if it is aimed at the private sector. So they took a good thing, or at least a thing with noble intentions, and trivialized it by making it into a kind of serial commercial creed.
The whole bail-out thing is becoming kind of trivial as well. The numbers are not trivial of course. They are astounding – impossible to comprehend. Probably, before the entire stimulus is spent, governments around the world with have thrown tens or even hundreds of TRILLIONS into the marketplace. Of course a lot of it will be sneaky money, printed by central banks and not necessarily authorized by any specific government. But it will still have been made available – and it still won't do much, if any, good.
The crisis is evidently and obviously one of fiat money, of government printing presses producing money that is worth less every day, and which eventually finds its true value which is near or at zero. Of course, governments can print more money, but so long as the economy itself remains mal-formed due to previous stimuli, not much will be accomplished.
The marketplace has to unwind. The more money that is spent propping up the economy, the more resources are drained and the longer it will take to work out what is maladaptive. So we say STOP THE BAIL OUTS. We know why governments are giving them: They are trying desperately to save a failed system. And by participating in a virtual bee-hive of activity, they are making it clear to the public that they are doing what they can, and if any part of what they are doing seems to work, they can take credit for it.
But it is certainly cynical and even illusory. What if the US$400 TRILLION derivatives market turns upside down? What if most every industry in the United States starts to line up on the porch of the Federal Reserve asking for more money? What if a number of cold or lukewarm wars turn hot? We don't see much of a way out of the mess, other than an unwinding, orderly or not. Of course, a war might come in handy – from the monetary elite's point of view – but we are certainly not recommending it. Wars cover up a lot of bad decisions, but ultimately war is an obscenity that negates every part of what a civil society is supposed to stand for.
Yes, stop the bailouts. Let economies unwind as they may. The over-banked banking sector will lurch downward along with a number of corporations that makes things that are not especially needed and increasingly, in a stressed economy, unwanted. It is likely that some people will return to trade and farming once the current economy begins to disintegrate. People will pull their money out of the stock market because they wish to be responsible for their own retirement. They will begin to trade in gold and silver because they don't trust government scrip.
Here in Switzerland, where the Appenzell Daily Bell is anchored, we see the effects of an economy that is based less on monetary stimulation and more on a real economy. There are numerous small farms and trades-people among the German Swiss. Most people make a living but not a grand one. There are houses and factories and big buildings, but many people live in apartments and the rate of home-building is nothing like in the States or even parts of Europe. Credit is not so easily available and it is therefore hard to amass large money pools as money is mostly available in smaller increments, based on payments for tasks accomplished.
Switzerland's small towns and villages have a continuity that is likely a direct result of a non-distributive, non-confiscatory financial system. Contrast this to say, America, which has morphed with blinding speed from a republic into a socialist democracy. Towns have been virtually torn down in the process, even entire cities – and whole states remolded. Industry swoops from one region to the next, attracting to it company towns that are expanded during booms and abandoned during busts. A trail of ruin is left behind that grows wider and bigger until the whole country is virtually undone.
Yes, central banking and its inflationary tendencies are incredibly distortive. Central banks create industries that are unnecessary, suck in people's life savings, cause tremendous social upheaval and then the money moves on, leaving only ruin in its wake. That is what is happening today.
And thus it is that governments all over the world are scrambling to find ways to cushion the blow. But when it reaches a certain point, when the economy is so tortured by easy money that it can do nothing else but snap back on its own, then all the money in the world will not help. During a big economic crisis, such as this one, the larger worldwide economy will have to find its own way. The process can be continually distorted and delayed but it will happen. The Soviet Union collapsed for much the same reasons. The distortions simply became too great and the amount of money necessary to support such an artificial economy became too much to bear.
Complete and utter nonsense. Stop the bail-outs, we say again. Look who is managing them in America. Start with Democratic Congressman Barney Frank who thought perhaps less than a year ago that Fannie Mae and Freddie Mac were in fine shape – or at least that's what he said in public interviews. Just the idea that private industry will have to report to Congress in return for taking hand-outs that won't amount to much of anything is enough to disqualify the very idea!
And does anyone believe that US$25 billion is going to "save" the American car makers? Ironically some in Congress have suggested that Chapter 11 would be a better idea for US automakers than a bailout. The idea behind this suggestion is that car-makers need to unwind their intolerable benefit packages with unions and reconfigure the crushing weight of current retirement packages which are unsustainable and run into the trillions. But the very packages that some congressmen are now decrying were mightily encouraged by pro-union congresses of the past. So in addition to calling on the American Congress to stop the bail-outs, we call on it to do one more thing: stop legislating. Go home. Let the market do its work – much more effectively and rationally than is ever possible in any other way. Yes, go home. Hm-mm, are you listening? You are, aren't you? At least that's what our feedback is telling us.