Please note that while I don’t claim to be an economist, I have enough of an understanding of basic economic theory to know that we face some clear dangers if we are not careful.
It is easy to see on the one hand that things in certain sectors seem pretty much unchanged. Some businesses appear to be functioning at or near normal levels, while others, less so. Many folks believe that after a period of time, things will bounce back the way they usually do. This leads to, for most I’d bet, token belt-tightening. “Sure, things are tough,” they say, “but not for me. I’ll cut back a little and wait and see what happens.” Believe me, I hope that this is indeed the case—that we’re simply in a wrinkle that will soon iron itself out.
But on the other hand, what happens if, despite the relative health of those businesses with plenty of work and people that still have money, other forces come together to destroy even that? Then what?
I maintain that a good chunk of the current economic drawdown and cutbacks is nothing more than the natural cycle of the marketplace, with ups and downs being the so-called correcting factors that ultimately keep things in balance. What seems to have made things different in this latest go-around, however, is that it was greatly exacerbated by too much credit issued that in another time would have been denied. People were buying stuff—lots of it, including cars and houses—on credit that they should have never been given, because they could never realistically pay it back. And now, banks and other lending institutions are left holding the proverbial bag.
While nobody decried the good times as they lasted, the market was producing an excess of goods and houses that created a “bubble” that expanded far and above the norm. The natural result was that the economy of nearly the whole world ended up growing to fill it, and, when the end came, well, we’ve seen the results with the further cutting of manufacturing jobs, joined in full force by the former denizens of the overheated construction industry. There is much truth to the old adage, “what goes up, must come down.” I have always believed that—perhaps it’s the cynic in me, but I’ve yet to really see it otherwise. Sadly for those very real people whose lives are affected, this is the normal cycle of life. Thankfully, history further tells us that things must also go up. The big question, then, is how long?
As I mentioned above, what if there is something different about this current recession? As we all ponder the question of how long until we reach bottom and start an upward climb, what if there is something inherently wrong beyond the normal ebb and flow. What if there was to be a structural failure of the entire economic system by which EVERYBODY gets robbed of their money and income, not just those caught in between the swings of the business cycle?
The thing is, if all we faced was the normal up and down of the natural market business system, we could weather that out, and overcome sectional downturns through innovation and new industries that would most likely pop up—the result of dynamic, free people. Unfortunately, there is another player in the mix: government– A government that, instead of simply supplying the monetary framework for people to exchange currency for labor, feels the need to step in and directly involve itself in the transactions of life, whether it is in business or private. Add in the politicians, and things get skewed…
We all know that no amount of government intervention can overcome human nature, and in fact the entities created to try to do so often fall victim to the same shortcomings they seek to prevent. Laws created to foster home borrowing for more people ended up harming not only those that directly get hurt by being in over their heads, but also the innocent bystanders such as investors and savers whose money was lent. Fannie Mae and Freddie Mac, government creations, are directly responsible for the “toxic investments” that caused financial repercussions up and down the financial food chain. Now the same people that helped cause the mess are going to fix it?
History should also tell us that when government and its politicians offer up more government spending as a way to avoid a recession, or to somehow intercede and disrupt the natural cycle, we should be wary. The only real way for money to be “injected” into the economy is to let the people that ARE working keep more of their money that they earn by taking less in the form of taxes. They will spend much of this new “found” money, and the natural upward cycle will begin. Ronald Reagan proved this.
History also tells us that when governments go hog wild on spending and engage in the rampant “printing” of money, there comes a tipping point. That is the instant that hyper-inflation rears its ugly head. With nothing but a house of cards upon which to place “the full faith and credit of the United States of America,” the Fed will be powerless to control inflation, and millions and millions of Americans will become, for all intents and purposes, penniless. Look up the Weimar Republic sometime, or the economy of the South towards the end of the Civil War.
Indeed, now that “stimulus” has been passed by Congress, I am more worried than ever…