Conventional Stupi- I mean Wisdom..

Hopefully I can at least teach someone something about the financial crisis at hand. As it stands my thoughts are hardly my own. My thoughts go hand in hand with quite a few economists and quite a few journalists. I merely relay observances in such a disgustingly simple, disturbingly generalized, and woefully short rant as to hope to achieve a listener.

We’ve proven ourselves ignorant of fiscal policies and their ramifications. Mainstream news promotes only the most popular agenda and depicts myth alongside fact. The apparent problem is that people pay attention to the easiest ‘facts’ and never for their lives are willing to dig into the implications stated. Remember the idea of separation of state and church? What about the separation of market and state?

The Austrian theory of the business cycle makes clear a distinction between primary and secondary depressions. Turmoil and trouble in the financial sector is indicative of a secondary depression. However; the cause is the primary depression. This primary depression is a distortion in our mixed-economy’s capital allocations system.

Ignoring theory, the fact is our country is burdened with a vast divide between consumption and production. A completely banal and simplistic read of Adam Smith’s Wealth of the Nations would help even the village idiot to gain a bit of insight on this dilemma.

The problem is monetary policy and largely, fiat “out of nothing” currency. It is the nature of nothing to be nothing. A dollar with any purchasing power means that our imports are of a substantially lower cost. A dollar like ours makes imports costlier. Our reliance on monopoly money has proven the case for the imperative to return to gold backing so I’ll move on.

Trade imbalance is only a symptom. If for example we lower interest rates (the price of time) thanks to government, which are aimed at boosting consumption, we exacerbate the true issue and elongate the business downturn. Instead of consumption driven goals, we are in a state that savings and fewer imports are a necessity. Says Law holds true here. Savings and not spending, creates wealth for an economy.

The information is out there. People knew in the early 80’s that there was an issue with our system, that there was a discrepancy between lending and production. People knew the inevitable downturn would be of a highly significant nature. Downturns are natural.

So let us fast forward a quarter of a century. The expanding monetary policy and its bosom buddy, the bailout guarantee, have disrupted capital gains allocation. Because bailouts were guaranteed people didn’t practice any restraint and the competition was forced to also play the same game in order to bother playing in the same field. Guess what? They can all play dirty because at the end of the game, government, the fed, and the taxpayer work together to bail the criminals out. Logically does this mean we should continue this parental behavior?

Luckily there are economists who are certain that an increase in savings, a reduction of imports and decrease in consumption are a moral imperative for our nation. Luckily debt accumulation has peaked (though our nation is willing to figure out ways of increasing it). Luckily our crisis has reduced foreign creditors’ willingness to extend further loans which would only increase our debt. This is called a market solution.

The socialization of the mortgage market and our recent bailouts will reveal disastrous effects soon enough. Goldman-Sachs economists are speculative and cheery that this will only ride out for about 3-5 years. The pain has only begun and we’re all masochists.

It was Murray Rothbard’s great achievement, his magnum opus to reveal that the Great Depression occurred because it was manufactured. Manufactured and prolonged by policy implementations meant to prevent the cyclical business down-turn. It is the nature of history that people did not pay any attention to the 1920’s business down turn and realize that it was over within 18 months because the market was free to correct itself.

The conventional stupidity is that the Great Depression was some disaster that government and the fed needed to fix. The most disturbing view is that of Bernanke and his notion that inflation (thus theft of the highest order on the people) is the hero of the day.

This is the largest socialist operation in our history. You’d think we’d learn from our mistakes:

What should have happened in 1929 is precisely what should happen now. Let the price system prevail! The government should completely remove itself from the course of action and let the market reevaluate resource values. That means bankruptcies, yes. That means bank closures, yes. But these are part of the capitalistic system. They are part of the free-market economy. What is regrettable is not the readjustment process, but that the process was ever made necessary by the preceding interventions.

Let me state this very plainly: I do not believe for one second that if the government fails to nationalize Freddie and Fannie, the world as we know it will come to an end. Those who are saying so are trying to scare the population, the same as with every other major demand by the regime. It was the same with NAFTA, the WTO, the war on terror, the war on bird flu, the nationalization of airport security, and everything else.

- Llewellyn H. Rockwell, Jr.