"...they promise happy, pain-free solutions."


Peter Schiff points out that There Ain't No Such Thing As A Free Lunch
This is an amazing Peter Schiff article, and you really should read the whole thing. But here is the bit that jumped out at me. Emphasis added.

It would be irresponsible in the extreme for an individual to forestall a personal recession by taking out newer, bigger loans when the old loans can't be repaid. However, this is precisely what we are planning on a national level.

I believe these ideas hold sway largely because they promise happy, pain-free solutions. They are the economic equivalent of miracle weight-loss programs that require no dieting or exercise. The theories permit economists to claim mystic wisdom, governments to pretend that they have the power to dispel hardship with the whir of a printing press, and voters to believe that they can have recovery without sacrifice.

As a follower of the Austrian School of economics I believe that market forces apply equally to people and nations. The problems we face collectively are no different from those we face individually. Belt tightening is required by all, including government.

Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. If the government doesn't have a surplus, then it must come from taxes. If taxes don't go up, then it must come from increased borrowing. If lenders won't lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value those already in circulation. Something cannot be effortlessly created from nothing.

Similarly, any jobs or other economic activity created by public-sector expansion merely comes at the expense of jobs lost in the private sector. And if the government chooses to save inefficient jobs in select private industries, more efficient jobs will be lost in others. As more factors of production come under government control, the more inefficient our entire economy becomes. Inefficiency lowers productivity, stifles competitiveness and lowers living standards.

Yep. Here's what I said in an earlier entry .

Nothing is ever "too big to fail." Government can't create money, it can only divert it. Without consequences, there's no cost to marginal behaviors.

And still earlier.

Government money comes from the private sector. Spending one dollar of public money means taxing the private sector more than a dollar, because there is the cost of collecting the tax, administrating the tax, paying the government workers, distributing the tax, and monitoring the money. Government money is a hidden cost.

If the government makes loans available at a reduced rate, the cost of the reduced rate, the risks and all the associated government spending is distributed throughout the economy.

Since the consequences of the "free money" are hidden, of course there is a rising demand. And the demand is much higher than anyone planned for. Which in turn raises the costs and the risks.

In failure analysis, this is called building a cascade. When the system fails, the stress will cause the massive collapse instead of just a few points.

It's going to collapse. The only questions left are when and how bad.

— NeoWayland

Posted: Sun - December 28, 2008 at 03:24 PM  Tag


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