VISIONS OF DYSTOPIA ON A BEAUTIFUL SUMMER AFTERNOON

6/21/11

The newspapers and news broadcasts are usually consumed with vital developments on American Idol and Dancing with the Stars winners and from covering in laborious detail the various misadventures of grey matter challenged celebrities and miscreant children of quasi-politicians. But when such media organs find some extra room for what most Americans find inconsequential, boring stuff, they cover stories about politicians of both parties, but primarily Democrats, urging banks to make more loans or to adjust the loans previously made to deadbeat borrowers in order to “keep people in their homes” or other such verbal saccharine for the economically illiterate. As much as I hate to admit it, the politicians may have a point here, though they probably don’t realize why they have a point.

The “prosperity” that our once great nation enjoyed in the years leading up to the eminently predictable travails of 2008 was built on irresponsible extension of credit. There is no other way to explain it. It was indeed a Potemkin prosperity, but few people knew it; they thought they were really making the kind of money necessary to finance the lifestyles to which they had become accustomed and to which they thought they were entitled. If we hope to return to that Potemkin prosperity, or even maintain what seemingly passes for a recovery, we must of necessity return to a period of reckless and irresponsible lending. (I touched on this theme as it relates to the housing market in my 3/30/11 post, “WHY RENT WHEN YOU CAN OWN?”) It’s either that or take the medicine made necessary by at least twenty years of living well beyond our means, eating all of our seed corn, and helping ourselves to the seed corn painfully built up by other nations in a manner with which our ancestors would be familiar. Some might argue that we have already taken such medicine, but they are wrong; the economic problems we experienced, while painful, were not nearly sufficient to wring out the excesses, and inflated expectations, that had built up for at least the last generation. Is there any politician, or any business leader, willing to have any part in administering the medicine that, while ultimately ameliorative, will cause wailing and gnashing of teeth among the populace unlike that ever heard in our once great nation’s history? To ask the question is to answer it, as is to observe what is passing for economic and financial policy in our enlightened modern world. Cheap, easy credit is being encouraged (albeit with, thank God, limited success so far) in order to avoid further pain. This consequences of this hair of the dog approach to economic policy are eminently predictable, but that does not dissuade the pols and policy makers from such an approach; they probably figure they can postpone the real problems until they are either retired and counting their money (or weighing out their gold if they had the cerebral horsepower to buy that ancient object of kingly desire) or have long since disposed of this mortal coil.

But, one might legitimately argue, won’t reckless lending of the type being encouraged by fiscal and monetary policies and the rhetoric behind them lead to problems, as in de facto bankruptcy, at the nation’s, and the world’s, lending institutions? Of course. But, as before, the government will be there to bail out the banks, or, more properly, those who lent to the banks and those who guided the policy that brought them once again to their ruin. So, effectively, what we will see is indirect government subsidization of the profligate spending that was the sandy bedrock of the fake prosperity that most Americans regard as the halcyon days of this nation. So it won’t be a good time to be a taxpayer, a saver, or even a bank shareholder. But it will be a good time to be spending like a Middle Eastern suzerain and taking on debt to do so; after all, the government will do all it can to encourage this activity and to absolve those who participated in it from responsibility for their actions. And it will finance such a rescue from punishing those of us foolish enough to be responsible with our money, both through taxation and debasement of the dollar.

Have a great day.