Pointless risk taking by Governments

Angela Merkel. Alone among the world leaders, seems to have kept her head: “The crisis did not come about because we issued too little money but because we created economic growth with too much money, and it was not sustainable,” explains Germany’ s chancellor. She went on to suggest that maybe we shouldn’t repeat the errors of the past.

During the entire last half century leading Western economists imagined a world that couldn’t exist for one minute — where consuming wealth makes people wealthier...and where simply making more credit available can stimulate consumption. Each time the economy slowed down, the authorities induced people to buy more of what they didn’t need with more money they didn’t have. This produced “ growth. ”

But it was a fake growth. Every dollar of borrowed money would one day have to be paid back. Every step forward would have to be followed, eventually, by another one backwards.

As the feds put in more money and credit, they found that even more money and credit was needed. At the beginning of the period in 2001 an extra $2 of credit would result in $1 of extra GDP. By the time the lights went out in 2007, it took about $6 of additional credit to produce a single extra dollar of output. Each new dollar of credit had to support not only the new growth the feds was after, but all the accumulated debt and mistakes from previous stimulus programs.

The deceptions of the bubble era, 2001–2007, were enormous. The correction has been enormous too. And it are the same economists who mismanaged the economy, offering advice to governments who mismanaged their regulatory roles, about how to keep mismanaged companies alive. That this will result in more misery is a foregone conclusion.

The measure of that misery is how adamantly governments fight to keep their mismanagement going. Just looking at the numbers, the toll will be monstrous. “All over the world, interest rates have been cut and budgets padded. France’s deficit is running at 8 percent of GDP. England is running a deficit of more than 12 percent of GDP. And the U.S. is 18 percent. “On the credit side, the feds have cut rates more than ever before, for a monetary boost equivalent to 18 percent of GDP,” according to Grant. “As to spending, $ 13 trillion has been pledged...an amount equivalent to a full year’s annual output of the United States.”

“Adjusted to today’s dollars, this response is three times more) than the U.S. spent to fight WWII. It is 12 times more -relative to GDP- than the total committed to fight the Great Depression in the 1930s.”

It is the utter incompetence and hubris of upper-level politicians and policymakers, collectively out of touch that they don’t even know that they’re out of touch. A parallel incompetence is found in the Big Media, with their overall “infotainment” approach to presenting vital news to the people. It’s a failure of imagination at the highest levels.

It is the attitude that the U.S. can add complexity to the system and “spend its way” out of anything. Big government, not big enough, let’s make it bigger. Stimulus? Go for it. Bail out Wall Street? Of course -- aren’t they too big to fail? Cap and trade, and thus cripple the energy economy? Why not!
It’s just spent and control. Modern governance is all about spending money controlled by a few power brokers at the top they’ll just pass another law to spend more money.

The tragic part of this drama is that the high and mighty are setting themselves -- and the world’s economy -- up for a terrible fall. Sooner or later an implosion and collapse will take place. Those green “notes” that the Federal Reserve prints -- with the nice pictures of dead presidents on them -- will not be worth nearly what most people believe.

On Aug 5 Obama announced a long waited US$ 2,4 billion in government grants to support the manufacture of electric cars and batteries. “I don’t want to just reduce our dependence on foreign oil and then end up dependent on foreign innovations,” Obama told an audience in a depressed state. “I want the cars of the future and the technologies that power them to be developed right here in America.”

And this is from the Independent from London: “Having enjoyed the biggest borrowing binge in their history, British consumers are now starting to pay off their near £1.5 trillion of debt at the fastest rate in at least 15 years, according to the Bank of England.

The data adds to fears that the fragile recovery in the economy, still not officially confirmed, could be damaged by a return to thrift by households. Figures from the manufacturing sector also suggested a setback in the pace of industrial revival.

Brian Murphy, head of lending at the Mortgage Advice Bureau, warned: "The hatches have been well and truly battened down. Consumers, it is clear, are retrenching like never before."

Anecdotal evidence suggests that consumers are using the reduction in their monthly mortgage bill to pay off their debt more quickly, rather than spending the windfall, as the Bank and the Government would wish.”

Cash for clunkers did its job in August, pushing car sales to levels not seen since last year. But the boom from the U.S. government's program has already worn off for automakers.

Car companies said on Sept. 1 that their August sales soared to an annualized selling rate of about 14 million. The accelerated sales rate was a boon for carmakers, especially Ford, Toyota, Honda, and Hyundai. But the industry appears to be giving those gains back as the annualized rate has fallen to 8 million vehicles since Aug. 25, when the program stopped.

Governmental Motors and bailed out Chrysler both saw 20% sales declines.

How can anyone be surprised that sales have fallen through the floor? The CARS program was an extremely expensive $3,000,000,000 program to sell 300,000 cars. Half of those sales will probably be repossessed within a year.

It won’t happen, but its highly urgent that upper-level politicians and policymakers, collectively get in touch with reality.