Zombies R U.S.

[balantz]

Morgan Reynolds* — December 5, 2008

You think it’s bad now? It’s going to get much worse. This is the big one, call it Great Depression II. Why am I so sure? Because the depth and duration of a downturn depend positively on 1) how long the preceding boom lasted, 2) how distorted its capital structure became, and most importantly, 3) how much government interferes with the classical medicine administered by the marketplace.

By these metrics, our current economy is one sick puppy and getting sicker. But what caused this? Ironically, economic problems usually result from a prior intervention too hard for most to trace and so lead to demands for new interventions to “fix” the problems. Nowhere is this confusion truer than for the mystery of the business cycle.

The cause of our sick economy was world-class injections of artificial credit by Maestro Greenspan and his Merry Band for double-digit years. Now the inevitable bust is being aggravated by “stimulus” programs mercilessly foisted on us by Ben Bernanke, in turn aided and abetted by big business pleaders, business media, Paulson, Congress, state governments, Ohio school districts, and assorted panhandlers in business suits.

-snip-

Wall Street gradually caught on that all is not well on Main Street. Main Street failures preceded Wall Street’s, not vice versa. Depression is our next stage as malinvested businesses go bankrupt and land, labor and capital shift back to lower stages of production. Liquidation of unsound businesses, “idle capacity” of malinvested plants, and unemployed resources must shift to lower stages of production.

The deception orchestrated by the Fed suckered businesses into overinvesting in capital goods industries, contrary to consumers’ wishes. Sad, isn’t it? The massive wasted saving and investment squandered in bankrupt businesses is appalling, akin to the wastes of war.

Conventional business cycle theory cannot get much “wronger.” Maybe the worst part is that “depression expert” Bernanke is clueless, virtually guaranteeing a depression. As I wrote in March 2006:

“Bernanke's paper trail tells us...he fears falling money prices as the biggest risk of all, so he stands ready with ‘an invention called the printing press’ to combat this evil. He promises faster inflation in response to the next financial crisis, supplying the ‘liquidity’ the system needs...Mr. Ph.D. does not understand why a bust happens. That makes him extra dangerous. Every bust is caused by the preceding boom and its excesses. The bust is curative...When Bernanke fights the market by injecting new credit in the next crisis he will sustain unsound debt, weak debtors and lousy companies, prolonging depression. That's the opposite of ‘putting it behind us.’” Bernanke can fight the market but he cannot win. However, he might destroy the rest of us in the meantime.

*Morgan Reynolds is professor of economics emeritus, Texas A&M University. He was chief economist at the U.S. Department of Labor, 2001-2. His website is nomoregames.net

[revolve]

1. Ah, a chief economist during shrub, from texas

Let me get right up on his theories

[balantz]

5. Notice he wasn't kept on shrubbie's team long. n/t

[Warren DeMontague]

2. WE'RE DOOOOOOOOOOOOOOOOOOOOOOOOOMED!

DOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOMED!

[bemildred]

3. Another faith-based economist.

A "free market" puppy all the way.

[balantz]

4. What in the article prompted you to write that? n/t

[bemildred]

6. Several things:

1.) Because the depth and duration of a downturn depend positively on 1) how long the preceding boom lasted, 2) how distorted its capital structure became, and most importantly, 3) how much government interferes with the classical medicine administered by the marketplace.

#1 whatever this is based on, is not based on history or evidence, because that is not what history or evidence says, it's a postulate, not a fact. You can argue that the severity of the collapse is related to the size of the preceding bubble, assuming you had a good way to measure that; but that is not what he says.

#2 is arguable

#3 is pure free market, the government can only do harm, let the market fix it, bullshit.

2.) The cause of our sick economy was world-class injections of artificial credit by Maestro Greenspan and his Merry Band for double-digit years.

The cause of our sick economy is running our financial businesses as a giant free-money Ponzi schemes. Ponzi schemes and similar confidence scams always collapse. Bernanke et al are just trying stave off the collapse of the Ponzi scheme until the next administration, and/or rescue their mouth-breathing confidence-man buddies. It's hard to tell for sure how dumb Bernanke and friends really are about what they are doing.

3.) The deception orchestrated by the Fed suckered businesses into over-investing in capital goods industries, contrary to consumers’ wishes.

I simply don't know what to make of this one. The Fed suckered businesses into investing in Capital goods? All those highly paid CEOs were just doing what the Fed told them to? In any case it is fatuous for this weasel to claim to speak for the "consumers" wishes.

4.) His entire argument is that the government should just step back and let the chips fall where they may, let the free market fix the problem. This is a recipe for the four horsemen to ride, an outcome that he is welcome to if he wants it, I think we can do better than that.

5.) There is no such thing, in any case, as a "free market", it is a fictitious academic abstraction which does not and never has described any real world market. The issue with markets is, and always has been, who controls the market, and for whose benefit? What we are seeing now is the consequences, repeated once again, of allowing the "investment bankers" to control their own market for their own benefit.

[balantz]

7. Saying you have faith in Bernake says much. n/t

[bemildred]

8. Well, it says you don't read.

Nowhere did I say anything positive about Bernanke.

[balantz]

9. Sorry, I did read that too fast.

As for interference I think he has it right about Greenspan and friends.

[bemildred]

10. No problem, I'm more of the "a pox on all their houses" school. nt

[balantz]

11. I hear you. I am just trying to learn about this stuff.

I added to my post above. And yes, a pox on them all.

[bemildred]

12. I quite agree that Greenspan, Bernanke, etc. are part of the problem.

I would even agree with the OP to the extent that they helped instigate/create the problem. I think throwing money at the problem is somewhat the correct thing to do; the question is what do you throw it at? I think you throw it at things that directly keep the public employed, fed, clothed, housed, educated, and working at useful and productive activities. That is what the economy is for, isn't it?

[balantz]

13. I'm not sure where the author says to NOT put money where we need it.

Is it the "Ohio school" remark? I wasn't sure what he was refering to there.

[bemildred]

14. He's not wrong about everything.

It's his "solutions" I disagree with.
I have to go for a walk. Perhaps I will be able to pick this up later.
:hi:

[balantz]

15. Enjoy your walk. n/t