I think a lot of people believe we are heading into a major Depression and I think they're betting on the stupidity and cupidity of our nation's leaders, elected and appointed, to make it happen. One need only look at previous efforts to effect some control over the economy while, at the same time, running it into the ground.
From the day-August 15, 1971-that President Nixon took the nation off the gold standard, detaching the dollar from the enduring value of gold, America became a place where the dollar was worth whatever anyone thought it was worth. It's a lot like those holiday and post-Christmas sales where a sweater priced at $50 prior to the onslaught of the financial meltdown was priced down to $15. Same sweater, different value. Two suits, one free was the offer of a local retailer.
As columnist Robert J. Samuelson recently wrote, "We have a $14 trillion economy. The idea that presidents can control it lies between an exaggeration and an illusion." Samuelson cited Nixon's imposition in 1971 of wage and price controls in part to prevent inflation from jeopardizing his reelection. "The economy boomed in 1972. But the controls were a time-delayed disaster. When they were removed, inflation exploded to 12 percent in 1974."
President Carter was an even greater disaster while he occupied the Oval Office. His administration imposed credit controls to squelch the raging inflation from the Nixon administration. "The result was a short recession that helped seal Carter's defeat, along with his failure to face down the Iranians who had taken U.S. diplomats hostage.
Like the incoming President-elect, Carter hated the oil industry, imposing a "windfall profits" tax on it and even had solar panels installed on the roof of the White House. The result was to severely impact our domestic oil industry in ways that has rendered the U.S. more dependent than before on foreign oil. When Reagan took office, he cut taxes and instituted spending restraints. He also had the solar panels removed.
So where are we today? In October 2008 at the end of the budget year, the Congressional Budget Office released its latest estimates, concluding that a record $438 billion deficit had been racked up by Congress, fully $25 billion more than for fiscal 2004. The office anticipated that President-elect Obama will have to scale back campaign pledges because he will inherit a likely deficit for 2009 that will exceed $500 billion.
At this point we are virtually talking about Monopoly money and make believe houses and hotels. Some people like Barney Frank and Chris Dodd, among others, should be on their way to jail for misleading the American people regarding the insane practices of the quasi-governmental entities, Freddie Mac and Fannie Mae.
To give you another idea of how deeply in debt the nation is, the Congressional Research Service recently revealed that the total value of the bailouts undertaken by the federal government in 2008 exceeded the combined cost of every major war the United States has ever fought!
The bailouts have added up to a total of $7.2 trillion in inflation-adjusted 2008 dollars. The total value of the bailouts thus far has reached $8.7 trillion.
In November, the Cato Institute released a report by Lawrence H. White, a distinguished professor of economics, an author of The Theory of Monetary Institutions, among other books. "How did we get into this financial Mess?" was the rather blunt title of the report. The brief answer is that our government, Congress, the White House, the Federal Reserve, Freddie Mac and Fannie Mae, thanks to misguided policies and sometimes flagrantly bad practices are responsible for the mess.
In short, the GOVERNMENT.
"The actual causes of our financial troubles were unusual monetary policy moves and novel federal regulatory interventions. These poorly chosen public policies distorted interest rates and asset prices, diverted loanable funds into the wrong investments, and twisted normally robust financial institutions into unsustainable positions."
Got that? Idiots and liars running our government have managed to plunge Americans into the onset of a recession that could turn into a full-fledged depression. And, dear reader, it just gets worse because all the failed policies of the Roosevelt era are being touted as the answer to our present debacle. Giant make-work projects didn't work then and will not work now.
Such steps as have been taken thus far, the dumping of billions into various banks and insurance companies without a scintilla of transparency or the demand to know what they were doing with the money, have not helped. In the process, enormous powers were handed to a Secretary of the Treasury who apparently either didn't see the problem coming or did nothing to stop it from happening.
At least in Great Britain the government insisted the money transfer came with the demand that their banks actually lend it. So far our banks have used the money to buy other banks. As to their lending practices, no one in government seems to have any oversight despite the fact that it is our public funds that have been placed at their disposal.
The notion that the federal government should bail out Detroit's auto industry is too crazy for words. If one takes the United Auto Workers out of the equation, the normal course of events for a failing business is to put it into bankruptcy, reorganize it, and see if it can return to profitability. If it can't, it is allowed to fail.
Indeed, stupidity or just indifference was the order of the day when the head of the Securities and Exchange Commission had to admit his agency had paid scant attention to complaints about the hedge fund run by Bernard Madoff whose losses are estimated to be $50 billion.
The clichÃ© is that you get the government you deserve and Americans have been blissfully and ignorantly voting most incumbents back into office for years. In Pennsylvania, after calling his constituents "rednecks" and racists, John Murtha, was returned to office.
So, if you are calculating the odds that the White House and Congress will find a sensible, measured, and responsible way to cure the current financial crisis, the smart money is on zero.