Money Sage

Well folks, the dramatic financial news coming from Washington D.C., our nation's new financial capital, in the past week call for an honest analysis of what is actually going on here. What does it all mean, the money-printing, the flood of cash to the banks, insurance companies, auto companies, indeed, anyone and everyone who can assert with the slightest scintilla of credibility that he is too big to fail. (That, unfortunately, excludes the average citizen, homeowner, consumer, debtor. This multitude is only important enough to collateralize, with future tax receipts and indebtedness, the bailout monies for the really important guys). And what of the furious printing of money, the near-incredible deficits, the spiralling national debt?

We believe that the totality of bailout efforts -- the FED money-printing operation, now publicly acknowledged and coupled with the explicit announcement that money-printing is to be ramped up massively during the current year-- the "stimulus" program, the proliferation of government "funded" financial institution and market bailout mechanisms (TARP, TALF, plus innumerable other alphabet creations), the dramatic congressional debates and votes, the unending stream of presidential pronunciamentos (often conflicting) and presidential assurances -- all of this constiutes little more than theatre -- and bad theatre at that.

We are not saying that these efforts are not well-intentioned. But it is, of course, results which count, not intentions. If you do not believe this, consider Neville Chamberlain's idealistic intentions and the grievous consequences of his policy; consider also the narrow, self-seeking nationalistic motivations for Winston Churchill's policy, and its enormously beneficial results for his country. Let us simply observe that there is more than a little truth in the old saw:

"The road to Hell is paved with good intentions."

Now what we think is that the totality of bailout efforts, whether conceived out of the purest of motivations, or driven at least in part by narrower calculations of political advantage, financial self-interest, interest group pressure, or class interest constitute an elaborate, never-ending source of DIVERSION and ENTERTAINMENT, broadly conceived. In a sense, they are acting as a crucial diverter from the REAL ACTION, so to speak.

And what is this "real action?" It is just this: it is the ONGOING PROCESS OF LIQUIDATION. This process constitutes the core of every depression, and follows inevitably the vast over-extension and over-creation of credit, the pyramiding of debt, and the rampancy of speculation during the blow-off phase of the business cycle.

For those who do not believe that this process of liquidation is continuing, we suggest you consult periodically your 401K balances, the prices at which homes are selling (or not selling, as the case may be) in your neighborhood, and the growth in the numbers of the unemployed, the foreclosed, the delinquent, the bankrupt within the pool of people whom you know. Watch too the business and mall closures, failures, and bankruptcy sales, the decline in consumer goods and services prices, the thinning ranks of restaurant customers. The massive decline in living standards is only beginning.

As with all deflationary depressions, the current LIQUIDATION IS CONTINUALLY REPEATING (to employ the terminology of the distinguished economist Irving Fisher). Each ratchet down in prices (equities, houses, commercial real estate, non-Treasury bonds, commodities, etc)forces a new wave of liquidation, as those able to finance their holdings at x level of asset prices is no longer able to do so at .9x; when selling of assets at .9x develops and accelerates, those who have been able to avoid distress selling are then forced, at .8x to sell, driving prices down further, compelling those formerly better buffered to sell. And so it goes. NO AMOUNT OF CIRCUSES IN WASHINGTON, NEW YORK, SACRAMENTO, or elsewhere has the slightest effect on the pace or breadth of the liquidation. With the provision of a stream of money to an ever-wider array of individuals, companies, and constituencies, the Obama Administration is now completing the replication of the ancient device the Roman Emperors used so effectively to maintain their power and to preserve the social and institutional status quo: BREAD AND CIRCUSES.

Where, oh where will it end? The answer to this question is plain as day. It will end where all depressions end. It will end WHEN PRICES GET LOW ENOUGH: when prices sink low enough to clear the markets of sellers and bring in the buyers.

No quantity or variety of antics, money-printing, taxing, borrowing, policymaking etc etc can have the slightest impact upon the outcome.

Moneysage 2009 - copyright