American Missive

LONG BEACH— Yesterday the market leaked. Through the spicket came an estimated $1.2 trillion in value gushing out on the floor, evaporating into thin air.  Today we are still here. Let it come Down.

The number of economist who disagree with the bailout seems to grow everyday. Yet on Capital Hill the rumor is spread that this country couldn’t manage a financial failure.

The government’s top economic experts warn that, without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold. More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically.
— George W. Bush, September 24, 2008

Some experts warn the country could (read “might”) slip into a recession of which would include foreclosures and falling stock prices coupled with fewer banks. But on the other hand it “might not.” As a free market man, I’ll take my chances. As a capitalist, I’ll move my money into secure assets and watch everything become relatively cheap compared to a year ago. Then I’ll buy at a great discount and go on with life. That is unless the Government infuses $700 billion into the market.  Then I’ll have to sit back and watch a re-run of the 1970′s classic Stagflation. It was miserable the first time.

Economies naturally have ups and downs. No economic theory or system to date has been developed which would allow for perpetual growth with no down turn. It’s a simple fact of life. A fundamental law of physics. Perpetual motion machines simply do not exist. Not in economics, not in transportation, not anywhere. Even the sun is slowly burning out.

So what is happening now? It’s causing friends and neighbours to run around like their heads are cut off. “Capitalism is a Lie! Capitalism is a Lie!” Well first I must ask, what did you think capitalism said, there would never be a rainy day? And second, capitalism has been around in some form or another since the 16th century. In that time many ups and downs have come and gone yet the world kept turning.

Right now it is almost as if there are too many bad investors in the market. Over population of bad investors is leading to a destruction of entrepreneurial growth. In a January 2003 AP article about a study of the detrimental affects of overpopulation of bad investors the following was learned:

The study, being published in February in the journal Ecological [Economical] Applications, shows larger deer [bad investor] populations may lead to shorter trees [growth periods] and fewer species [long term gains],  even in areas without cutting [wrought with government intervention]. It also comes close to pinning down how many deer [bad investors] is too many for a forest [an economy] to handle…
—Mike Crissey, January 7, 2003

OK so perhaps there was some editing involved with that source. But it is a rather natural cycle to have “market corrections” occur in an economy. When a commodity is over valued, a correction is due.  To the left you see the familiar Supply and Demand curve. In today’s market there is a massive supply of bad loans and, strikingly enough, there isn’t a real high demand for them.  Picture the arrows going the other way.

In Washington D.C. we have a very interesting situation going down. There is a strong push for a Keynesian, if not socialistic, knee-jerk response to the current crisis. There appears to be three groups of thought on the matter. Those fundamentally opposed to the idea in general (about 2/3rds of the conservative base of the Republican party). Those fundamentally opposed to any request from George W. Bush (about 2/5ths of the Democratic Party). And then everyone else, Democrats and Republicans alike, who seem all to eager to spend tax payer money while vilifying their counterparts across the aisle. This includes Nancy Pelosi, vocal dissenter of George W. Bush. For some reason she is still backing his plan but obviously she is very conflicted.

In the end we’re all left hoping people will do the right thing. But they rarely do. However, in this instance a House Divided three ways may inadvertantly stumble straight forward down the path. For some reason this reminded me of one of my favorite bands. In particular one of my favorite albums from that band. The band is Spiritualized and the album name is “Let It Come Down” …

Straight and the Narrow
by Spiritualized

The trouble with the straight and the narrow
Is it’s so thin, I keep sliding off to the side
And the devil makes good use of these hands of mine

And if Jesus is the straight path that saves
Then I’m condemmed to live my whole life on the curb
On the crossroad to the devil, I’ll dwel and I’ll count my years

You know that I got a little something I should say
I guess that I’m just so easily led astray
It’s alright because I know my own way back home from here

And I don’t fall off the wagon you know
I take a dive and go as deep as I can go
Don’t hold your breath because I’m coming up slow, this time.

And The trouble with the straight and the narrow
Is it’s so thin, I keep sliding off to the side
And the devil makes good use of these hands of mine

You know I have a little problem or two
I guess that I keep on taking a few
I’ve been told its not the best thing that I can do, right now

And I don’t go looking for my sins you know
They come out waiting, and I just get on and go
Don’t hold your breath because I’m coming up slow this time

And the trouble with the straight and the narrow
Is its so thin, I keep sliding off to the side
And the devil makes good use of these hands of mine

And if Jesus is the straight path that saves
Then I’m condemmed to live my whole life on the curb
On the crossroad to the devil, I’ll dwell and i’ll count my years

And the trouble with the straight and the narrow
Is it’s so thin, I keep sliding off to the side
And the devil makes, the devil makes, good use of these hands of mine