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Friday, July 17, 2009

It was stimulus that caused the crisis

So it will be stimulus that will solve the problem?
In the USA, the deadheads are at it. They didn’t see the crisis coming. Then, they didn’t understand it when it hit. But that doesn’t stop them from trying to fix it - by giving the world more of what caused the crisis in the first place: stimulus!

What caused U.S. consumers to go so deeply into debt? Stimulus. What caused the Chinese to build so many factories? Stimulus. How come Americans have so many malls, so many houses, and so many bills they can’t pay? Stimulus! They were stimulated to borrow by low interest rates and rising house prices - both produced in whole or in part by federal policy.

In the old days, a country would have to settle up its trade deficit in gold. As gold was called away by surplus countries, deficit countries would have to raise rates to attract more gold and reduce consumption. They system always rebalanced itself. Then, when the United States went off the quasi-gold standard, the imbalances became huge. Americans were able to go deeper and deeper into debt…while the foreigners built up more and more capacity (and more and more dollars).

But who cut the dollar lose from gold? The feds. Who made it possible for US consumers to spend far more than they earned for far longer than they could afford? The feds. Who held down the prime rate below the inflation rate for nearly four years - long after the supposed “emergency” that called for such drastic action? Oh dear reader, we don’t have to tell you, do we? The feds.

That was how the feds caused the bubble in the property and the financial sector. But after the bubble blew up, they blamed Wall Street, called for more regulation, gave Wall Street trillions that taxpayers hadn’t even earned yet…and provided more stimulus! And now they’re talking about a “son of stimulus,” yet more stimulus to an economy that is already fritzed out on stimulus.

Dead companies are kept alive. Smelly, dead-fish assets are kept on the books. And brain dead economists find employment in the Obama administration… explaining why more stimulus will set everything right again. Has the average taxpayer seen any of that ’stimulus’? Not likely.
-- from "This Too Shall Pop" by Bill Bonner

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