Australian economist Professor Steve Keen warned about dangerous debt levels long before the US credit crisis hit. In a well reasoned analysis of the current economic dilemma, or can we call it a crisis now, Professor Keen pointed out that at some point the level of debt cannot be increased. He also pointed out that Bernanke gained his reputation as an expert on the Great Depression of the 1930’s. Hmmmm, what was so great about it? The trouble is, this is the Depression of the 21st Century. Bernanke, like all academics, is quite brilliant at analysing, but like everyone else on this planet, he isn’t so hot at predicting.
Greenspan’s only solution to everything was to print more money and channel it into the economy as debt through his mates on Wall St who collected huge incomes along the way. Greenspan also let the banks off the leash. As I wrote in another article, ‘DUNCE, they were on a leash for a reason, Greenspan’.
Bernanke is quoted as saying that he would through money out of helicopters to create inflation, which apparently is the cure to everything.
Professor Keen said that a radical new approach to managing the economy would probably be required. In the 1930’s that took the form of ‘The New Deal’. It was the new deal that led the US and the world out of Depression. The ‘New Deal’ as I understand it, was the Government borrowing money and spending it on infrastructure so workers could have a job which meant they could spend.
However, I would beg to differ on that point with Professor Keen. From my reading of history, it was WW11 that bought the world out of the Depression. Suddenly the banks found all the money and liquidity that was needed to build weapons of mass destruction. Where as they had not been able to find the money for around a decade to build a factory.
There is a word that rhymes with bankers, and it is oh so apt.
Wars are quite useful.
Too many people? Solved
Employment problems? Solved, build another army.
Wage demands? Solved, declare a state of emergency domestically or send the army into another pointless and tactically suicidal battle. No, Private Jenkins, you can’t have a pay increase, anyway, you won’t need it, you’ll be dead tomorrow.
Need industry to gear up for production? Solved. And you don’t have to worry about costs. Which delivers profits to the factory owners, some of which filters down to the workers who are very happy about that and promptly go to the hairdresser. Thus, the money trickles down to small business.
Then when it’s all over, the ex-servicemen and women, have jobs cleaning up the mess and re-building.
Too much money sloshing around? Solved. Most of what is being manufactured explodes and ceases to exist. Money gone!
Mind you, the Austrian School of Economics shoots a rather large hole through all that with the ‘broken glass fallacy’. It also is heretical and says that deflation is a good thing. I think they are right on both counts, but you can read why for yourself by searching google.
Well, OK, briefly. If you have a window and it gets broken then the current economic theory sees that as good, since someone gets paid to fix it. WW111 anyone? The Austrian’s say that if you do not break the window in the first place your wealth does not decrease and you can then employ the person to add to your wealth. If you have $100,000 in savings (ho, ho, ho, savings?? What are they mummy? I’ll tell you about it another time Susan, daddy is throwing up) and a house costs $100,000 in year one but deflates to $95,000 in year two, have you become more of less wealthy. You can now buy more house for the same money. You can save because the price of everything isn’t going up faster than your savings. Inflation is a free ride for the productively challenged.
As I said above, goggle it. The Mises Institute is worth a visit.
Where was I? That’s right, WW111.
Under current economic orthodoxy, that is the solution. Note how the US is trying to help out there.