Alex Daley over at Casey Research lays out the very depressing case:
…For the first time in a long time, developed governments in Europe and the U.S. face the specter of sub-AAA credit ratings and rapidly rising costs of borrowing more (ratings that, frankly, had they been put in place by the inept agencies years ago when they were initially deserved may have had repercussions that would have helped us avoid many of today’s problems). Between rising borrowing costs, the already hefty budgetary burden of paying prior debt interest, and the ever-expanding rolls of government employees, legislators can hardly keep up on the bills these days, let alone inject any more into the economy.
The irony, of course, is that by unloading a full clip from the assault rifle when trying to “save” the economy, the governments of the OECD nations have actually created a catch-22 situation. One wherein they not only have no tools left to manipulate the markets against a further slowdown, but also where they have created monetary policy so extreme that undoing it would be more disastrous than the fallout would have been had they not stepped in in the first place….
As I’ve said before, there isn’t any way to avoid the next part of the crash. I don’t think there ever was, as Keynesian pump-priming has never worked. Oh, I know it is a matter of liberal religious faith that such policies cured the Great Depression, but that is just utter nonsense, as can be seen with a cursory glance at the relevant data. Be that as it may, even if such things do work, there’s no way to do it any longer – we’re simply out of money. Even if you whistle up a couple trillion more dollars at the Federal Reserve, all you’ll do is move the crisis from one set of bankrupt entities to another – you might buy yourself a few weeks, if you do that…and just make matters worse, in the long run.
We are going to be forced to balance our budget by simple fact of not being able to borrow any more money. Initially upon the crash, no one will have any to lend – later, anyone who has rebuilt a bit of wealth will stay away from government issued debt as too risky. It will be very, very painful – but, bankruptcy always is. The good news is that once we’re out of it, we’re done – we can start rebuilding again…and, hopefully, learn our lesson and pass relevant laws forbidding both the issuance of government debt as well as government backing for any private, financial transaction. Government debt, in the sense we know it, was invented almost by accident in the 18th century (and was created largely to bail out idiots who got themselves wrapped up in a stock market bubble…sound familiar?) – taking the long view of things (as I like to do), we can see that the three century experiment in this has failed. We should not try it, again.
HAT TIP: Mish’s
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