Monday, November 24, 2008

Is this the end of the American economy?

Bloomberg: Fed Pledges 7.4 Trillion in New Money.

This is it. The Fed has declared war on the economy and thereby every market participant, and they have prepped their weapons of mass destruction.

Quoting the article: “The U.S. government is prepared to lend more than $7.4 trillion on behalf of American taxpayers, or half the value of everything produced in the nation last year, to rescue the financial system since the credit markets seized up 15 months ago. The unprecedented pledge of funds includes $2.8 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the only plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.”

I already knew that 3 trillion in monetary expansion was in the works. I heard it live from the President of the Dallas Fed about a month ago when he came to Austin and talked about this “off the record”. I personally challenged him the about the wisdom of such a decision. I asked him how he could expect the same monetary policies that created this crisis could be used to solve it, and even if it did temporarily how he could expect that even in the mid-term horizon that the same problems would not occur all over again. He said in response, and I quote: “You just gotta have faith – faith in the Federal Reserve, faith in Congress that they will make the right decision, and faith in the Executive, whoever is elected, that he will make the right decision.”

I should have asked him how other faith-based initiatives have been working out for the government lately, or that I thought matters of faith should be reserved only for God, quantum mechanics, and the quality of frozen pizzas. Too bad I’m not THAT quick. Too bad I was too shocked to say anything at the time. Three trillion is disaster, seven trillion is… unspeakable.

They should have listened – to Mises, to Hayek, to Rothbard, to Ron Paul. Heck, even Milton Friedman more or less repudiated monetarism later in life. Instead, they chose Keynes, Stiglitz, Krugman, Greenspan, Bernanke, Paulson, McCain, and Obama. You reap what you sow.