What comes next?

With the markets trading ever more on here-say, rumour and counter-rumour everyone is asking the same question. Where is the economy headed?

The short answer is, nobody knows. Opinions and policy prescriptions from the talking heads of the MSM flow like cheap wine at a Frat party. Nobody could possibly know. Listening to Radio 4 today, the always fun Lord Skidelsky (who wrote a bio of John Maynard Keynes and probably wears Lord Keynes pajamas to bed) blamed the government’s “cuts” for the deepening crisis. His solution? Why, more spending of course. Everyone needs to do their part, governments, individuals, future generations.

To be fair, he didn’t say there was an easy solution to the depression that his pseudo-economics caused, but it does involve spending. The problem is Keynesians cannot see past their own absurd models. Now I’m sure Lord Skidelsky is a decent enough bloke. According to his website and his regular noise coming from my radio, he is very accomplished in that mainstream way. He may even be intelligent. However, even the most humble of us know that spending more money in a debt crisis is ludicrous. Governments and citizens alike are broke, how could they possibly spend their way out of a debt-fueled depression? No one at Radio 4 thought to ask him.

The major economies of the world are groaning under unprecedented amounts of debt. The last 3 or 4 years should have been spent deleveraging, you know getting rid of all of the debt and malinvestment that has accumulated over the past 40 years. It would have been painful, although how much more or less depends on who you are. Wall Street would have been gutted in a market-driven deleveraging. Instead they got bailed out and continue to be bailed out in various, almost ingenious ways. However, after a year or two, with the market cleansed of the bad debt, the economy would begin to grow again.

Sadly, everything was done to stop the world from coming to terms with its profligacy. Even worse, the most profligate were bailed out! In the topsy-turvy world of crony capitalism, that is good policy, reelection-good policy.

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