Recientemente recibimos la noticia del colapso de la economía de Islandia, y la caída posterior de su gobierno. He leído artículos de más de un comentarista que describen dichos eventos como el legendario “canario en la mina.” O sea acontecimientos que todavía no se hacen presentes en otros gobiernos alrededor del mundo pero que por ahí va la cosa. Estoy totalmente de acuerdo. Es un diagnóstico excelente. Islandia es un ejemplo claro de lo que otros gobiernos deben evitar en esta época de problemas de crédito, planes de rescates financieros, y reveses económicos en general. En resumen, los gobiernos deben alejarse del sector privado, y dejar tranquila la economía de la gente.Para aclarar lo que ocurrió en Islandia voy a hacer uso de una línea de tiempo de lo que sucedió exactamente en las últimas dos décadas y cómo los islandeses se metieron en este desastre financiero.
Línea de tiempo
2001 Bancos de Islandia se expanden rápidamente tras la desregulación de su mercado financiero doméstico.
2007 El Producto Interno Bruto de Islandia crece a €8.5 mil millones, o $10.8 miles de millones.
1990's – 2008: El gasto del gobierno en programas públicos rebasa el 42 por ciento del PIB ($4.53 mil millones).
Abril, 2008: El sector privado de la banca ha acumulado más del 80 por ciento de la deuda externa.
Septiembre 15, 2008: Lehman Brothers busca protección en Chapter 11 contra sus acreedores.
Septiembre, 2008: La divisa de Islandia, la Króna, pierde más de 35 por ciento de su valor contra el Euro.
--- La inflación pasa del 14 por ciento.
--- Las tasas de interés suben a un 15.5 por ciento para detener la inflación.
--- Las autoridades de Islandia solicitan un préstamo por $2 mil millones de dólares al Fondo Monetario Internacional.
--- Las autoridades de Islandia piden un préstamo de $4 mil millones a cuatro de sus vecinos escandinavos.
Septiembre 29, El gobierno de Islandia nacionaliza al banco Glitnir Bank, con una participación de un 75 por ciento en la moribunda empresa.
--- Las acciones de Glitnir Bank caen estrepitosamente.
--- La Króna empieza a perder valor.
Octubre, Los tres bancos principales en Islandia son investigados y se les encontraron pasivos doce veces mayores al Producto Interno Bruto de Islandia.
Octubre 6, El gobierno de Islandia vincula la Króna al mismo valor que el Euro.
Octubre 7, el Banco Central de Islandia anuncia un valor de divisa para la Króna, a sabiendas que no tiene suficientes fondos para entrar a los mercados internacionales de divisas.
--- La Króna de devalúa estrepitosamente.
--- El banco Landsbanki Bank es nacionalizado.
--- El gobierno de Islandia acuerda otorgar a Kaupthing Bank un préstamo de €500 millones, equivalente a la mitad del PIB de Islandia. Entre los programas de gasto público y el nuevo préstamo, la cantidad total que el gobierno debe ahora constituye un 92 por ciento del PIB del país. Si los pasivos de los dos bancos recientemente nacionalizados se incluyen en el total de la deuda, el gobierno debe ahora 715% de su PIB.
Oct. 8, En programas de televisión británicos se discuten la solvencia económica de Kaupthing Bank. Las autoridades embargan los activos extranjeros de Kaupthing Bank y los transfieren al banco holandés ING.
Islandia entra en pánico sobre su moneda y culpa al Primer Ministro Británico Gordon Brown, y del embargo de los activos del banco Kaupthing Bank.
El Banco Central abandona su intento de vincular la Króna al Euro. Es el período más breve de vinculación en la historia – ocho horas.
Octubre 9, El banco Kaupthing Bank es nacionalizado. Es el banco más grande de Islandia. La deuda del gobierno asciende ahora al 1,315% de su PIB.
La compra-venta de la Króna se viene abajo.
Octubre 10, El Banco Central de Islandia pone restricciones a la compra de divisas extranjeras dentro de su territorio.
Octubre 15, se llevan a cabo subastas temporales de divisas para facilitar el comercio internacional. A mediados de Octubre, las reservas de divisas internacionales de Islandia bajan $289 millones de dólares.
En Noviembre, 2008, la tasa de intercambio real baja a su nivel más bajo en treinta años.
El 3 de Diciembre, la última subasta de divisa extranjera se lleva a cabo.
El 26 de Enero del 2009, el gobierno de Islandia se colapsa.
Este escenario completo se dio como si fuera una escena en cámara lenta de una película de terror. Las autoridades cometieron error tras error en sus intentos por contener lo que no se podía detener.
En este drama, hubo abundancia de errores
Primero, el gobierno de Islandia gastó la increíble cantidad de un 42 por ciento del PIB de su economía, y se los gastó principalmente en infraestructura. Si bien es cierto que tal cantidad de gasto resultará en buenos caminos, puentes y edificios públicos (si es que se lo gastan de manera eficiente), ultimadamente le deja muy poco espacio al gobierno para maniobrar en caso de que salgan imprevistos en su economía. Tras otorgar más de un 40 por ciento de lo que ganan, la gente de Islandia van a sentir más que un piquetito si sus impuestos suben, o su moneda se devalúa repentinamente – o ambos casos. En todo caso, no dejaron espacio en sus cálculos en caso de emergencias.
Segundo, el Banco Central de Islandia, para colmo de males, le dio paridad de uno a uno al valor de su divisa, la Króna, con una divisa externa, el Euro, mientras se encontraba justo en medio de una crisis de divisas. Al principio, esto parecía razonable. El Euro ya se ha establecido, se intercambia y es estable. Pero hacer pruebas debe dejarse para tiempos de prosperidad. Contrario a lo que se piensa comúnmente, en la economía no hay que tomar medidas desesperadas. Cuando la situación se vuelve desesperante, hay que regresar con renovados bríos a la conservación fiscal. Los tiempos de desesperación nos exigen tomar medidas que funcionen sin falta. Para empeorar las cosas, el gobierno entró de lleno al mercado internacional de divisas a sabiendas que no tenía reservas adecuadas en su banco central. Aquí podemos ver una reacción de desesperación. Es claro que el gobierno no tenía respuestas.
Tercero, en el peor de los casos, el gobierno de Islandia nacionalizó los tres bancos privados más grandes del país, a pesar de que era bien sabido que los bancos tenían en su haber pasivos equivalentes a doce veces el PIB de Islandia. Esto es una estupidez ostensiblemente. Si, tú, como individuo, ves que el dinero que tienes se te está devaluando rápidamente; ves que tu situación económica está precaria, y ves que ya debes más de lo que puedes pagar o calcular, lo último que necesitas o quieres es endeudarte más. No es diferente a nivel gobierno. Mezcla todos estos eventos, y el gobierno de Islandia parece que perdió a todos sus líderes de un jalón. Más bien esas autoridades se volvieron los Tres Chiflados. Pero el argumento contra estas acciones va mucho más allá que solamente el ser conservador fiscalmente hablando. Esta historia tiene una moraleja, y es extraordinariamente importante.
Bienvenido a Islandia - Esclavo
Los gobiernos transfieren deudas privadas al público en general todo el tiempo. Estamos haciendo lo mismo aquí en Estados Unidos. Nuestros bancos, nuestras empresas de fondos mutuos, nuestras armadoras automotrices, nuestros bancos hipotecarios, etc. – están chupándose dólares de los contribuyentes a una velocidad espeluznante, y el público está furioso. Y con justa razón. Aunque la mayoría de la gente, me imagino, no llegan a digerir de lleno el por qué este tipo de escenario es tan ofensivo, hay una muy buena razón para enojarse. Tú, el contribuyente, te has convertido en la bestia de carga de los fracasos de otros. Son irresponsables, desorganizados y fracasan pero resultan ganadores al final. Tú eres responsable, conservador y pierdes.
Esto significa que el gobierno ha decidido que tú, como persona responsable, no tienes nada que decidir a la hora de aplicar tu esfuerzo productivo. Tus derechos a tu propio esfuerzo son menos importantes que la percepción de bienestar de otro. Cuando un ser humano no tiene derecho a decidir cómo se va a usar su esfuerzo, se le puede describir como un esclavo. Y la esclavitud, de cualquier tipo, es una aberración. Pero ésta no se detiene allí.
El escenario de esclavitud creada por el gobierno se realiza bajo la consigna de que se están creando empleos, se está previniendo el desastre, y realizan estas actividades de confiscación de tus ingresos “por el bien del pueblo.” No hay nada que esté más lejos de la verdad (si estás en desacuerdo, lee de nuevo la línea de tiempo arriba mencionada). Simplemente están disfrazando el crecimiento de la burocracia y el parasitismo mientras hablan al mismo tiempo del bien que hacen por intervenir en la economía. Te confiscan tu salario, y luego intentan públicamente de justificar sus actos. Lo que es triste es que hay mucha gente inocente en el mundo que todavía les cree.
El bien común no existe – a la fuerza
Lo irónico del asunto es que cuando Islandia o cualquier otro gobierno en circunstancias similares procuran el dinero de la gente, suceden tres cosas invariablemente. Primero, se le pide dinero a los miembros más productivos de la sociedad. Segundo, esos millones se les otorgan a quienes han fallado -- para prevenir su fracaso. Tercero, se crea una burocracia para confiscar y distribuir ese dinero. Finalmente, y más importante, si no hubiera habido intervención en primer lugar, ninguna de estas circunstancias se hubieran presentado.
O sea, no habría necesidad de producir esclavos económicos. Así que bajo pretexto de mejorar las vidas del electorado, han tenido éxito en empeorarles la vida. Le han aumentado la carga que los individuos, que no tuvieron nada que ver con los bancos de Islandia, y ahora resulta que son quienes le deben pagar al gobierno.
Así es cómo Islandia ha creado sus propios problemas. Antes de que los bancos fueran nacionalizados, las deudas enormes que había en los bancos Glitnir, Landsbanki y Kaupthing eran enteramente privadas. Los contribuyentes no le debían nada a los bancos por su rápido crecimiento y su falta de responsabilidad fiscal. El recurso que los clientes de los bancos antes de su nacionalización era la confiscación, lo cual Inglaterra realizó, y demandas legales. Pero todo eso cambia cuando los bancos reciben recursos públicos. Lo que de una manera hubiera sido una corrección normal, aunque dolorosa, del mercado libre, que se limitaba a una industria solamente, ahora se ha convertido en una aflicción nacional que se llega a sentir por la población entera. El argumento a favor de la intervención se centra en que la gente “necesita” a los bancos y el crédito que otorgan, y los trabajos que se perderían en la industria cuando se deja quebrar a esas empresas. Y todo esto es verdad. Sin embargo...
Si un banco en Islandia hubiera fallado, hubiera ahora dos bancos más solventes para recoger las piezas del que fracasó. Si dos fracasan, entonces habría uno bien librado, y más solvente para brindar los productos y servicios al país. Y en caso de que los tres se vinieran abajo, los bancos del extranjero brindarían el crédito necesario. El argumento de ser el “banquero de último recurso” no tiene sentido, puesto que Islandia tiene un banco – El Banco Central de Islandia. Siempre y cuando todas las deudas privadas se mantengan lejos de la ciudadanía, un banco central puede imprimir dinero, manipular tasas de interés, o hacer uso de todas las actividades para que el país entero no sienta el dolor del sector bancario. En una economía de libre mercado que sea de verdad libre para responder a las necesidades de sus clientes, los malos tiempos pasan rápidamente. Donde haya dinero que ganar, HABRA personas que satisfagan las necesidades. Pero esto no sucede en un mercado ultra-regulado. Esos mercados se llevan más tiempo en recuperarse por las restricciones arbitrarias del mercado.
Fue de esta manera que las fuerzas todopoderosas del gobierno de Islandia se convirtieron en un animal extraordinariamente egocéntrico. Se creyeron que eran más listos que el mercado libre. Y el “engreimiento fatal” del que el economista ganador del Nóbel Frederick Von Hayek escribiera hace años se ha consolidado una vez más. Ninguna autoridad de gobierno tiene suficiente información a la mano para manipular con éxito una economía completa. La mejor medida es dejarlo solo. Entre menos regules a una población, mayores son las oportunidades que tienen para que construyan su propia prosperidad.
El gobierno, en este ejemplo, ha sido el problema en vez de la solución. Desafortunadamente para la población de Estados Unidos, la administración actual parece compartir las ideas de los líderes de Islandia – es decir piensan que si logramos manipular la economía lo suficiente, si hacemos un trabajo justo a la hora de redistribuir, entonces podemos controlar a la economía. Así que echa un vistazo.
Si ves a algún canario batallando por respirar, agarra tus dólares, cámbialos por oro, y vete hacia donde viene la luz, antes de que te quedes atorado en la entrada de la mina.
Thursday, February 26, 2009
Thursday, February 19, 2009
Unmeasurable Job Growth
I've just visited Gregory Mankiw's blog again (If you don't, you should. It's one of the top 100 blogs listed by Technorati.com), and I'm very happy to see that in his post “Create or Save” he has clearly explained how politicized and convoluted the language surrounding the stimulus program has become. What he touches on is something I noticed just after Barack Obama was elected. He started using slightly different language when describing what his “stimulus” package would do.
(Incidentally, Mankiw is also using quotes to describe the “stimulus” program. For anyone not paying attention, I need to point out, this is a very telling sign of how this typically objective economist feels about the program.)
Obama began using the words “save jobs.” My observation was “how will we know?” How, exactly, do you measure “jobs saved”? Well, you can't. And people like Greg Mankiw most of all know how important that little piece of word smithing could become. He calls the language “an act of political genius.”
But I've always considered intelligence overrated. It's given us communism, fascism, Nazism, eugenics, political correctness, closed scientific and medical minds, centralized banking and a number of other serious social, intellectual and financial problems. A recent one was called Enron. AKA “the smartest people in the room.” More recently, though, it's produced artificially created billionaire Bernie Madoff. So much for intelligence. If honesty and open mindedness are to be considered the hallmarks of more average intelligence, I'll take average over the more insidious genius, or “political genius,” anytime.
Alright, digression over. I'm just pleased to see that someone else is impressed with how politically “savvy” Obama and his advisors are – already – and that someone else knows there is no proper metric that will give us anything close to measurable when deciding how many jobs have been “saved” - and wants to direct some attention toward it.
He also has a quick post called “Talking Down The Economy” that points out how Obama has been “fear mongering” regarding the economy.
And another post talks about “The End Of Welfare Reform As We Know It.” This is a strange thing for the democrats to focus on, especially since it was such a successful reform program for their democratic predecessor, Bill Clinton. What's most interesting, is that this “End” is hidden, in of all things, the “stimulus” bill.
(Incidentally, Mankiw is also using quotes to describe the “stimulus” program. For anyone not paying attention, I need to point out, this is a very telling sign of how this typically objective economist feels about the program.)
Obama began using the words “save jobs.” My observation was “how will we know?” How, exactly, do you measure “jobs saved”? Well, you can't. And people like Greg Mankiw most of all know how important that little piece of word smithing could become. He calls the language “an act of political genius.”
But I've always considered intelligence overrated. It's given us communism, fascism, Nazism, eugenics, political correctness, closed scientific and medical minds, centralized banking and a number of other serious social, intellectual and financial problems. A recent one was called Enron. AKA “the smartest people in the room.” More recently, though, it's produced artificially created billionaire Bernie Madoff. So much for intelligence. If honesty and open mindedness are to be considered the hallmarks of more average intelligence, I'll take average over the more insidious genius, or “political genius,” anytime.
Alright, digression over. I'm just pleased to see that someone else is impressed with how politically “savvy” Obama and his advisors are – already – and that someone else knows there is no proper metric that will give us anything close to measurable when deciding how many jobs have been “saved” - and wants to direct some attention toward it.
He also has a quick post called “Talking Down The Economy” that points out how Obama has been “fear mongering” regarding the economy.
And another post talks about “The End Of Welfare Reform As We Know It.” This is a strange thing for the democrats to focus on, especially since it was such a successful reform program for their democratic predecessor, Bill Clinton. What's most interesting, is that this “End” is hidden, in of all things, the “stimulus” bill.
Tuesday, February 17, 2009
Bailouts And Stimulus Programs Are Undemocratic
In a representative democracy you get what you vote for, or supposedly so. It's a fundamental tenet of democracy. Throw the switch; punch the paper; and your voting voice has been heard. You get what you, or rather, what the majority wants. But with bailouts and stimulus programs, that isn't the case.
When a company that supplies the buying public with the products and/or services that the public wants suddenly finds itself struggling for profitability, it, in essence, has received the votes of the majority. And in a free market, that company has only two options. Either it can change, and begin to provide the products that the majority wants; or it can be liquidated. Liquidation is simply the sale of the company, or parts of it, to other companies that have remained competitive. And if the company doesn't change enough, it will eventually go bankrupt, which is the same as a longer, slower, more painful liquidation.
But bailouts, “stimulus” programs, toxic asset reallocation programs, and all of their politically correct sounding cousins, are actually failures of the democratic process as it is applied to our economy. Our politicians, actually all of us, believe that the will of the people deserves to be heard through the power of the voting booth. Democracy is its own reward, because every single person of voting age in the country has a say in what direction they want the country to take. But for some reason, many of us conveniently overlook our hard earned dollars – our day-to-day livelihood – our wallets.
When you make a purchase, you are essentially “voting” for a particular product and/or service. When you go to the grocery store, you do this probably two or three hundred times – possibly a thousand times. You make one very specific selection for a product, not all by itself or with one or two other products, but in comparison to and over a number of others. And you do this for every selection you make. This same process goes on and on in every aspect of your life. The clothing store; the gas station; the hobby shop; the hardware store, etc. Thousands upon thousands of conscious and semi-conscious decisions are made with our hard earned dollars and what we desire most for ourselves. And all of our countrymen do the same.
So, arguably, which has the greater effect? Your day-to-day purchases, using your own money, which you have rightfully earned, or your once per four years chad production process? Voting for a politician, or group of politicians, gives the country a general direction. But when you vote, every day, with your own dollars, you give the entire economy a specific destination. You're telling not just the manufacturer of the product you purchase to “make more of this,” but you are also sending every other manufacturer the same signal – “do this.” The overall effect of our purchases gives us a far more concrete understanding of the desires of the people than the hopes we parlay from our votes for particular candidates. Best of all, we get to make such votes every day.
We tell certain auto manufacturers “make less of this,” and certain financial services suppliers “don't do that.” And as I mentioned, it's with our hard earned money. It's our most telling desire for a specific destination. People don't speak with their mouths; they speak with their wallets.
Interestingly, however, our general directioners often disagree with us. Despite having told myriad U.S. companies that we don't want what they have to offer, every day, our elected officials have chosen to bail them out with... the money we earn and have intentionally kept from them. This is akin to economic anti free will. It's the very antithesis of a free market, and the opposite of our stated desires for a specific destination in our economy.
The most pressing issue, though, is this: your dollar votes count more than your, or their, policy votes. First, because you have earned your money through your own time, energy and sweat. Your life. And second, because the American public plays a much greater role in the day-to-day activities of the economy than the government. They are not making the actual purchases. You are. In short, the economy doesn't belong to them; it belongs to you. They simply don't have the right to overrule your every day votes, no matter how many jobs they say they will "create" or "save."
If a laissez-faire economic system can be compared to our democratic political system, on the one hand our leadership would tell us they need to “control, control, control” the economy. But in our political system, the same leadership would tell us, all votes need to be counted. Why the disconnect? And which system gives us the more concrete ideas about what the people want?
So bailouts and stimulus programs, though they might make us feel a bit better and more secure, are the opposite of the principles our country was founded upon. They are undemocratic. And they deny what the people have stated they want as a specific economic destination for the country.
When a company that supplies the buying public with the products and/or services that the public wants suddenly finds itself struggling for profitability, it, in essence, has received the votes of the majority. And in a free market, that company has only two options. Either it can change, and begin to provide the products that the majority wants; or it can be liquidated. Liquidation is simply the sale of the company, or parts of it, to other companies that have remained competitive. And if the company doesn't change enough, it will eventually go bankrupt, which is the same as a longer, slower, more painful liquidation.
But bailouts, “stimulus” programs, toxic asset reallocation programs, and all of their politically correct sounding cousins, are actually failures of the democratic process as it is applied to our economy. Our politicians, actually all of us, believe that the will of the people deserves to be heard through the power of the voting booth. Democracy is its own reward, because every single person of voting age in the country has a say in what direction they want the country to take. But for some reason, many of us conveniently overlook our hard earned dollars – our day-to-day livelihood – our wallets.
When you make a purchase, you are essentially “voting” for a particular product and/or service. When you go to the grocery store, you do this probably two or three hundred times – possibly a thousand times. You make one very specific selection for a product, not all by itself or with one or two other products, but in comparison to and over a number of others. And you do this for every selection you make. This same process goes on and on in every aspect of your life. The clothing store; the gas station; the hobby shop; the hardware store, etc. Thousands upon thousands of conscious and semi-conscious decisions are made with our hard earned dollars and what we desire most for ourselves. And all of our countrymen do the same.
So, arguably, which has the greater effect? Your day-to-day purchases, using your own money, which you have rightfully earned, or your once per four years chad production process? Voting for a politician, or group of politicians, gives the country a general direction. But when you vote, every day, with your own dollars, you give the entire economy a specific destination. You're telling not just the manufacturer of the product you purchase to “make more of this,” but you are also sending every other manufacturer the same signal – “do this.” The overall effect of our purchases gives us a far more concrete understanding of the desires of the people than the hopes we parlay from our votes for particular candidates. Best of all, we get to make such votes every day.
We tell certain auto manufacturers “make less of this,” and certain financial services suppliers “don't do that.” And as I mentioned, it's with our hard earned money. It's our most telling desire for a specific destination. People don't speak with their mouths; they speak with their wallets.
Interestingly, however, our general directioners often disagree with us. Despite having told myriad U.S. companies that we don't want what they have to offer, every day, our elected officials have chosen to bail them out with... the money we earn and have intentionally kept from them. This is akin to economic anti free will. It's the very antithesis of a free market, and the opposite of our stated desires for a specific destination in our economy.
The most pressing issue, though, is this: your dollar votes count more than your, or their, policy votes. First, because you have earned your money through your own time, energy and sweat. Your life. And second, because the American public plays a much greater role in the day-to-day activities of the economy than the government. They are not making the actual purchases. You are. In short, the economy doesn't belong to them; it belongs to you. They simply don't have the right to overrule your every day votes, no matter how many jobs they say they will "create" or "save."
If a laissez-faire economic system can be compared to our democratic political system, on the one hand our leadership would tell us they need to “control, control, control” the economy. But in our political system, the same leadership would tell us, all votes need to be counted. Why the disconnect? And which system gives us the more concrete ideas about what the people want?
So bailouts and stimulus programs, though they might make us feel a bit better and more secure, are the opposite of the principles our country was founded upon. They are undemocratic. And they deny what the people have stated they want as a specific economic destination for the country.
Monday, February 16, 2009
A Funny Stimulus “Package” Metaphor
I've been listening to the critics of the stimulus program quite a lot lately, and I've noticed one metaphor that keeps creeping into the description of what the stimulus program is doing in its bare essence. The metaphor being used most is “the government takes money out of your left pocket, and puts it into your right pocket,” or vice versa. But I've been writing about this, and “spending multipliers,” and “tax multipliers,” etc, for some time, and I've come to realize that the metaphor isn't quite complete. It's missing that little something that makes it just a length or two or six more memorable. Or if you're someone like me, more memorable still.
The government can't take money out of your left pocket, and place it into your right pocket, without creating a bureaucracy in the middle to make sure it's all in position. Sooo, exactly, what does that make them? The dic%$ in the middle! We get our pockets ransacked, while they give us the shaft.
Hey, let's play a game of “right pocket, left pocket, who's the dic% in the middle?”
Thanks, dic%$, now stop stroking me, and get your hands, uh, multipliers out of my pockets.
This “stimulus package” might make us feel good because we're “doing something;” but we'll be lucky if we get to see a tiny, little stimulus-induced bump in our, um, economy at all.
Biggest and best "stimulating" regards,
Your left fu#*ing pocket
The government can't take money out of your left pocket, and place it into your right pocket, without creating a bureaucracy in the middle to make sure it's all in position. Sooo, exactly, what does that make them? The dic%$ in the middle! We get our pockets ransacked, while they give us the shaft.
Hey, let's play a game of “right pocket, left pocket, who's the dic% in the middle?”
Thanks, dic%$, now stop stroking me, and get your hands, uh, multipliers out of my pockets.
This “stimulus package” might make us feel good because we're “doing something;” but we'll be lucky if we get to see a tiny, little stimulus-induced bump in our, um, economy at all.
Biggest and best "stimulating" regards,
Your left fu#*ing pocket
Wednesday, February 11, 2009
A Lost Decade For The Democrats
As we enter 2009 in tumult and worry, it occurred to me that we are all lucky enough to bear witness to either something horrible, or something fantastic – depending on your political point of view. We are seeing the birth of the most painful “stimulus” package ever conceived. We get to watch as a new President, carrying the hopes and dreams of millions, sinks or swims with one of the largest political gambles any President has ever had the displeasure to make. And possibly, just possibly, we are watching a new kind of lost decade – one that the democrats are arrogantly marching right into.
The stimulus package is a new kind of beast. It hasn't been tried on this scale in the United States. And by most estimates, the 800+ billion dollars that will go into the economy shortly is only the first installment of what appears to be a new kind of pay-as-you-go plan. As I write this, I've received word that between the Senate, The Federal Reserve and The Treasury, a mind boggling 3 trillion dollars will be poured into the economy in an attempt to “prime the pump” of our struggling financial situation. It's all been pieced together with minds toward expanding government, especially pork spending and government bureaucracy.
Our leadership is under the impression that by pursuing more of what caused our problems, on a larger and broader scale, our problems – namely, government intervention in the economy and massive credit bubbles - will naturally go away. So far, however, not a single politician or economist has made a clearly logical case as to how “stimulating” more government, or a larger credit binge, could be successful pursuits in correcting the problems caused by earlier intervention and credit binges. It makes me think of a good analogy. Can you cure obesity by using forced feeding as your remedy? If you're overweight, the correct action is to reverse course, not gobble down more in the hope you will get skinny again.
But what our good President, shouldering arguably the second largest economic burden in history is doing, is walking head-long into the easy-breezy whisperings of the Keynesians. These are the people who still believe that multi-trillion dollar, multi-national economies can be controlled with the flick of a few tiny switches. They are the people I refer to as “today's keepers of tomorrow's mistakes.” They refuse to take their heads out of their economic sand traps and take a good, solid look at reality. And that, I believe, will be their downfall. The new President is in a rather impossible situation. If he and his democrat followers succeed, they will have passed on a legacy to future generations that will most surely be detested. They will have crated at least two generations that will feel they are slaves to the mistakes of their forefathers. And if they fail, they will take today's economy down with them; and other economies, in other parts of the world, are sure to follow. The spending street they are running madly down right now ends in a solid concrete wall. The only difference is how long it takes the democrats to get there. Either this year, or several years hence. Either way, the dems are going to lose a great deal of political clout. As the song goes, “the road to hell is paved with good intentions.”
But there are people like me, watching from the sidelines, who spend nights in front of the television squirming and twisting with extraordinary discomfort. We think the government has become absurd. We think the economy has become absurd. And most of all, we can't believe how single-minded and ignorant our politicians have become. More intervention is not the answer. More economic freedom is what we need now more than ever. Regulation and intervention is the way to stifle economies, not resuscitate them.
So the arrogance and impossibility the dems find themselves stuck in right now makes people like myself squirm and smile. I know that one way or another, the democrats are tying their own nooses. The cure for what ails us cannot be the same as its cause. And that leaves me with only one course of action as a possibility – the return of conservatism.
But being a Libertarian, what I want to see most is the return not of Republican small government, but instead, the return of what government truly should be – responsible only for the things that individuals cannot possibly provide for themselves. The foundation of law, and its enforcement; disaster response; roads, highways and bridges; fire protection; national and international intelligence and defence, and a few other things come to mind. But those are debatable. At any rate, the present economic fiasco leads me to believe that only conservatism can be in our immediate future. I even think that the democrats could suffer a “lost decade” of their own, Japanese-style.
So I would like to say to President Obama: Mr. President, you are making the largest economic mistake in American history. Please stop now. It's going to cost you and your party dearly.
If you don't, I would like to say that the Libertarians are coming. THE LIBERTARIANS ARE COMING!
The stimulus package is a new kind of beast. It hasn't been tried on this scale in the United States. And by most estimates, the 800+ billion dollars that will go into the economy shortly is only the first installment of what appears to be a new kind of pay-as-you-go plan. As I write this, I've received word that between the Senate, The Federal Reserve and The Treasury, a mind boggling 3 trillion dollars will be poured into the economy in an attempt to “prime the pump” of our struggling financial situation. It's all been pieced together with minds toward expanding government, especially pork spending and government bureaucracy.
Our leadership is under the impression that by pursuing more of what caused our problems, on a larger and broader scale, our problems – namely, government intervention in the economy and massive credit bubbles - will naturally go away. So far, however, not a single politician or economist has made a clearly logical case as to how “stimulating” more government, or a larger credit binge, could be successful pursuits in correcting the problems caused by earlier intervention and credit binges. It makes me think of a good analogy. Can you cure obesity by using forced feeding as your remedy? If you're overweight, the correct action is to reverse course, not gobble down more in the hope you will get skinny again.
But what our good President, shouldering arguably the second largest economic burden in history is doing, is walking head-long into the easy-breezy whisperings of the Keynesians. These are the people who still believe that multi-trillion dollar, multi-national economies can be controlled with the flick of a few tiny switches. They are the people I refer to as “today's keepers of tomorrow's mistakes.” They refuse to take their heads out of their economic sand traps and take a good, solid look at reality. And that, I believe, will be their downfall. The new President is in a rather impossible situation. If he and his democrat followers succeed, they will have passed on a legacy to future generations that will most surely be detested. They will have crated at least two generations that will feel they are slaves to the mistakes of their forefathers. And if they fail, they will take today's economy down with them; and other economies, in other parts of the world, are sure to follow. The spending street they are running madly down right now ends in a solid concrete wall. The only difference is how long it takes the democrats to get there. Either this year, or several years hence. Either way, the dems are going to lose a great deal of political clout. As the song goes, “the road to hell is paved with good intentions.”
But there are people like me, watching from the sidelines, who spend nights in front of the television squirming and twisting with extraordinary discomfort. We think the government has become absurd. We think the economy has become absurd. And most of all, we can't believe how single-minded and ignorant our politicians have become. More intervention is not the answer. More economic freedom is what we need now more than ever. Regulation and intervention is the way to stifle economies, not resuscitate them.
So the arrogance and impossibility the dems find themselves stuck in right now makes people like myself squirm and smile. I know that one way or another, the democrats are tying their own nooses. The cure for what ails us cannot be the same as its cause. And that leaves me with only one course of action as a possibility – the return of conservatism.
But being a Libertarian, what I want to see most is the return not of Republican small government, but instead, the return of what government truly should be – responsible only for the things that individuals cannot possibly provide for themselves. The foundation of law, and its enforcement; disaster response; roads, highways and bridges; fire protection; national and international intelligence and defence, and a few other things come to mind. But those are debatable. At any rate, the present economic fiasco leads me to believe that only conservatism can be in our immediate future. I even think that the democrats could suffer a “lost decade” of their own, Japanese-style.
So I would like to say to President Obama: Mr. President, you are making the largest economic mistake in American history. Please stop now. It's going to cost you and your party dearly.
If you don't, I would like to say that the Libertarians are coming. THE LIBERTARIANS ARE COMING!
Tuesday, February 10, 2009
Another Very Bold Lie
Yesterday, President Obama told the nation, and the world, that “only government” can get us out of our economic troubles. “Totally myopic,” I laughed. Then he went on, “There is no disagreement that we need action by our government, a recovery plan that will help to jump start the economy.” I said, “liar!” That simply isn't true, because I, and many, many others, have been writing about that very subject for some time now. So I had to look for myself to see who just might disagree. I only had to click on one, count it, one, link. It's from The Cato Institute.They have economists and scholars from all over the world, including three Nobel Laureates, who flatly disagree with The President and what he says needs to be done. And they are all willing to state their disagreements publicly with a full page ad, with the signatures of many, in The New York Times, The Washington Post, The Wall Street Journal and many other publications. So much for the “no disagreement” the President was referring to. I personally think this myopia is becoming the most dangerous and costly brand of mental functioning in American history. But more on that later. See video of the other side of the arguement here.
“Spending Is No Stimulus...”
“The Troubling Return of Keynesianism”
“Spending Is No Stimulus...”
“The Troubling Return of Keynesianism”
Tuesday, February 3, 2009
Iceland's Government Commits Economic Atrocity
Last week we all received the tragic news of the collapse of Iceland's economy, and the subsequent collapse of its government. I've read more than one writer's words describe the events as a “canary in the mine shaft,” a reference to larger, more dire events that have yet to manifest in other governments, in other parts of the world. I couldn't agree more, or summarize it better. Those are choice words. Iceland is an excellent and early example of what governments should avoid during credit bubble trouble, bailout requests and general economic reversals. In short, they should stay out of the private sector, and leave the peoples' economy alone.
What I think clarifies some of the goings-on in Iceland best is a short time line of exactly what has transpired over the last couple of decades that might lead the newly unhinged Icelanders into such horrible financial circumstances.
A time line:
2001: Icelandic banks expand rapidly after deregulation of domestic financial markets.
2007: Iceland's GDP grows to over €8.5 billion, or $10.8 billion.
1990's – 2008: Government spending on public programs surpasses 42 percent of GDP ($4.53 billion).
April, 2008: The private banking sector has amassed more than 80 percent of Iceland's privately held external debt.
September 15th, 2008: Lehman Brothers seeks Chapter 11 bankruptcy protection.
September, 2008: the Icelandic Króna loses more than 35 percent of its value against the Euro.
--- Inflation surpasses 14 percent.
--- Interest rates are raised to 15.5 percent to curtail inflation.
--- Icelandic authorities request $2 billion loan from the IMF.
--- Icelandic authorities request $4 billion loan from four Nordic neighbors.
September 29th, Iceland's government nationalizes Glitnir Bank, taking a 75% stake in the troubled company.
--- Glitnir Bank shares collapse.
--- The Króna begins dropping in value.
October, the top three private banks in Iceland are found to be holding privately held liabilities exceeding twelve times Iceland’s GDP.
October 6th, Iceland's government pegs the Króna to the Euro.
October 7th, the Central Bank of Iceland announces a currency peg for the Króna, while knowing is does not have adequate reserves for international currency trading markets.
--- The Króna goes into currency value free fall.
--- Landsbanki Bank is nationalized.
--- Iceland's government agrees to give Kaupthing Bank a €500 million loan, equal to half of Iceland's GDP. Between public spending programs, and the new loan, the total amount the government owes is now 92 percent of the country's GDP. If the liabilities of the two newly nationalized banks are included as a debt total, the government now owes 715% of its GDP.
Oct. 8th, the solvency of Kaupthing Bank is questioned on British television. British authorities seize Kaupthing Bank's foreign assets by force and transfer them to Dutch bank ING.
--- Iceland goes into a currency panic, which is blamed on British Prime Minister Gordon Brown, and the seizure of Kaupthing Bank's assets.
--- The Central Bank abandons its attempt to peg the Króna to the Euro. It's the shortest currency peg in history - one full business day.
October 9th, Kaupthing Bank is nationalized. This is Iceland's largest bank. The government debt total is now 1,315% of its GDP.
--- Trading in the Icelandic Króna collapses.
October 10th, the Central Bank of Iceland introduces restrictions on the purchase of foreign currency within Iceland.
October 15th, temporary currency auctions are held to facilitate international trade.
Mid October, Iceland's foreign exchange reserves fall by US$289 million.
November, 2008, the real exchange rate reaches a thirty year low.
December 3rd, the last currency auction is held.
January 26th, 2009, Iceland's government collapses.
This whole scenario played out like a slow-motion nightmare. One mistake after another was manufactured by policymakers in their attempts to contain what could not be contained.
In this drama, only the mistakes were plenty
First, the Icelandic government consumed a whopping 42 percent of the GDP of the economy, and spent the proceeds publicly, mostly on infrastructure. While such spending certainly will make nice roads, bridges and public buildings (if it's spent efficiently), it ultimately leaves very little wiggle room for a governing body, should a threatening new economic situation arise. After giving over more than forty percent of everything they earn, the people of Iceland are sure to feel more than just a little pinched should their taxes suddenly increase, or should their currency become hideously devalued – or both. To wit, there was no accounting room left for a rainy day.
Second, Iceland's Central Bank, in a very bone-headed maneuver, tagged its currency, the Króna, to an external currency, the Euro, while in the midst of a currency crisis. At first blush, this seems reasonable. The Euro is already established, traded and stable. But research and development should be left for prosperous times. Contrary to the axiom, in economics, desperate times do not call for desperate measures. Desperate times call for renewed fiscal conservatism; they call for us to fall back on the things we know will work every-single-time. To make matters worse, the government entered the international currency market knowing it did not have adequate reserves in its central bank. Here we can see an overt act of desperation and overreaching. Clearly the government had no answers.
Third, in the worst move of all, Iceland's government nationalized its biggest three privately held banks, despite the fact that the banks were known to hold over twelve times Iceland's GDP. Now this is simply stupid. When, you, as an individual, see the money you hold being devalued at a rapid clip; see your economy in upheaval; and see that you already owe far more than you can pay or calculate, the last thing you want or need is another massive debt. There is no difference whatsoever for governments. Combine all of these events, and the government of Iceland no longer looks like it contains leadership of any kind. It looks more like Moe, Larry and Curly. But the argument against these actions goes far deeper than just fiscal conservatism. There is a moral to this story, and it's an extraordinarily important one.
Welcome to Iceland... Slave
Governments transfer private debts onto the shoulders of the public all the time. We're doing the same here in the U.S. Our banks, mutual fund companies, automakers, large mortgage companies, etc. - they are all soaking up taxpayer dollars at an alarming rate, and the public is outraged. And rightfully so.
Though most people, I assume, don't fully intellectualize why that sort of scenario is so offensive, there is very good reason to be angered. You, the taxpayer, have become the beast of burden to the failures of others. They are irresponsible, disorganized and fail? They win. You are responsible, conservative and succeed? You lose. This means the government has decided that you, as a responsible person, have no say in how your productive effort is used. Your rights to your effort are less important than the perceived well being of another. When a human has no say in how his productive effort is used, s/he can only be described as a slave. And slavery, of any kind, is evil. But the evilness doesn't end there.
The slavery scenario created by government is done under the guise that they are saving jobs, preventing disaster, and doing all of their confiscating “for the good of the people.” Nothing could be further from the truth (If you disagree, reread the time line above). They are simply cloaking government growth, parasitism and whipping boys, while speaking about how much good they are doing by intervening in the economy. They confiscate, and then publicly try to justify their confiscation. What's sad is that there are so many naive people in the world who still believe them.
The greater good doesn't exist – through force
The ironic thing about what Iceland, or any other government does in such dire circumstances, is that when they procure monies from the people, three unavoidable things happen. First, the obvious happens. Money is taken away from the most productive members of society. Second, those monies are given over to those who have failed in an effort to prevent their failure. Third, a bureaucracy is created around the confiscation and distribution of those monies. But lastly, and most importantly, had there been no intervention, none of those circumstances would be present. There would be no sacrificial animal, who would otherwise still be successful. There would be no parasite to receive, and become dependent upon, redistributed monies. And, there would be no need to increase the breadth and depth of government to oversee the taking and spending activities. Spoken quickly, there would be no need to produce economic slaves. So under the auspices of making the lives of the voting public better, they have succeeded in making them worse. They have grown the burden that individuals, who had nothing to do with the business dealings of Iceland's banks, must pay to government. They have created dependency. And they have dumbed down their entire society to a lower common economic denominator. And, as any former communist can tell you, that common denominator is unbelievably low.
So what Iceland has done is create its own problems. Its government made its own bed, and now it must sleep in it. Before the banks were wrongly nationalized, the enormous debts that were held by Glitnir, Landsbanki and Kaupthing banks were entirely private. The taxpayers of Iceland owed nothing to the banks for their rapid growth and fiscal irresponsibility. The recourse that the banks' customers had before nationalization included confiscation, which Britain did, and lawsuits. But that all changes totally when the banks become publicly funded. What would otherwise be a normal, albeit painful, free market correction, that is limited to one industry, instead becomes a nationwide malaise felt by the entire population. The argument for intervention centers around how people “need” banks and the credit they provide, and the jobs that will be lost in the industry when those businesses are allowed to fail. And that's true. But...
Should one bank in Iceland have failed, there would then be two, suddenly more solvent banks, to pick up the pieces left behind by the one that has gone under. Should two fail, there would then be one, more solvent bank to provide products and services to the country. And should all three fail, banks from foreign countries would step in to provide the needed credit. The “bank of last resort” argument doesn't make sense, since Iceland has one – The Central Bank of Iceland. So long as all of the private debts are kept out of public hands, a central bank can print money, manipulate interest rates, or pursue a small arsenal of other activities to make sure the entire country doesn't feel the pain of the banking sector. In a market that is free to respond to the needs of its customers, rebounds happen quickly. Where there is money to be made, there will be people to fill the needs. But that's not so in a hyper-regulated market. Those take much longer to recover, because of arbitrary market restraints.
So the omniscience of Iceland's government became an extraordinarily egocentric animal. It believed it knew better than the unregulated market. And the “fatal conceit” that Nobel Prize winning economist Frederick Von Hayek wrote about years ago has been proven once again. No one in government has enough information on hand to successfully manipulate an entire economy. The best thing to do is simply leave it alone. The less you regulate a population, the more opportunities they have to build their own prosperity.
Government, in this example, has proven to be the problem rather than the solution. Unfortunately for the people of the United States, the present administration appears to subscribe to the same mindset as the Icelandic leadership – that if we just manipulate enough, if we just redistribute enough, we can control the economy.
So take a good look around. If you see any canaries struggling to breathe, grab your dollars, exchange them for gold, and head for that distant point of light, before you get stuck in the mineshaft.
The Isle That Rattled the World
2008–2009 Icelandic financial crisis
Stricken Iceland sends out financial SOS
2009 index of economic freedom
Controlling Public Spending in Iceland
Iceland president asks alliance to form new government
Global financial crisis overwhelms tiny Iceland
What I think clarifies some of the goings-on in Iceland best is a short time line of exactly what has transpired over the last couple of decades that might lead the newly unhinged Icelanders into such horrible financial circumstances.
A time line:
2001: Icelandic banks expand rapidly after deregulation of domestic financial markets.
2007: Iceland's GDP grows to over €8.5 billion, or $10.8 billion.
1990's – 2008: Government spending on public programs surpasses 42 percent of GDP ($4.53 billion).
April, 2008: The private banking sector has amassed more than 80 percent of Iceland's privately held external debt.
September 15th, 2008: Lehman Brothers seeks Chapter 11 bankruptcy protection.
September, 2008: the Icelandic Króna loses more than 35 percent of its value against the Euro.
--- Inflation surpasses 14 percent.
--- Interest rates are raised to 15.5 percent to curtail inflation.
--- Icelandic authorities request $2 billion loan from the IMF.
--- Icelandic authorities request $4 billion loan from four Nordic neighbors.
September 29th, Iceland's government nationalizes Glitnir Bank, taking a 75% stake in the troubled company.
--- Glitnir Bank shares collapse.
--- The Króna begins dropping in value.
October, the top three private banks in Iceland are found to be holding privately held liabilities exceeding twelve times Iceland’s GDP.
October 6th, Iceland's government pegs the Króna to the Euro.
October 7th, the Central Bank of Iceland announces a currency peg for the Króna, while knowing is does not have adequate reserves for international currency trading markets.
--- The Króna goes into currency value free fall.
--- Landsbanki Bank is nationalized.
--- Iceland's government agrees to give Kaupthing Bank a €500 million loan, equal to half of Iceland's GDP. Between public spending programs, and the new loan, the total amount the government owes is now 92 percent of the country's GDP. If the liabilities of the two newly nationalized banks are included as a debt total, the government now owes 715% of its GDP.
Oct. 8th, the solvency of Kaupthing Bank is questioned on British television. British authorities seize Kaupthing Bank's foreign assets by force and transfer them to Dutch bank ING.
--- Iceland goes into a currency panic, which is blamed on British Prime Minister Gordon Brown, and the seizure of Kaupthing Bank's assets.
--- The Central Bank abandons its attempt to peg the Króna to the Euro. It's the shortest currency peg in history - one full business day.
October 9th, Kaupthing Bank is nationalized. This is Iceland's largest bank. The government debt total is now 1,315% of its GDP.
--- Trading in the Icelandic Króna collapses.
October 10th, the Central Bank of Iceland introduces restrictions on the purchase of foreign currency within Iceland.
October 15th, temporary currency auctions are held to facilitate international trade.
Mid October, Iceland's foreign exchange reserves fall by US$289 million.
November, 2008, the real exchange rate reaches a thirty year low.
December 3rd, the last currency auction is held.
January 26th, 2009, Iceland's government collapses.
This whole scenario played out like a slow-motion nightmare. One mistake after another was manufactured by policymakers in their attempts to contain what could not be contained.
In this drama, only the mistakes were plenty
First, the Icelandic government consumed a whopping 42 percent of the GDP of the economy, and spent the proceeds publicly, mostly on infrastructure. While such spending certainly will make nice roads, bridges and public buildings (if it's spent efficiently), it ultimately leaves very little wiggle room for a governing body, should a threatening new economic situation arise. After giving over more than forty percent of everything they earn, the people of Iceland are sure to feel more than just a little pinched should their taxes suddenly increase, or should their currency become hideously devalued – or both. To wit, there was no accounting room left for a rainy day.
Second, Iceland's Central Bank, in a very bone-headed maneuver, tagged its currency, the Króna, to an external currency, the Euro, while in the midst of a currency crisis. At first blush, this seems reasonable. The Euro is already established, traded and stable. But research and development should be left for prosperous times. Contrary to the axiom, in economics, desperate times do not call for desperate measures. Desperate times call for renewed fiscal conservatism; they call for us to fall back on the things we know will work every-single-time. To make matters worse, the government entered the international currency market knowing it did not have adequate reserves in its central bank. Here we can see an overt act of desperation and overreaching. Clearly the government had no answers.
Third, in the worst move of all, Iceland's government nationalized its biggest three privately held banks, despite the fact that the banks were known to hold over twelve times Iceland's GDP. Now this is simply stupid. When, you, as an individual, see the money you hold being devalued at a rapid clip; see your economy in upheaval; and see that you already owe far more than you can pay or calculate, the last thing you want or need is another massive debt. There is no difference whatsoever for governments. Combine all of these events, and the government of Iceland no longer looks like it contains leadership of any kind. It looks more like Moe, Larry and Curly. But the argument against these actions goes far deeper than just fiscal conservatism. There is a moral to this story, and it's an extraordinarily important one.
Welcome to Iceland... Slave
Governments transfer private debts onto the shoulders of the public all the time. We're doing the same here in the U.S. Our banks, mutual fund companies, automakers, large mortgage companies, etc. - they are all soaking up taxpayer dollars at an alarming rate, and the public is outraged. And rightfully so.
Though most people, I assume, don't fully intellectualize why that sort of scenario is so offensive, there is very good reason to be angered. You, the taxpayer, have become the beast of burden to the failures of others. They are irresponsible, disorganized and fail? They win. You are responsible, conservative and succeed? You lose. This means the government has decided that you, as a responsible person, have no say in how your productive effort is used. Your rights to your effort are less important than the perceived well being of another. When a human has no say in how his productive effort is used, s/he can only be described as a slave. And slavery, of any kind, is evil. But the evilness doesn't end there.
The slavery scenario created by government is done under the guise that they are saving jobs, preventing disaster, and doing all of their confiscating “for the good of the people.” Nothing could be further from the truth (If you disagree, reread the time line above). They are simply cloaking government growth, parasitism and whipping boys, while speaking about how much good they are doing by intervening in the economy. They confiscate, and then publicly try to justify their confiscation. What's sad is that there are so many naive people in the world who still believe them.
The greater good doesn't exist – through force
The ironic thing about what Iceland, or any other government does in such dire circumstances, is that when they procure monies from the people, three unavoidable things happen. First, the obvious happens. Money is taken away from the most productive members of society. Second, those monies are given over to those who have failed in an effort to prevent their failure. Third, a bureaucracy is created around the confiscation and distribution of those monies. But lastly, and most importantly, had there been no intervention, none of those circumstances would be present. There would be no sacrificial animal, who would otherwise still be successful. There would be no parasite to receive, and become dependent upon, redistributed monies. And, there would be no need to increase the breadth and depth of government to oversee the taking and spending activities. Spoken quickly, there would be no need to produce economic slaves. So under the auspices of making the lives of the voting public better, they have succeeded in making them worse. They have grown the burden that individuals, who had nothing to do with the business dealings of Iceland's banks, must pay to government. They have created dependency. And they have dumbed down their entire society to a lower common economic denominator. And, as any former communist can tell you, that common denominator is unbelievably low.
So what Iceland has done is create its own problems. Its government made its own bed, and now it must sleep in it. Before the banks were wrongly nationalized, the enormous debts that were held by Glitnir, Landsbanki and Kaupthing banks were entirely private. The taxpayers of Iceland owed nothing to the banks for their rapid growth and fiscal irresponsibility. The recourse that the banks' customers had before nationalization included confiscation, which Britain did, and lawsuits. But that all changes totally when the banks become publicly funded. What would otherwise be a normal, albeit painful, free market correction, that is limited to one industry, instead becomes a nationwide malaise felt by the entire population. The argument for intervention centers around how people “need” banks and the credit they provide, and the jobs that will be lost in the industry when those businesses are allowed to fail. And that's true. But...
Should one bank in Iceland have failed, there would then be two, suddenly more solvent banks, to pick up the pieces left behind by the one that has gone under. Should two fail, there would then be one, more solvent bank to provide products and services to the country. And should all three fail, banks from foreign countries would step in to provide the needed credit. The “bank of last resort” argument doesn't make sense, since Iceland has one – The Central Bank of Iceland. So long as all of the private debts are kept out of public hands, a central bank can print money, manipulate interest rates, or pursue a small arsenal of other activities to make sure the entire country doesn't feel the pain of the banking sector. In a market that is free to respond to the needs of its customers, rebounds happen quickly. Where there is money to be made, there will be people to fill the needs. But that's not so in a hyper-regulated market. Those take much longer to recover, because of arbitrary market restraints.
So the omniscience of Iceland's government became an extraordinarily egocentric animal. It believed it knew better than the unregulated market. And the “fatal conceit” that Nobel Prize winning economist Frederick Von Hayek wrote about years ago has been proven once again. No one in government has enough information on hand to successfully manipulate an entire economy. The best thing to do is simply leave it alone. The less you regulate a population, the more opportunities they have to build their own prosperity.
Government, in this example, has proven to be the problem rather than the solution. Unfortunately for the people of the United States, the present administration appears to subscribe to the same mindset as the Icelandic leadership – that if we just manipulate enough, if we just redistribute enough, we can control the economy.
So take a good look around. If you see any canaries struggling to breathe, grab your dollars, exchange them for gold, and head for that distant point of light, before you get stuck in the mineshaft.
The Isle That Rattled the World
2008–2009 Icelandic financial crisis
Stricken Iceland sends out financial SOS
2009 index of economic freedom
Controlling Public Spending in Iceland
Iceland president asks alliance to form new government
Global financial crisis overwhelms tiny Iceland
Monday, February 2, 2009
The Mileage Tax - We Should Have Known
Our government status quo has been telling us that we need to reduce our dependence on foreign oil. We need to get away from our addiction, and use alternative sources of power. We should have known that when we actually started doing what they tell us needs to be done, they would consider punishment as our reward. In a newsletter I received just recently, the state of Oregon, and possibly several other states, are considering a tax on each mile we drive, because... we're buying less gasoline (their agenda), due to our more fuel efficient vehicles (mandated by our government). This is what I call government logic. When an idea makes absolutely no economic sense, you can rest assured that's exactly the course our political leaders will pursue.
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