By Bill Wilson — As the global financial crisis has spread from defaulting mortgages, to crashing mortgage-backed securities, to interbank contagion, to then a full-blown sovereign debt crisis, the apologists for the Keynesian order have pretty much had their way in responding to the economic fallout.
They gave us the Troubled Asset Relief Program (TARP), trillions of dollars of bank bailouts and emergency lending by the Federal Reserve, and every “stimulus” scheme imaginable to boost aggregate demand, they said.
Of course, now they’re saying it wasn’t enough. On May 18-19, the G8, led by Obama, declared that “all of our governments need to take actions to boost confidence and nurture recovery including reforms to raise productivity, growth and demand”.
This is not the first time the Keynesians have asked for a do-over. A memo brought to light in “The Escape Artists” by Noam Scheiber shows former White House Council of Economic Advisors head Christina Romer originally proposed a spending plan that totaled $1.8 trillion, but the figure was dismissed as politically impossible by Larry Summers, Director of the White House Economic Council. Romer came back with a watered down proposal of $1.2 trillion, but that too was left out of the final proposal brought before Barack Obama himself.
New York Times columnist and supposed-economist Paul Krugman for his part in 2009 claimed that the Obama $800 billion “stimulus” was too small to fill a $2.1 trillion hole.
With 27 million Americans unable to find full-time work in the Obama economy, 5 million of whom have given up looking for work altogether, the Team Obama is learning, it’s hard to argue that the “stimulus” was a smashing success.
But when actions by the Federal Reserve are taken into consideration — it purchased $1.25 trillion of mortgage-backed securities, $150 billion of Fannie and Freddie debt, and $1.18 of trillion treasuries since Jan. 2009 — the total “stimulus” issued by government has totaled nearly $3.4 trillion.
That exceeds what Romer and Krugman called for by over $1 trillion — with little to show for it.
So tell us another one. What’s next? The additional $1 trillion a year we’ve been borrowing is actually an exercise in “austerity” because it’s not $2 trillion?
Leaving that aside, in Europe and the U.S., by guaranteeing the banks against failure and simultaneously carrying out aggressive fiscal and monetary “stimulus” packages, these policies have been put to the test — and they have been found wanting.
Throughout this entire crisis, skeptics such as Americans for Limited Government have said that the bailouts and “stimulus” were acts of futility to prop up a financial house of cards. tThe solution to a debt crisis is liquidation, not more debt. While painful, the quickest solution is to let failed enterprises fail, and to rebuild in the aftermath.
Largely disregarded at the time, now, four years later the data is incontrovertible. More than $5 trillion in new debt later, growth has been anemic and the jobs picture has worsened. Whatever utility spending and borrowing might have had in past decades — when for every dollar of new debt the economy would grow by a dollar or greater — they are no longer valid.
Now it takes more than $2 of debt for every dollar of growth that is being created. At that rate, these policies have set us on a path where we will never be able to afford to repay the debt. Now, we can barely refinance it, as the only way we are meeting our obligations is with a printing press.
Instead of containing the crisis, the crisis was administered to the governments themselves, which cannot meet their obligations either.
And now it is as plain as day for clear-eyed, intellectually honest realists to consider the data. For example, considering the situation in Europe, the Financial Times’ Gideon Rachman writes that “it would be better if the Eurozone broke up.”
This is the same Rachman who in Dec. 2008 believed that the formation of a world government to respond to crises was becoming increasingly likely. Then, he wrote, “The financial crisis and climate change are pushing national governments towards global solutions, even in countries such as China and the US that are traditionally fierce guardians of national sovereignty.”
Then, he heralded Europe’s model as perhaps the one that would be followed to create such a worldwide system of government.
Now, seeing how the European experiment has failed so remarkably, Rachman appears to be reassessing his position, based on the facts. Now he thinks Greece and others should leave the Euro even as Obama’s G8 affirmed its “interest in Greece remaining in the Eurozone”.
Whether the G8, Obama, Krugman, et al. realize it or not, their continued calls for more “stimulus” and debt slavery to the world bank cartel marginalize their positions. Their credibility is in the sewer.
The balance is shifting towards the skeptics as the data continues to show that “stimulus” is a failure. Those who believe that failure, whether it be a bank’s or an entire currency’s, is not only an option but is preferable to the alternative are growing in number. The facts so plainly and clearly prove their position that only the zealous zombies of the banking cartel can ignore them.
Fissures are developing in the established order that was once based on unquestioning adherence to Keynesian orthodoxy. The question perhaps is what will be the tipping point that allows the skeptics to reorder this system in favor of fiscal responsibility and sound money.
Bill Wilson is the President of Americans for Limited Government.
