Wednesday, March 12, 2008

"Government bailout crack"

smoking-crack-cocaine News overnight of another multi-billion dollar stimulus package "injected" into the world's markets -- $200 billion this time created out of thin air by the US Federal Reserve to deliver "a shot in the arm to stressed financial markets" -- demonstrates again that corporate welfare is alive and well and living in capital cities and banking houses all around the world.

When welfare beneficiaries cry that their benefits are too low, right wingers en masse tell them to suck it up.  'Taxpayers can't afford to foot your bills forever,' they say.  'Survival of the fittest,' they say.  But when banks and finance houses start crying in pain, the shout goes out for a bail out, for a 'stimulus package' -- despite such bail outs and every stimulus package being ultimately more destructive in the long run to taxpayers and to the economy than any welfare explosion.  They not only squander taxpayers' hard-earned money by throwing good money after bad, but by further diluting the central banks' paper currency with artificially created credit, it sets up an underlying inflation that is ultimately destructive of all economic value.

Because this is not even real credit that's being poured down the black hole of yet another stimulus package to pay for the failures of investment banks and their so called advisers. Fortune magazine lists the sorry spiral of failure of nearly all the financial industry's leading lights and asks on its cover, "What were they smoking?"  Alex Epstein has the answer: "Government bailout crack." No wonder last night's intervention was so well received; the enthusiastic greeting was of the same quality one hears from users when a new shipment of their chosen stimulant hits their streets and housing projects.

You see, with every new bail out and every new injection of credit, they want more.  When the first bail out fails they not only show no gratitude for the subsidised credit they've already squandered, they want even more of it.  "Bail out!" they cry again and again, demanding more and more created credit after the earlier huge tranches of created credit.  But at some stage, the drug bill will have to be paid by someone -- and that 'someone,' ladies and gentlemen, is you and me.

Because, and this is the most important point here, this is not real capital injected into the markets in an attempt to make up for earlier failure.  This is what George Reisman calls "counterfeit capital."  It's fake prosperity. It's a way of 'putting a penny in the fusebox,' allowing economic activity to recover momentarily from their woes, yet just as putting a penny in your fusebox now only makes the eventual explosion of your whole circuit board more likely, so too does the cheap 'socialised financing' of fake credit risk a more serious meltdown of the world's mixed economies.

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2 Comments:

Anonymous Anonymous said...

The thing is these financial instos can easily get other offshore corporates to bail them out if there is money to be made - and their *is* money to be made in buying bad mortgages.

Look no further than the Arab states - they have come to the rescue. Though some of your readers might prefer the Fed...

3/12/2008 03:56:00 pm  
Blogger Andrew said...

Or neither.

Sovereign Wealth Funds (SWFs) are simply investment banks giving respectability to the government's socialist ownership of the infrastructure of production.

More here:
http://www.mises.org/story/2877

3/13/2008 01:49:00 am  

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