As I mentioned a couple of weeks ago, the European Union (EU) has created a loan fund of almost €1 trillion (Euros). The fund's purpose is to rescue euro zone countries like Portugal, Italy, Greece, and Spain - unfortunately, but accurately, referred to in the media as "the PIGS". The European Central Bank (ECB) has announced that it's ready to buy both government and private bonds "to ensure depth and liquidity" in the market for deadbeat debt. The Federal Reserve, the Bank of Canada, the Bank of England, the European Central Bank, and the Swiss National Bank have all agreed to help facilitate this bailout. This is a spendthrifts' consolidation loan, complete with austerity mandates that, in my opinion, will ultimately lead to violence. In Europe, I believe that that's the good news.
The Catallaxy Revisited
"We see in almost every part of the annals of mankind how the industry of individuals, struggling up against wars, taxes, famines, conflagrations, mischievous prohibitions, and more mischievous protections, creates faster than governments can squander, and repairs whatever invaders can destroy."
- Thomas Babington Macaulay (1800 - 1859), quoted in The Rational Optimist, by Matt Ridley.
Because I am a confirmed optimist, some of you may think that I don't understand how bad things are out there. I assure you that I do, and this article is offered in evidence.
According to Neil Barofsky, special investigator general for TARP (Troubled Asset Relief Program), the United States has now spent approximately $3 trillion on programs designed to heal our financial system and replace jobs lost during the recent financial crisis and recession.
Just as in our mortgage meltdown, banks are at the epicenter of the current European debt and currency crisis; and German banks are some of the most highly leveraged institutions in the world. I could go on, but I think the point is made. Ballooning budget deficits, already out of control prior to the orgy of bailout and stimulus spending, are beyond ineffective; in my opinion. (I have intentionally omitted the $100 trillion of unfunded liabilities associated with Social Security and Medicare, and the truly negative budget implications of Obamacare that don't kick in until 2014. What would be the point?) We should learn from the poor Europeans, whose cradle-to-grave entitlement dogma is rotting their once-great civilizations.
I get all that, and I understand why people are concerned.
Nevertheless, I remind you that some American non-financial corporations have more cash on their balance sheets than at any time in more than fifty years. That does not mean that there are no opportunities for businesses to expand and profit; there are many. Rather, with interest rates on savings still less than 1%, increasing corporate cash may be a measure of the irrationality and unpredictability of government policy. Prudence trumps profit.
Last week, I suggested that you read The Rational Optimist: How Prosperity Evolves, by Matt Ridley. That recommendation stands, and will stand; it's an important book, and one that is destined to become a classic. It reveals that throughout human history, voluntary exchange in the marketplace has been the golden goose of human progress. Exchange is to human nature as nest building is to birds - it's what we do. Over the past two centuries, exchange has been greatly facilitated by advancements in transportation and communication technologies. Progress has gone viral. Today, American business represents humanity performing its highest functions at an extraordinary level of proficiency; it is the most rational, most innovative, most life-serving, most achievement oriented, and the most forward-looking institution in the history of the world.
Be an optimist.
*Deficits: 2008 = $680.469 billion; 2009 = $1.471 trillion; 1Q2010 = $328.929 billion.
Heflin, Jay, The Hill, May 20, 2010. http://thehill.com/blogs/on-the-money/banking-financial-institutions/93285-government-has-spent-3-trillion-and-counting-on-financial-crisis
Bureau of Economic Analysis, March 26, 2010. http://www.bea.gov/newsreleases/national/gdp/2010/gdp4q09_3rd.htm
Council of Economic Advisers. http://www.whitehouse.gov/administration/eop/cea/estimate-of-job-creation/
McPheters, Lee, February 3, 2010. http://knowledge.wpcarey.asu.edu/article.cfm?articleid=1857
Bureau of Labor Statistics, U.S. Department of Labor, May 7, 2010. http://www.bls.gov/news.release/pdf/empsit.pdf
Magna Carta Day
In the year 1215, Archbishop Stephen Langton and the most powerful barons of England created the Magna Carta - a collection of 37 laws - to put King John in his place. In May of that year, they seized the City of London, and in June they cornered the king in a meadow at Runnymede. On June 10, King John of England signed the Magna Carta. On June 15, 1215, when King John confirmed the Magna Carta with his seal, he was formally acknowledging the concept that no man - no king - is above the law. King John then tried to ignore the Magna Carta, and his duplicity led to his being dethroned.
The Magna Carta established the concept of individual rights that left a direct legacy in the American Bill of Rights. Under the U.S. Constitution and Bill of Rights, all Americans - regardless of gender, race, or creed - can enjoy the liberties inherent in the nature of being human. Just as the Magna Carta stood as a rampart against tyranny in medieval England, the U.S. Constitution and Bill of Rights must serve a similar role today, protecting the individual freedoms of all Americans against arbitrary, capricious, and over-reaching government.
Until next week,
PATIENCE, DISCIPLINE, and CONFIDENCE in the FUTURE! mh