Thursday, April 16, 2009

Okay, how about these guys

The International Monetary Fund (IMF) is warning that this current crisis has several striking similarities with the Great depression and they even claim that this situation in many ways is worse.

Dominique Strauss-Kahn, head of the IMF, said millions of people risk being pushed back into poverty as the economic storm ravages the most vulnerable countries. "The human consequences could be absolutely devastating. This is a truly global crisis, and nobody is escaping," he said. Telegraph

I find this kind of interesting. Finally some of the mainstream economists is telling some kind of truth and this at the same time as some journalists and several criminally insane politicians are saying they are seeing the crisis “ease off”. But of course the IMF idiots do not connect the dots and they are calling for even more stimulus madness. In other words they recognize the crisis but they want to worsen it.

The IMF said the US is at the epicentre of this crisis just as it was in the Depression, setting the two episodes apart from normal downturns. However, the risks are greater this time. "While the credit boom in the 1920s was largely specific to the US, the boom during 2004-2007 was global, with increased leverage and risk-taking in advanced economies and many emerging economies. Levels of integration are now much higher than during the inter-war period, so US financial shocks have a larger impact," it said. Telegraph

Again they are right, but they are also missing a couple of crucial elements that will make this depression much worse than the “great” one. First of all even if we are much richer today, the economies are built on a shakier foundation in the sense that the basic production capacity is more focused on services and borrowed money today. During and after the Great Depression the production capacity was less based on borrowed money and people did not have high personal debts with credit-card debts and high mortgages. Also the service sector was minimal. But maybe the higher levels of richer are the worst thing in this case. Since our drop is that much higher, the pain will be greater.

Abrupt halts in capital flows can have "dire consequences" for emerging economies, it said. Eastern Europe has already suffered the effects, with a 17.6pc fall in industrial production in February. The region is highly vulnerable to the credit crunch since it owes more than 50pc of its GDP to Western banks. Telegraph

This a kind of a wrong statement since there is a difference between capital as in ‘money’ and real capital with attached value. What Eastern Europe and the rest of us need is higher production and the wealth that comes with it, not only paper money that the IMF idiots are talking about. And IMF is also urging for more stimulus money which is also money without any value. In best case scenario (if there is such a thing in this case) more money (stimulus) can halter the crisis and get people spending and borrowing again, temporally postponing the depression. The problem with that scenario however is that in doing so they are actually building up the crisis with even more fictive money and even more borrowing which in the end will leave us with an even bigger crisis.

What we ought to be doing is to cut today’s enormous governments and their spending with at least half; preferably much more, freeing much needed capital for the private sector. In doing so we should also erase all the thousands of socialist laws that are hindering markets to act independently. Finally we should also let the crisis happen and not bail out banks or bad businesses. Let the crashes happen, let people go bankrupt, let it hurt, it should hurt. A smaller crisis over a year or two will be bad, but in comparison with what is coming at the horizon now that would be nothing. And if we never want to see something like this again we should take away money handling, money printing and dealing from the state and put it on the market attached to objective values. If this does not happen, another crisis will come, and then another and they will continue to come and go. That’s if we survive the coming depression.

No comments:

Post a Comment