Financial Collapse was No Surprise

Friends, you may already have heard, but they just informed me that I won't be on BBC Radio today. It will be next week (time to be determined). Thanks for your interest. I sent out the following. [Note: Later today I'll write on my other blog about Hillary Clinton supporters who have moved to support Sarah Palin as America's first female President.]

Oops, the BBC just called, and I will be on NEXT WEEK (and not today). I gave them the name of a British contact, Brad Setser, who is the man, along with American expert Nouriel Roubini, predicted exactly what would happen in the financial crisis.

That prediction was made (in a beautifully written article) in 2005 in the magazine Foreign Affairs. I really urge everyone to read the piece, which you can find at: http://www.foreignaffairs.com/articles/60840/brad-setser-et-al/how-scary-is-the-deficitIf you don't have the time, here's the Wikipedia short form of the Setser-Roubini piece. They are brilliant, but not obnoxiously so, and their prediction outlines everything that came to pass:

"If the US does not take policy steps [in 2005] to reduce its need for external financing [i.e., from foreign central banks, particularly China's] before it exhausts the world's central banks willingness to keep adding to their dollar reserves - and if the rest of the world does not take steps to reduce its dependence on an unsustainable expansion in US domestic demand to support its own growth - the risk of a hard landing for the US and global economy will grow. The basic outlines of a hard landing are easy to envision: a sharp fall in the value of the US dollar, a rapid increase in US long-term interest rates and a sharp fall in the price of a range of risk assets including equities and housing. The asset price adjustment would lead to a severe slowdown in the US, and the fall in US imports associated with the US slowdown and the dollar's fall would lead to a global severe economic slowdown, if not an outright recession." [summarized from Messrs. Setser and Roubini, Foreign Affairs, 2005, Wikipedia summary]

The financial problem the world faces was caused by over-borrowing, over-lending, and over-spending. The Obama/Geithner solution is to borrow more, to have foreign central banks increase their lending, and for government to accelerate its own spending. If that sounds as if we're trying to solve the problem by doing more of what caused it, well, you've hit the nail on the head.

Additionally, we're bailing out failure and submerging success. Just call it "The Obama Depression." He's repeating Roosevelt's mistakes, while remaining blind to FDR's successes.

Is Obama Our Era's FDR?

"The Great Depression wasn't too bad -- as long as you had a job." (Unforunately, at any given time in the 1930s, one-out-of-four to one-out-of-five workers didn't have jobs.)

In his endless efforts at "experimentation," Franklin Delano Roosevelt did many bad things, including his "court-packing" efforts to manipulate the judiciary. Barack Obama seems destined to recapitulate all Roosevelt's worst initiatives.

Redistribution of wealth, which Obama told Joe the Plumber (Wurzelbacher) he supported, is the essence of socialism. FDR was a fervent redistributor. Why? He had discovered poorer people were more likely to vote Democratic.

Government control is another key aspect of the socialist agenda. However, the key component for socialist-inclined politicians, from FDR to Obama, is choosing what groups to favor in order to win elections.

In Roosevelt's era, the favored groups were: (1) recipients of government welfare (called "relief" in those days); (2) trade unions inclined to vote Democratic; (3) consumers of products (as opposed to producers); (4) college-age young people and high school students; and (5) Black citizens. Roosevelt's own version of an "enemies list" included: big companies; employers generally and the wealthy. Obama's "list" would be roughly the same.

FDR's National Recovery Administration (NRA) was a make-work organization designed to reduce unemployment, which, except for very brief periods, it didn't accomplish. Beyond that, it created ten thousand pages of regulations to exert government control over nearly every aspect of the economy.

To paraphrase Amity Shlaes (author of The Forgotten Man), under the NRA, government bureaucrats had the authority to curtail the production of goods (supply) in order to drive up prices. Of course, with so many people impoverished by the Depression, higher prices were not an unmixed blessing.

Also, NRA regulations determined the precise components in macaroni. Moreover, the organization determined what tailors could and could not sew. In the poultry industry, regulations barred consumers from choosing what chickens they wanted to buy.

An institution like the NRA illustrated the main assumptions of socialism: that government bureaucrats know better than producers or consumers. It emphasized consumers because there are more of them -- as voters -- than there are producers