All but the most obtuse among us should be coming to realize that our 'leaders' are winging it on the economy. They try to appear knowledgeable and wise, and seek to assure us that everything will be fine and dandy as they scurry from crisis to crisis, avoiding one institutional meltdown after another. The fact is they are terrified to the point of panic and absolutely clueless. They have neither a coherent economic plan nor any realistic idea of what to do to stem the accelerating decline.
This is hardly surprising giving the absurd lack of logic -- not to mention the lack of morality -- of the basic approach.
Our financial institutions, at the behest of the government, created an unsustainable bubble by stimulating excessive spending through loaning out excessive (and unrecoverable) amounts of money. As was inevitable, the bubble burst, rendering the financial institutions insolvent.
So now, the government would have us accept the idea that the way to solve the problem is for it to borrow more money, creating unprecedented levels of new debt, in order to reward the failed financial institutions that created the problem in the first place by keeping them alive and pouring more money into them so the institutions, in turn, can loan out even more money to stimulate still more excessive spending.
Only in the rarified atmosphere of the upper levels of government can it appear logical to believe that more borrowing and more spending can solve a problem caused by excessive borrowing and spending.
Pursuit of this madness seems doomed to fail. The hole into which the zombie financial institutions have dug themselves appears to be bottomless. Some of the larger ones -- Citigroup and AIG, for example -- keep coming back time after time for additional infusions of billions of dollars from the public treasury and the Federal Reserve printing presses just to maintain the appearance of solvency. (And we have yet to see recognition of the inevitable write offs of either the consumer credit card debt or the corporate leveraged buyout debt that cannot be repaid as incomes and business decline in a deflating economy. Nor does anyone have any idea of what will occur when the pension funds, which are invested in the securities market, and their government insurers are unable to meet their obligations.)
In any case, even if pursuit of the feckless policy appears to stop the decline, the respite will be illusory. Any respite will be dependent on perpetually continuing and increasing the flow of credit based spending -- sort of like a drug addict requiring ever increasing and more frequent doses of narcotics to function. Thus any respite will be temporary. The borrow-and-spend cycle is not infinitely sustainable. When it stops the bubble that will burst will be even bigger and its collapse will be even more devastating. The mountain of debt will still be there and it will have grown to magnitudes that are unimaginable.
This, of course, is not of concern to today's political 'leaders'. They will be gone, leaving the next generations in the abyss. In the meantime, the politicians will have achieved their objective, which is not a healthy and sustainable economy but, rather, to appear to be "doing something" about the problem and, in the process, expanding and concentrating their power.
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