Let Greece and the entire Eurozone default

The best thing that could happen to the Europeans is to have their nation-states default on their debt. The sooner it does, the better.

Unfortunately, there are people who are under the illusion that this can be stopped and insist on more bailouts. I believe that is misguided. Whether they like it or not, Europe will go into recession. It is not a question of if but of when the recession will occur.

In years to come, people will closely examine why the statesmen failed the proletariat. I have faith that future generations will be able to point to the printing of money as the source of malinvestment and recessions. There is no more boogeyman nor foreign invader. The source of the economic problem is found in government monopolization of money and the selective distribution of cheap money to the rich. Historians will have no choice but to link the century of warfare with the century of the failed central banking experiment.

The sooner the default, the sooner the economy can approach stability. Private investors will shy away from trusting government borrowing. Creditors will be more critical when they accept borrowers. Malinvestment will slow down and resources will be invested more astutely.

Back to the present.
The affluent Europeans will know what it is like to be economic refugees and they will feel for a long time in their own native land. Canadians should prepare themselves for massive immigration from Europe. We will be going back to our roots.

Mark Carney: double-speak economist

More nonsense from Mark Carney, the Governor of the Bank of Canada:

“For some Canadian businesses, the recovery may prove as challenging as the downturn,” he said.

Is recession a dirty word?

Complete the sentence:

“While the bank does not entirely understand why productivity growth has been as slow as it has been, we do understand the consequences,” Mr. Carney said, repeating a warning last month that economic growth could be limited to no more than 2% for much of this decade. This will be due to slower productivity growth and an ageing population.

… and ultimately due to the printing of money.

Printing money creates a false economic indicator. As a result, it aggravates business cycles. That is what we are witnessing right now. Thank you, all you money printers and credit expansionists!

N.S. Premier Darrell Dexter fighting for brownie points

Nova Scotia Premier Darrell Dexter must think tax-payers are as stupid and arrogant as politicians:

“I can say that it was a bit of a surprise to me,” Dexter told CBC News on Friday. “I’ve never had any problem sharing the credit for undertakings by the government with the various levels.”

Most people are smarter than that. Most people know any “credit” belongs to the tax-payer and, regardless of what level of government exacts the money, there is only one tax-payer. Since politicians do not pay taxes in any honest or intelligent sense, it does not surprize me to learn the stupid complaint from Darrell Dexter.

Cash For Clunkers = stupid waste of money

What do you get when you combine a naive environmentalist, a crooked crony capitalist banker, the American auto market and the power of the state? Answer: government subsidization of waste. Its current incarnation is the Cash For Clunkers joke.

Watching Americans rally around the perceived success of the Cash For Clunkers is better than what any situational comedy could ever be produced on American television. It is just astounding how stupid people can be. Some Canadians are duped about this too apparently.

If poor people need cars but can not afford the cars, the solution is simply to give them money and let them do as they will. There is no need to make things more complicated. Better yet, things can be even simpler: let consumers keep more of their own money by cutting their taxes.

The absurdity of Cash For Clunkers is beyond belief. The scheme is as intelligent as a caveman barter system yet less efficient. There is no need to take money away from people just to give it back to them again — unless, of course, the scheme is to foster somebody skimming off the top.

If you wish to think that fuel efficiency is the target of this nonsense, I suggest you learn something about the magic of markets: the fuel efficiency savings — assuming it actually exists — is already incorporated in the price of the new car. In other words, consumers of fuel efficient cars will be saving on future fuel costs anyway. The Cash For Clunkers is great for stupid people who can not use a calculator.

Malinvestment

Here is the sad part of the story: such nonsense government schemes provide a false market signal to entrepreneurs:

“It’s also brought in a lot of other traffic, sort of like a signal that it’s safe to come back into the marketplace.”

AutoNation, the largest new-vehicle retailer in the U.S., has done “just under” 3,000 cash-for-clunkers sales, Jackson said.

“Any doubt that the CARS program would jump-start auto sales is completely erased,” said Greg Martin, a GM spokesman. Detroit-based GM left a U.S.-backed bankruptcy on July 10, 39 days after predecessor General Motors Corp. filed for Chapter 11.

How is it safe to come into the market place again? This consumer activity exists ONLY as long as the government is doling out money — something that can stop suddenly any instant.

Gullible environmentalists

Here is the laughable part of the story: naive socialists can not see how they are being used to line the pockets of crony capitalists.

UPDATE: (Friday, August 7th, 2009)
Reuters offers an analysis that belongs in the garbage heap — qualifying the program as “successful” but then says that sales are down So, Mr. Reuters, what qualifies as a success? Is the number of carbon atoms floating in the air? or the amount of money spent? maybe a sudden financial bubble? what?

UPDATE #2

Hundreds of auto dealers in the New York area have withdrawn from the government’s Cash for Clunkers program, citing delays in getting reimbursed by the government, a dealership group said Wednesday.

NY dealers pull out of clunkers program

Lessons In Economic Unstimulus

Shawn Ritenour of the Mises Institute analyzes the performance of Obama’s economic plan so far:

From an economic perspective, Obama’s stimulus plan is equivalent to a giant welfare scheme. Instead of the money going to lower income Americans, however, it is meant to go to municipal bureaucrats of various stripes. Instead of productive American citizens determining what to do with their own scarce resources, the state is stepping in and dictating how they will be used. Consequently, such spending is essentially government consumption, which is what vulgar Keynesians think we need now more than ever. Such economists are shocked — shocked! — to find out that Americans are now saving any increases in income instead of blowing it on even more consumer goods. Not to worry, however. If private citizens do not consume enough for official tastes, the government always can.

Obama Motors – How Not to Run a Car Company

It looks like General Motor is back on track:

This spring, while seeking upward of $50 billion in federal assistance to shed debt and keep afloat, GM disclosed plans to import a new line of compact cars the size of a Toyota Yaris from China. That sparked an outcry from the UAW and from Congress, which put pressure on the Obama administration to persuade GM to drop the plan and build the cars in the U.S. GM, already deeply indebted to the government, agreed.

Because everyone knows Congress and the Unions know how to run a successful company.

Jim Flaherty needs Financial Literacy Task Force himself

Like, we need one more task force?!? This new Financial Literacy Task Force looks like a liberal project washed over with blue paint.

I find it rich that the federal finance minister, the grand overseer of monetary inflation, the recent corporate bailouts and the largest deficits, is now telling Canadians that they need more financial literacy. Jim Flaherty should be getting more financial literacy himself, if you ask me! Not too long ago Flaherty was trying to convince us that we believe we need more credit. What happened to that campaign? et cui bono? by the way.

If my car is not working, I go to my auto mechanic and he helps me. If my back is malfunctioning, I go to my chiropractor and he helps me too. Those guys also give me advice on what I can do on my own but in the end, they are the ones who have the specialized knowledge. In common economic parlance, we call that the division of labor. I do not need to improve my literacy on auto mechanics nor on vertebral physiology. I just need to pay them to do their work. Having confidence in their abilities to deliver service helps too.

I do not believe tax-payers are ignorant. Rather, I think they need to keep more of their own money and they need to stop financing cronyism, task forces and government nonsense. I also believe they should not be obligated to use a perpetually inflating currency but it will be a cold day in hell before any “conservative” even sees the monetary supply for what it truly is.

Instead of funding a task force, I think Jim Flaherty should focus on making life easier for financial consultants by putting an end to false economic signals. Maybe he can lead seminars called “How To Take Wild Guesses On What Sectors Of The Economy Will Get Bailouts” or “Who Gets The Cheap Credit First?” just to name a few.

Yeah, that was sarcasm. What I mean is that financial consultants, i.e. people who make a living off of precisely what the Financial Literacy Task Force is addressing, are misled by the government.

See, the problem is government intervention in the markets. The government inflated the money supply so, credit was made available to anybody. To stay competitive, the bankers and the money lenders had no choice but to ease their credit requirements. Thus, people who would ordinarily be turned down for loans, soon became eligible for mortgages. We got a housing bubble. Since printing money does not create wealth, vast sectors of the economy were given false signals of future productivity which, surprise, surprise, never materialized. Now, we have a recession while markets adjust.

As long as the government still gives people hope of bailouts and monetary inflation, the recovery will be slow. Business cycle theory is not more complicated than that.

Mark Carney, Bank of Canada governor, is talking too much

Actions usually speak louder than words and so, I have to wonder why Mark Carney, the governor of the Bank of Canada is even talking.

More and more people have to understand that there is nothing the central bank can do to stimulate the economy in any responsible sense and the evidence of this is becoming more obvious. It seems like the bankers are still struggling with the realization that printing money does not create wealth:

Holt, who remains bearish about the next few years, agrees with Carney about the lacklustre response of the private sector economy to government stimulus. He says although central banks have done all they can to cut interest rates, consumers and businesses are just not borrowing.

Porter concedes that most of the recent good news points to an ailing economy that has entered a period of convalescence. There could be a relapse, he admits, but it is also possible for the patient to make a better recovery than many suspect.

“I’m concerned because part of the puzzle that we need is to see some repair in confidence, and to have one of our policy-makers stepping on the green shoots is not helpful,” he said.

Such poetic analogies (a repair in confidence, a recovering patient) may work well in academia to maintain the attention of wide-eyed gullible students or to provide meaningless sound-bites to a journalist. However, people who actually have to work for a living and for entrepreneurs who risk their own hard-earned money, economics will have to be a lot more concrete.

How an entrepreneur’s confidence arises is anybody’s guess but I think that providing cheap credit below market rates and printing money only stimulate malinvestment throughout the economy. The monetary inflation of central banks produces a phoney signal in the market and prolongs recessions.

That is not to say that there is no good reason to print money, mind you. To understand the reason, picture yourself on the receiving end of a cheap interest loan: you get purchasing power before you have productivity to show for it. Now, imagine yourself receiving that monetary inflation regularly. Not a bad gig, I would say.

A bad market if you do not get the cheap loans, though:

The numbers also say Canadian households have barely begun to bring down their household debts. A corporation that suffers from too much debt can sell a division, or find new equity partners, or merge with a healthier company. (If these fail, there’s always bankruptcy protection.) A government can raises taxes or invent new ones (goods and services tax, anyone?) – or, as a last resort, let the printing press run harder and longer, and allow inflation to work its painful magic.

But an individual debtor has fewer options.

The end result of monetary inflation is that it distorts the economy by perpetually giving cheap credit to the lenders and their elite clients. Since everybody is forced to use the same money, the people at the low end of the income scale end up subsidizing the parasitic lenders through price inflation. It is no wonder that you can not pay your taxes in a foreign currency.

Bernanke’s strategy: Print And Pray

The continued ad hoc inflationary American monetary policy is becoming more and more pathetic:

However, he said only time would tell how successful the exercise was.

‘We hope that in two or three years we will be able to reflect on the banking system’s return to health with a sharply diminished reliance on government capital,’ Bernanke said.

Ben Bernanke may as well say: “Shucks, guys. We really have no idea what we are doing so we are just going to keep on printing money until…. well, until things turn around, I guess.”

Bailout bank demolishes California homes

The city of Victorville was fining the bank because the homes were unfinished. The fines were increasing daily. So, to minimize its costs, the bank — also a recipient of the bailouts, no less — demolished the brand new unoccupied homes. Feast your eyes:
Bailout bank demolishes homes
Victorville model homes demolished by bank

Somewhere in California is a poor family struggling to make ends meet so that they do not lose their home.

I remember making fun of the Soviets for playing football with loaves of bread. The American socialization of the banking system is more despicable.

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