Quackery Is alive and well in 2009!

Many physicians summoned to treat a serious illness in 1796 would prescribe "bleeding" the patient to "remove the evil toxins" causing the patient's symptoms. If the first physician failed to affect a cure he would be dismissed and another practitioner would be summoned who would generally initiate another round of "bleeding". If miraculously, a patient survived these treatments and recovered in spite of the induced anaemia it was generally agreed that the "treatment" was a success. George Washington would appear to be a less than successful example of the efficacy of the practice of bloodletting. Indeed, in light of the knowledge gained in medical treatment since the close of the 18th century, the practice of bloodletting, if prescribed today would rightfully be categorized as "quackery".

Let us fast forward to 21st century quackery which passes for conventional wisdom concerning recent financial developments as they presently obtain with regard to the present less than ideal economic climate. Most credible explanations of the current pass attribute it to a recurring business cycle which periodically purges the system of inefficient and non competitive enterprises and reassigns resources to more efficient uses. The rub of course comes in when the political class sees this process as a threat to their rice bowl and moves to "remedy" it. To be brief, a routine economic adjustment arguably triggered by a political policy of "easy money" as pursued by the central bank for a generation is to be "rectified" by massive injections of more of same.

The Inevitable Consequences!:


Based strictly on the official estimates of the 2009 deficit, any economist not on drugs must conclude that, in the coming months and years …

* The federal government will have to borrow more money than at any time in history …

* To raise that money, it will have to shove aside individuals, businesses, local governments and virtually all other borrowers, scooping up most of the funds available in the already-tight credit markets …

* By crowding out other borrowers, it will sabotage its own efforts now underway to restore private credit markets …

* It will put great upward pressure on interest rates — and ironically …

* It could bring on a new, more virulent debt crisis that deepens and prolongs the economic decline.

Take a Look At the Assumptions of the governments own Congressional Budget Office!

Beyond the traditional budgetary smoke and mirrors, here are just some of the holes in their estimates:

1. The CBO implicitly assumes that the debt crisis is largely behind us — no more big bank failures, no more GMs or Chryslers, no more international debt defaults and no Wall Street meltdown. But the very size of its own deficit projection — reaching 10% of GDP — makes that assumption highly questionable.

2. The CBO assumes that federal revenues will remain relatively stable at 17.6% of GDP, only slightly below the 18.3% historical average. That means there can be no depression, no unemployment disaster, no tsunami of corporate red ink and no plunge in federal tax revenues.

“Just make believe those events can never happen!” goes the rationale.

What about the government data showing that the unemployment disaster is already here? “Largely ignore that, too,” seems to be the underlying theme.

3. The CBO assumes that the economy will recover after 2009, and the government will get most of its bailout money back. For the TARP program, for example, the assumption is that the cost will be only 25% of the total amount loaned or invested. The remaining 75%, it figures, will be paid or earned back.

Any sentient and sane observer would determine that more injections of easy money (bailouts) to rescue failed and inefficient business and financial enterprises under such conditions is counterproductive bordering on the suicidal. Not so our political class who sees the inevitable adjustment as a short term threat to its continued ability to enjoy the perquisites of power. Couple this situation with the collectivist activists who see the situation as ripe to advance their green, regulatory and redistributionist agenda and we have what amounts to the "perfect storm" for an attack on our liberties and wallets. We are indeed in store for "interesting times". Move over Zimbabwe!

ΜΟΛΩΝ ΛΑΒΕ!