Wednesday, April 29, 2009

My Rant on a Naysayer...

I know I shouldn't do this, but it's my (only) vice. I read yet another guy going off on how stupid everyone is, especially Congress, the EPA, the administration, yada, yada, yada. The world is ending, nobody can see it, we're all gonna die! We need fiscal responsibility and "limited government"... . Cliche Angry White Man stuff with all the angst and vitriol aimed at the wrong people, not the Dick Fulds and Angelo Mozillos and Phil Gramms and Financial Product salsmen who took our trust and used it for their short term gain and are now living on some tropical island....

No, these guys (and they seem to be mostly men, and certifiably crazy women like Michelle Malkin) go off with their "concern" about all the "troubling" things that the gummint is doing. It's all the gummints' fault. We need "limited government" (and unlimited Angelo Mozillos, I suppose). So now we have "Something's Gotta Give". The drama. My God, it's palpable. Read it, then read my reply below.

My reply:

In Doug Kass' defense, he does say he is increasing cash now due to the overbought condition of the market.

The only thing I can say about your general negative sentiment and crappy world view is that this is exactly how deflationary recessions are supposed to make us feel: sick... like it is dire with the outcome determined to be the worst case.

Deflationary recessions of this magnitude are rare: the previous such cycle was 1929 to 1933 and all other recessions since have been inflationary. Deflations are managed by doing exactly what is currently being done: re-flating assets with govt spending, massive borrowing and the printing of money so that dollars flood the system. This way inventories of goods are sold off with the devalued borrowed dollars and employers don't fire anybody. It may seem counter- intuitive, but that's the cure.

Is this fair to those of us who have been frugal and responsible and now will see our saved dollars devalued? Maybe not, but who said life was fair? In reality, the dollars don't really belong to "us" anyway, they are solely under the control of the Federal Reserve (take out a dollar and look at what is says across the top) and they can do what ever they like. They can print more if they choose or take them out of circulation, whatever they want to do. Don't like it? Then demand your employer pay you in something else: seashells or pork bellies, or better yet, come up with your own currency and market it for general use (that idea is not too far off base since some communities are doing just that, see Berkshares. Furthermore, this would help to massage your "limited government" muscle, and good luck with that.)

I don't know if the current regime of stimulus and easy money will work to ensure the survival of the market economy, nobody can predict-- it may not and we may be overrun tomorrow by marauding bands of disgruntled unemployed UAW members with machetes (at least they would know who the real bad guys are). Who knows? But I do know that doing nothing, freezing spending, having runs on the banks, increasing unemployment and declining industrial production would very likely fracture the economic structure and would surely lead to damage in greater social structures. At least that is what history tells us about the few deflationary recessions that have been well studied.

One last thing: consumer sentiment can turn very quickly. The empty parking lots can fill very quickly once enough (devalued) dollars start flowing and people are more confident that they won't lose their jobs.

This is a gruesome recession, no question, but geez, the world has survived a lot worse things than this. The politicians are no worse and the the circumstances are no more dire. Sure, the world may explode by next Tuesday and leave us all in a pile of ashes, but it probably won't.

Hold cash, or gold or what ever your currency of choice happens to be if you like. Sell down to you sleeping point. Re-supply your fallout shelter and stock up on ammo and canned fish and Glenn Beck DVD's if that makes you feel secure... at least it will keep your mind occupied while the adults fix the country. But soiling your pants and whining about Congress or the EPA are the least productive (and least fun I would think) ways to while away the hours.

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