A quick note on the debate between Peter Leeson and Ivan Pongracic on the severity of the crisis.

Pete, you are right to say that doomsayers are often quick to speak, but then nothing really happens in the end. The US economy has gone through many crises in the last 200 years and we are currently going through another one. I believe what Ivan was saying was that monetary phenomena have real effects and that it is hard to see how “the real economy” would not be affected by a years of poor allocation of savings and bad monetary policy. Ivan was not saying that civilization is about to collapse, but that we may have crossed a new threshold in government intervention in the US. The most worrisome aspect is the dynamic of interventionism as you know. Outside a period of war, the current interventions of the government in the US are as far out as they have ever been with the possible exception of the Great Depression and the nationalization of mines and a few other assets. In Europe on the other hand, it all started with the nationalizations of banks, utilities, and transports – the commanding heights of the economy – around 1936. This was after massive manipulations of the monetary system (Weimar Republik, etc) and it led not only to WWII but also to the socialistic economies of Western Europe after the war.

This debate is at the heart of the Misesian research program and it seems to me that the current data point towards something more serious than what you portray it to be. The question is indeed whether the creative and entrepreneurial capacity of the civil society can continue to outstrip the deleterious activities of government. You are right to say that there is still plenty of freedom left in the US to create value and to improve our standards of living, but this current crisis shows that the distance that separates us from hell has shrunk and continues to do so every day. We should be afraid of the fact that the US government has decided to force upon banks its solution. This is exactly what many of us have seen happening in Europe many times in the past. This politicization of the banking industry is but another step that will be extremely difficult to unwind.

It is even scarier that the US engages in this government activity because it is supposed to show a different face to the rest of the world. Remember that America is often a model and a counter weight to idiotic policies done elsewhere. Witnessing this model change slowly but surely may have huge repercussions on the rest of the world.

Regarding your six questions, I don’t think they demonstrate your point. First would you evaluate Mises’s warnings prior to the great depression by examining his investment portfolio? He may or may not have made the right decisions regarding his assets, but this doesn’t change the quality of his argument regarding the role of money in the economic system in the 1920s.

1. It is now a bad time to divest out of one’s 401(k).

2. The price of gold is near $1000 an ounce. It is higher than it has been in years. Gold prices have steadily climbed in the last 5 years and this shows that the market anticipated the loss in value of many financial assets and the US dollar.

3. The recent issuances of short term bonds have not been that successful. The reason is that there have been a massive influx of bonds over the last few weeks and this is affecting all the markets (including the municipal bond market for instance). This means that many investors are actually now seeing more risk in US Treasuries than before.

4. Many small banks in Northern Virginia have experienced a huge influx of cash in the last two weeks. See for instance Virginia Commerce Bank. There was an article on this in the Washington Post last week. So yes, people at the margin are moving out of big banks that are not seen as safe as before.

5 and 6 are not really relevant to the current discussion.

So yes you are right Pete to say that we are probably still far from Armageddon and that the US economy will come out alive of the current mess. It would not be smart, however, to ignore the long-term dynamic and to not recognize that we have just taken a big leap on the road to hell.