Earlier today, in Keynesian Claptrap From PIMCO I spoke of the ridiculousness of the paradox of thrift. Here two more articles worth your time reading that rebut the seemingly never ending Keynesian Claptrap coming from the likes of Bernanke, Paulson, PIMCO, Roubini, and Krugman.



I make the above statement with one reservation. Nouriel Roubini has called this economic disaster as well as anyone. I commend him for many brilliant calls. However I simply cannot sit back and say nothing about the barrage of bad economic thinking in regards to the solution to this crisis coming from everyone in the group above.



With that out of the way, let's continue with a review of an article by Austrian economist Frank Shostak about the paradox of deleveraging. Had I seen it earlier, it would have been included in my previous analysis. Shostak is asking Is Deleveraging Bad for the Economy?



Is it true that if every bank were to attempt to "fix" its balance sheet, the collective outcome would be disastrous for the real economy?



On the contrary, by adjusting their balance sheet to true conditions, banks would lay the foundation for a sustained economic recovery. After all, by trimming their lending, banks by implication also curtail the expansion of credit "out of thin air." As we have seen, it is this type of credit that weakens wealth generators and hence leads to economic impoverishment.



Contrary to the proponents of the "paradox of deleveraging" we can only conclude that if every bank were to aim at fixing its balance sheet, in the process curtailing the expansion of credit "out of thin air," this would lay the foundation for a healthy economic recovery.

Trying to get Something for Nothing

As if Paul Krugman winning the Nobel Prize in economics isn't reason enough for us to be less-than-sanguine about the future, everywhere we look we see well-respected analysts advocating increased government regulation and spending -- effectively the same policies that transformed a financial crisis into a drawn-out depression during the 1930s -- while completely ignoring the root of today's problems. ....



Whether the advocates of increased government spending and the various other re-inflation policies realize it or not, at the root of their proposed 'solutions' to the crisis is the idea that it is possible to get something for nothing. It is axiomatic that an increase in production must precede a sustained increase in consumption; that saving is the basis of long-term economic growth; that no individual can become rich by spending more than he earns; and that no country can become wealthy, or recover from a recession, by consuming more than it produces. And yet, most commentators have deluded themselves into believing that you can get around the problem of inadequate real savings by simply increasing the supply of the medium of exchange, and that you can bypass the need for increased consumption to be funded by increased production by simply getting the government to spend like a drunken sailor.

Bush's Conference of Losers Revisited

In response to the Credit crisis president Bush is gathering up all the people who did not see what was coming, denied what was happening, and then failed to see the implications of what was indeed happening.



...



Instead of holding a summit of losers, why not hold a summit for those who saw the mess coming and are far more likely to know what to do than those who did not see this mess coming.



There is one more gotcha to the summit of winners ideas. That problem is that a few of the people that did indeed see this crisis coming are proposing the same failed Keynesian policies that brought about this crisis in the first place.



Krugman and Roubini need to be excluded from the summit of winners.

Saville Added To Circle Of Winners

Something For Nothing

Kevin Depew Added To Circle Of Winners

One Last Thing



Of course, there is a last resort, one final tool policymakers can deploy. The Fed and Fiscal Policy could come together to help foster a continuation of the game, as Bernanke says:



"[ I]n lieu of tax cuts or increases in transfers the government could increase spending on current goods and services or even acquire existing real or financial assets. If the Treasury issued debt to purchase private assets and the Fed then purchased an equal amount of Treasury debt with newly created money, the whole operation would be the economic equivalent of direct open-market operations in private assets. "



Yes, that would help... but the costs are not mentioned, and here we are not referring to the "dollar costs," but something more severe; a steeper price - the nationalization of financial markets.



In plain English, that paragraph is saying that, if all else fails, a government can issue public debt, financed by the Federal Reserve, to purchase private assets. And that is precisely what is taking place right now.



At that point the very question of whether capitalism survives becomes irrelevant, because a government, by issuing public debt to buy private assets, will have effectively concluded it.

Mr. Practical Added To Circle Of Winners

Circle of Winners

Ron Paul

Marc Faber

Peter Schiff

Frank Shostak

Steve Saville

Kevin Depew

Mr. Practical



The Japanese Deflation Fighting Experiment

Peak Credit Review

Peak credit has been reached. That final wave of consumer recklessness created the exact conditions required for its own destruction. The housing bubble orgy was the last hurrah. It is not coming back and there will be no bigger bubble to replace it. Consumers and banks have both been burnt, and attitudes have changed.



It took nearly 80 years for people to get as reckless as they did in 1929. 80 years! Few are still alive that went through the great depression. No one listened to them. That is the nature of the game. The odds of a significant bout of inflation now are about the same as they were in 1929. Next to none.



Children whose parents are being destroyed by debt now, will keep those memories for a long time.

something for nothing