The flaw in Geithner’s logic

The Treasury Secretary talks:

“As President Obama said in his inaugural address, our economic strength is derived from ‘the doers, the makers of things.”


“The innovators who create and expand enterprises.”


“The workers who provide life to companies and, with their earnings, support families and invest in their future… This is what drives economic growth.”

True, in combination with the first two statements.

“The financial system is central to this process, transforming the earnings and savings of American workers into the loans that finance a first home, a new car or a college education, the credit necessary to build a company around a new idea.”

Partially true, but the underlying implication is false. Credit only allows the speeding up of the process. This is not necessarily a good thing.

“Without credit, economies cannot grow, and right now, critical parts of our financial system are damaged.

The financial system may be damaged, but it is not critical and the first part of the statement is totally false. Most economic growth throughout human history has taken place in the absence of credit, but rather has resulted from savings. This savings can also be used as credit, or leveraged into credit inflation, but its main use is for non-credit investment or delayed consumption. It’s worth noting that as every AGDer knows, credit in its inflated form is the primary cause of the investment misallocations and overstimulated consumption that cause economic contraction.


…and the gates of Hell shall not prevail against it.

See the Mad Aussie for more about the Australian brushfires.

They were always socialists

Newsweek finally admits the obvious:

We remain a center-right nation in many ways—particularly culturally, and our instinct, once the crisis passes, will be to try to revert to a more free-market style of capitalism—but it was, again, under a conservative GOP administration that we enacted the largest expansion of the welfare state in 30 years: prescription drugs for the elderly. People on the right and the left want government to invest in alternative energies in order to break our addiction to foreign oil. And it is unlikely that even the reddest of states will decline federal money for infrastructural improvements.

If we fail to acknowledge the reality of the growing role of government in the economy, insisting instead on fighting 21st-century wars with 20th-century terms and tactics, then we are doomed to a fractious and unedifying debate. The sooner we understand where we truly stand, the sooner we can think more clearly about how to use government in today’s world….

The architect of this new era of big government? History has a sense of humor, for the man who laid the foundations for the world Obama now rules is George W. Bush, who moved to bail out the financial sector last autumn with $700 billion.

With the exception of a few die-hards at National Review, Townhall, and Red State, I think most conservatives will finally admit that George W. Bush did not have, as so many people insisted as late as 2006, a double-secret conservative plan. Like his father before him, like the neocons, and like the NAFTA brigade, he was a socialist wolf in the Republican fold.

I had always thought that with the various Patriot Acts and the assertions of the imperial executive branch, Bush was laying the groundwork for Hillary-style fascism. But it’s arguably worse that Bush’s economic quasi-socialism has instead paved the way for Obama’s blatantly socialist injection. The situation hasn’t gotten to the point where Washington can hope to reach for complete central control yet – his bumbling persona should make it obvious that Obama is to play Hoover, not FDR – but it’s clear that the crash which will be ironically precipitated by the “stimulus” which is purported to avert it should set the stage for whoever follows him to play the FDR role of national savior.

I could be wrong; certainly Obama’s supporters wish to think of him as the leading man and he has attempted to act in that capacity with his cult of personality. But the size of the crisis is one magnitude larger than 1929 – Grand Supercycle in Elliott Wave speak – so one has to conclude that we are most likely in the early stages of Act One in a play that will last for a decade or more. Regardless, Republicans have absolutely no one to blame but themselves for wasting what was a historic opportunity to pursue small, limited, and Constitutional government.