Best of the Week
Most Popular
1.China Crash, Greece Collapse, Harbingers of Stock Market Apocalypse Forecast 2015? - Nadeem_Walayat
2.Gold Price Awaiting Outcome of Greece Crisis - Clive_Maund
3.Gold Price Peculiar 6 Month Cycles - Rambus_Chartology
4.Gold Price Just a Little Bit More - Bob_Loukas
5.8 Unprecedented Extremes Indicate a Stock Market Bubble in Trouble - EWI
6.Gold And Silver – Without Either, You Will Be Greeced - Michael_Noonan
7.Lies, Damned Lies and Statistics - James_Quinn
8.China Crash, Greece Crisis Harbingers of Stocks Bear Market? Video - Nadeem_Walayat
9.Gold and Silver Record Shorting - Zeal_LLC
10.Markets Big Deflationary Downwave Quick Reference Guide... - Clive_Maund
Last 5 days
Stock Market SPX Triggers Sell Signal - 3rd Aug 15
The Gold Investment Demand Juggernaut - 3rd Aug 15
Stock Market Pullback at Hand, Gold About to Rally? - 3rd Aug 15
Gold – The More Hate, The More Bullish We Become - 3rd Aug 15
Stock Market Critical Week Ahead - 3rd Aug 15
Gold Price Near Intermediate Bottom - 3rd Aug 15
Stock Market Reluctant Primary Wave IV? - 2nd Aug 15
Power and Compassion - 2nd Aug 15
Preparing for The Stock Market Crash - Inverse ETFs and Puts Timing... - 2nd Aug 15
Commodity Prices Slump Signals Slow Economic Growth Outlook - 2nd Aug 15
BSE Sensex Stocks Bear Market Underway - 2nd Aug 15
What Microsoft’s Dismal Earnings Report Really Tells You - 2nd Aug 15
Gold And Silver Charts Are The Compelling Story. Fundamentals Do Not Apply - 2nd Aug 15
The Fed Can't Stop the Commodity Bear Market - 1st Aug 15
Meet the Leader Who Turned Google Into a “Buy” - 1st Aug 15
The Greek Coup: Liquidity as a Weapon of Coercion - 1st Aug 15
Gold’s Amazing Resiliency - 31st July 15
Silver – A Century of Prices - 31st July 15
Demand for Gold Bullion Surges – Perth Mint, and U.S. Mint Cannot Meet Demand - 31st July 15
Reasons Why the Greek Crisis Will Only Get Worse - 30th July 15
The War On Cash: Why Now? - 30th July 15
Greece - The IMF Experts Flunk, Again - 30th July 15
Threat Of Cyber Warfare the “Other Reason To Own Physical Gold” Warns Rickards - 30th July 15
The 5 Biggest Myths and Lies about the Middle East - 30th July 15
Greece, Diversion, and the New World Order - 30th July 15
Ibuprofen Warning - The Pain Killer that can Kill You! - 29th July 15
More Ritholtz on Gold, and Another Response - 29th July 15
Crude Oil Price Is Lower – and You’re Richer - 29th July 15
U.S. Home Sales Market Is Dead – This Chart Proves It - 29th July 15
Greece- What Happens When Economists Talk Politics - 29th July 15
The Gold - U.S. House Prices Ratio As A Valuation Indicator - 29th July 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stock Market Bubble in Trouble

The State's "Inception" Fails, Massive unemployment and failing industries are the reality.

Politics / US Politics Sep 02, 2010 - 04:39 AM GMT

By: LewRockwell

Politics

Best Financial Markets Analysis ArticleTwo years ago, the economy was seriously dragged down amidst an amazing banking crisis that spread throughout the world. The illusion created by loose credit — that housing could go up in price forever and we could enjoy permanent prosperity due to monetary expansion — was shattered by events. Reality had dawned. We found ourselves in the midst of an economic depression.


At that point in policy, we were at a fork in the road. The wise direction was to let the depression happen. Let the bad investments wash out of the system. Let housing prices fall. Let banks go broke. Let wages fall and permit the market to reallocate all resources from bubble projects to projects that make economic sense. That was the direction chosen by the Reagan administration in 1981, and by the Harding administration in 1921. The result in both cases was a short downturn followed by recovery.

The Bush administration, in a policy later followed by the Obama administration, instead attempted a tactic of dream incubation as portrayed in the recent film Inception. The idea was to inject artificial stimulus into the macroeconomic environment. There were random spending programs, massive buyouts of bad debt using phony money, gargantuan tax tricks, incentive programs for throwing good money after bad, and hiring strategies to weave illusions about how all is well.

In the movie, the goal of the dream incubation was to implant an idea into an unsuspecting subject's head that would cause him to act differently than he otherwise would have. In the real-life version of inception, the state tried to implant in all our heads the idea that there was no depression, no economic collapse, no housing crisis, no pushback on real-estate prices, and really no serious problem at all that the state cannot fix provided we are obedient subjects and do what we are told.

In the movie version, the attempted inception is on a time clock. The dream weavers can only keep the subject in a state of slumber so long. In the real-life version, things are much messier. The headlines have spoken about the impending recovery every day for all this time, and yet the evidence has never really been there. All the stimulus really did was forestall events a bit longer, but it hasn't prevented them.

Now, with the stock markets melting and the near-universal consensus that we are back in recession, everyone is awake. It is pretty clear that the inception did not take. The unemployment data look absolutely terrible. As the Wall Street Journal points out, only 59 percent of men age 20 and over have a full-time job (in the 1950s, that figure was 85 percent). Only 61 percent of all people over 20 have any kind of job now.

That's only the most conspicuous problem. No one really knows just how much further the real-estate market would fall under market-clearing conditions. The actual status of the car industry is anyone's guess. Business borrowing is going nowhere. Total industrial and commercial loans are actually at their lowest point of the whole depression. Payrolls generally are still sweeping downwards.

With an economy like ours, and a population to support with its long-held expectations of material investment, an environment like this can produce despair. People are talking about the death of the American dream, perhaps even the collapse of the American empire along the lines of Rome in days of old. Evidence is emerging by the day, as municipalities shut down street lamps and cut back on the hours at public schools. Governments that do not have access to the printing press are curbing everything.

Meanwhile, the state, as if it is trying to keep us hooked up to its failed machine, has its central bank trying to pump in more money and credit, with interest rates nearly zero. No matter how much this tactic has failed, our money masters still can't seem to face the fact that it is not working. There are very few takers these days for the phony-money loans. There is a widespread perception that inflation is on a hair trigger, so that if the expansion campaign ever really does stick, we could find ourselves in a ghastly disaster of hyperinflation.

The only really good trends exist in two worlds right now. In the digital world, we see growth and expansion and progress. This sector is not as heavily hooked up to manipulations of the Keynesian elite, and its development has proceeded at a clip even in a depression.

The other sector that shTwo years ago, the economy was seriously dragged down amidst an amazing banking crisis that spread throughout the world. The illusion created by loose credit — that housing could go up in price forever and we could enjoy permanent prosperity due to monetary expansion — was shattered by events. Reality had dawned. We found ourselves in the midst of an economic depression.

At that point in policy, we were at a fork in the road. The wise direction was to let the depression happen. Let the bad investments wash out of the system. Let housing prices fall. Let banks go broke. Let wages fall and permit the market to reallocate all resources from bubble projects to projects that make economic sense. That was the direction chosen by the Reagan administration in 1981, and by the Harding administration in 1921. The result in both cases was a short downturn followed by recovery.

The Bush administration, in a policy later followed by the Obama administration, instead attempted a tactic of dream incubation as portrayed in the recent film Inception. The idea was to inject artificial stimulus into the macroeconomic environment. There were random spending programs, massive buyouts of bad debt using phony money, gargantuan tax tricks, incentive programs for throwing good money after bad, and hiring strategies to weave illusions about how all is well.

In the movie, the goal of the dream incubation was to implant an idea into an unsuspecting subject's head that would cause him to act differently than he otherwise would have. In the real-life version of inception, the state tried to implant in all our heads the idea that there was no depression, no economic collapse, no housing crisis, no pushback on real-estate prices, and really no serious problem at all that the state cannot fix provided we are obedient subjects and do what we are told.

In the movie version, the attempted inception is on a time clock. The dream weavers can only keep the subject in a state of slumber so long. In the real-life version, things are much messier. The headlines have spoken about the impending recovery every day for all this time, and yet the evidence has never really been there. All the stimulus really did was forestall events a bit longer, but it hasn't prevented them.

Now, with the stock markets melting and the near-universal consensus that we are back in recession, everyone is awake. It is pretty clear that the inception did not take. The unemployment data look absolutely terrible. As the Wall Street Journal points out, only 59 percent of men age 20 and over have a full-time job (in the 1950s, that figure was 85 percent). Only 61 percent of all people over 20 have any kind of job now.

That's only the most conspicuous problem. No one really knows just how much further the real-estate market would fall under market-clearing conditions. The actual status of the car industry is anyone's guess. Business borrowing is going nowhere. Total industrial and commercial loans are actually at their lowest point of the whole depression. Payrolls generally are still sweeping downwards.

With an economy like ours, and a population to support with its long-held expectations of material investment, an environment like this can produce despair. People are talking about the death of the American dream, perhaps even the collapse of the American empire along the lines of Rome in days of old. Evidence is emerging by the day, as municipalities shut down street lamps and cut back on the hours at public schools. Governments that do not have access to the printing press are curbing everything.

Meanwhile, the state, as if it is trying to keep us hooked up to its failed machine, has its central bank trying to pump in more money and credit, with interest rates nearly zero. No matter how much this tactic has failed, our money masters still can't seem to face the fact that it is not working. There are very few takers these days for the phony-money loans. There is a widespread perception that inflation is on a hair trigger, so that if the expansion campaign ever really does stick, we could find ourselves in a ghastly disaster of hyperinflation.

The only really good trends exist in two worlds right now. In the digital world, we see growth and expansion and progress. This sector is not as heavily hooked up to manipulations of the Keynesian elite, and its development has proceeded at a clip even in a depression.

The other sector that shows great improvement is the intellectual sector. The Austrian School of economics is sweeping away Keynesian fallacies. The Keynesians took on this depression and they have lost the battle. That much is obvious to everyone but the most dedicated New York Times economics columnist. For anyone with an open mind, the economics of the Austrian School has become the prevailing mode of thinking for our time.

I wish Murray Rothbard were around to see this. Ludwig von Mises, F.A. Hayek, and Henry Hazlitt, too. Their ideas on economics were forged against great resistance from the mainstream. Today, they are becoming the new mainstream among anyone who is not engaged in lucid dreaming of prosperity, made possible by the printing press.

ows great improvement is the intellectual sector. The Austrian School of economics is sweeping away Keynesian fallacies. The Keynesians took on this depression and they have lost the battle. That much is obvious to everyone but the most dedicated New York Times economics columnist. For anyone with an open mind, the economics of the Austrian School has become the prevailing mode of thinking for our time.

I wish Murray Rothbard were around to see this. Ludwig von Mises, F.A. Hayek, and Henry Hazlitt, too. Their ideas on economics were forged against great resistance from the mainstream. Today, they are becoming the new mainstream among anyone who is not engaged in lucid dreaming of prosperity, made possible by the printing press.

Llewellyn H. Rockwell Jr. is chairman of the Ludwig von Mises Institute in Auburn, Alabama, editor of LewRockwell.com, and author of The Left, the Right, and the State. Send him mail. See Llewellyn H. Rockwell Jr.'s article archives.

© 2010 Copyright Ludwig von Mises - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History