Reckoning today from Baltimore, Maryland…
A report in the Telegraph tells us that 172 leading economists have signed an open letter saying that ‘Angela Merkel is wrong.’
Which reminds us of the newspaper advertisements in the early ’80s, in which hundreds of economists protested Paul Volcker’s attempts to rein in inflation.
If you have a flat tire, you do not want to ask an economist to fix it for you. One…on his own…might be able to do the job, assuming there are no bars nearby to tempt him away from his labors. Put two or more on the case, and you will never get back on the road. Instead, they will argue among themselves about what caused the tire deflation…theorize about how to reflate the tire…and generally make the tire flatter.
And if you look carefully, you’ll find several of them dropping nails on the road.
So, anytime you get a group of economists signing a petition of any sort you may assume that it is a threat to the economy, the republic, or to all human life on the planet earth.
In the event, however, these 172 economists may be the exceptions. Why? Because they are complaining that Ms. Merkel is giving away the store:
The economists, who included Hans-Werner Sinn, head of Ifo, the influential think tank, argued that the German chancellor had taken a dangerous step towards a “banking union”.
The agreement by leaders at the last summit to allow the European Financial Stability Facility (EFSF) and European Stability Mechanism (ESM) to fund struggling banks directly — rather than via governments — was seen as a key advance.
Spanish banks, which have dragged the eurozone’s fourth-biggest economy to the brink, are expected to tap the bail-out funds for as much as €100bn.
But in the letter, published by the German daily, Frankfurter Allgemeine Zeitung, the economists said: “Banks’ debts are nearly three times higher than government debts…the taxpayers, retirees and savers in the so-far solid countries of Europe must not be made liable for backing these debts, particularly since gigantic losses are foreseeable from financing the southern countries’ inflationary economic bubbles.”
The other reason these 172 economists may be exceptional is that they are not ‘Anglo-Saxon.’
We recall, with pleasure, our old friend Dr. Kurt Richebächer:
“Ya…I don’t know what has gone wrong with the Anglo-Saxons,” he would say, tapping his silver-handled cane on the floor. “They seem to have gone crazy. Everyone one of them. They seem to have forgotten everything we learned about economics — about the need for stable currencies, the importance of capital formation, and the folly of central planning. And now they are ready to believe anything at all.”
When Kurt died, several years ago, we inherited his favorite chair. It is a dark leather chair, with a curved seat, shaped like the trans-Atlantic deck chairs on ocean liners. Once you get in, it is hard to get out.
We sat in it last weekend and tried to channel Kurt. What would he have made of all this — the crash…the bailouts…the QEs…the Twists…? We wondered…we drank… And then, from nowhere, we heard his Teutonic voice.
Ya…it’s just like I thought it would be. They are doing just what I thought they would do. And it is unbelievable. It is as if they knew nothing…as if they had never opened a real economics book or thought for two minutes about how an economy actually works.
That’s the trouble with you Anglo-Saxons. Your brains have been taken over by this Keynesian claptrap. It was claptrap…nonsense…nonsense on stilts…when it came out in the ’30s. It is still nonsense. And yet, you Anglo-Saxons go along with it.
“Uh…Kurt,” we protested. We don’t like to correct a shade, but we thought we should set the record straight: “We’re not Anglo- Saxon…we’re Irish.”
Okay…I did not mean you personally. I mean the English-speaking world. The world of English-speaking economists. They are all charlatans. Imposters. Mountebanks.
Don’t they see that you can’t really cure a debt deflation by adding more debt? Of course, they do. But admitting it would mean throwing all their reputations…all their Nobel Prizes…and all their academic and government positions into the toilet. And that Ben Bernanke! He has the nerve to call himself an economist! He is nothing more than a con-artist…like the people running shell-games or flim-flam hustles in amusement parks.
It is so obvious what is wrong. The solution too is so obvious. Why can’t they see it? There is too much debt. And too many assets…and too many businesses…and too many careers and family budgets now depend on this bad debt. It does no good to lend the debtor more money and pretend the debt is good. There is nothing to be done but to get rid of it…the sooner the better. That’s what bear markets and corrections are supposed to do. So let them happen. People go broke. But so what? They’re already broke. They just don’t know it.
And then, if you want a real recovery, you have to put more real money in the hands of the people who can make it happen — families, entrepreneurs and businesspeople. Not the government! Good Lord, the government is a wealth consumer, not a wealth producer. If you want a genuine recovery…and not a phony, government-produced recovery….you have to let people keep their money so they can pay their bills, save, invest, and spend — whatever they want to do.
You don’t continue to take their money away…and waste it on government boondoggles. The worst thing you can do is to raise taxes…and let the government spend more money. Then you are poorer. Isn’t that obvious? You either create wealth…by capital formation, investment and production. Or you consume it. The government is always a consumer, not a producer.
What you should do is cut taxes…and cut government spending — including all the bailouts, contracts, and subsidies to private industry — even more. Then, you have balanced government budgets and more money in private hands. That’s the real solution. But none of you Anglo-Saxon economists will even mention it… Instead, you have your phony ‘growth’ — which means more government spending. And your phony ‘austerity,’ which means tax increase and less private spending.
Ya, it’s unbelievable.
for The Daily Reckoning Australia
From the Archives…
How to Survive Inside China’s Financial System
06-07-2012 – Greg Canavan
China’s Economic Policy of Denial
05-07-2012 – Greg Canavan
The Question China Has To Answer Fast to Save Its Economy
04-07-2012 – Callum Newman
How Investing in Commodities Can Prevent a Personal Financial Crisis
03-07-2012 – Dan Denning
Wouldn’t it Be Nice to Not Lose Money on the Australian Share Market?
02-07-2012 – Dan Denning