Tuesday, February 17, 2009


The world economy is bad. Know why? Here are some popular guesses:

Bad mortgages?

Conflict of interest of rating agencies?


Structured Finance?

Collateralized Debt Obligations? Whatever they are?

E-Z Credit?

House flippers?

Alan Greenspan for not reigning in credit availability?

Sub-prime credit?

Barney Frank for pushing easy mortgage credit?

Oil speculators?

Phil Gramm for pushing repeal of Glass-Steagal?

Well, it beats the hell out of me. But it seems that everyone agrees we have a big problem.

Asking what the solution is gets a lot of talk and a lot of plans, but not any real explanation of why The System can't absorb these credit failures without completely breaking down. It's all about confidence, say our experts. Confidence? What happened to rationality? Remember the rationality of the markets? Just last year our good Republican leaders were telling us that markets were soooo rational that we should, as a society, allow The Market to determine healthcare and education policies.

At least we are having a better day that Sir Allen Stanford whose stock appears to be falling in the market of public opinion.

Among other things I don't understand is why gold is so grand these days. Why are yellow rocks that we can dig out of the ground any better money than papers with Presidents? Well, many people believe in gold (idolatry!) and think that the yellow brick road to the gold standard is the best way back to confidence.

But I doubt it. Confidence is just a stepping stone to what we really need, which is spending! And the best way to get people to spend today instead of save is good old fashioned inflation. Inflation also has the benefit of being selective, which allows today's inflated markets, like housing, to stay flat while other prices in the consumer's basket rise.

So let's go back to those pre-Volcker days and pump up the money supply. Size matters and we need a big fat M1 for a de facto devaluation. I'm telling you, it's the cure.