Policy Measures Are Like Climate Change: They Try to Skip Cycles

Excerpts from Dr. Enzio von Pfeil's December 5, 2008 appearance on Bloomberg Television Deutschland:

1. Global: Can US measures "save" American jobs and thus the market?

   • No.
   • The reason is that Washington is bailing out everyone who is vital to campaign finance - but not investigating them nor those whom they paid to lie.
   • This instills no confidence in investors.
2. China: How do you rate Wednesday's recovery measures introduced by Beijing?

   • They are a valiant attempt, but China's problems centre on governability. Beijing is not really in charge of its provinces.
   • As everywhere else, the key move is to give the policy banks RMB 100bn for lending. This lending is done under government guidelines. But, if this lending, as in America, is a glorified bail out, then don't expect any growth multipliers to be created.
   • Also, Beijing, yet again, is cutting reserve requirements and interest rates. But, if banks don't want to lend, they won't.
3. Japan: What about its policy moves?

   • It's the same story again in Japan: quantitative easing, iteration 17.
   • The fact is that banks don't want to lend.
4. So what is your overall assessment of policy measures?

   • You cannot "skip" a cycle. Winter, when there is an excess demand for money and thus an excess supply of goods, performs a vital function: it kills off that which cannot survive.
   • But as with climate change, this cycle is getting derailed by vote-hungry politicians who insist on bailing out that which should go under.
   • That just prolongs the misery and drags more of the healthy down with it.