the social scientist.

It's Only the End of the Beginning

This is not about whether you were caught leaning the wrong way (I'm in yuan, and bought and sold an index ETF for a nice gain thursday, but missed most of the rally.) And it's not about whether the Republicans or Democrats caused the problem. It's about the fact that Bernanke and Paulsen (Bush got lucky by putting these guys in charge) are both very conscious of the fact that they are on the cusp of a depression, the big one. Bernanke in particular has studied the Great Depression, and come to the conclusion that it was the credit crunch that caused it. So they have to relieve the credit crunch. It wasn't addressed in the 1930's. Will their actions work this time? We/they don't know, because it hasn't been done before. If they succeed, we still don't know if there would have been a depression without their actions. They want to liquefy the economy without taking over these financial institutions. They've already acquired three, and don't want anymore. So this is not about ideology (socialism vs capitalism) either. The risk of inflation and a lower a dollar don't matter. In fact, if the dollar drops and we have inflation that will be an indicator of their success in preventing depression. And inflation will diminish the real debt that the government incurs. Inflation is much better than deflation.

Will they succeed? They might succeed in turning a depression into a protracted recession. Prospects for growth in this economy are dim, because those that need to borrow (and I'm talking consumers) can't afford to or won't qualify, even if there is money to borrow. Even if consumption can be increased, then resource costs (oil) will rise and kill it. In 3 years time the boomers will start retiring, reducing consumption, and withdrawing money from equities and from their retirement accounts (I retired when I was 54 and have been doing exactly that). It's going to be tough to make unearned money from here on people.

So quit bitching about the morality or ideological purity of the government's actions. Bernanke and Paulson are much smarter than us. If they avert depression people will give them hell. If they fail people will give them hell. But there is no doubt in my mind that they are doing their best, and their strategy has the best chance of succeeding without nationalizing the financial institutions of this country. And again, inflation would be a good thing.

I've always been a Democrat, by the way. If you want to cast blame, blame Reagan and his Keynesian economics, and blame Greenspan for compounding the problem. Remember when he told Congress it would be ok to could cut taxes?