01/06/10 Baltimore, Maryland – Carmen Reinhardt and Ken Rogoff say that “higher debt may stunt economic growth.” Hey, this is getting interesting. Maybe we’re not entirely alone here at The Daily Reckoning.
This is the second point we were going to make. For the most part, there is no recovery happening. And the part of the recovery that is actually happening is a fraud.
You can’t cure a problem of too much debt by borrowing more…even if the borrower is the federal government. When the private sector was over-borrowing, it was absorbing resources it couldn’t really afford. Plus, it was sending the wrong signal to producers, leading them to believe they had real customers on the other end of the line. What they had were people pretending to have more purchasing power than they really had. And when the credit got turned off, these customers disappeared, leaving the manufacturing sector with too much capacity and the retail sector with too much floor space to sell it.
Now, the government is doing the same thing – taking up resources it cannot really afford…and redirecting them to uses that it really can’t sustain. What’s more, this use creates a phony GDP… production for which there may or may not be any real demand. It looks like real GDP to the economists…after all, people are making money and spending it. But is anyone really any better off by building a piece of expensive machinery that gets shipped to Afghanistan at enormous cost and is later abandoned there? Or how about hiring another 1,000 bureaucrats to process health care paperwork? Is the world a better place as a result?
In the private economy, people are always making mistakes. People buy things they really don’t need with money they really don’t have. Then, they pay the price.
In the public economy, people are always making mistakes too. But since the person who makes the mistake is not the one who pays the price there is little incentive to ever recognize the mistake or to stop it. Just the opposite. In the public economy, people are rewarded for failure. The worse a situation becomes…the more money gets thrown towards it. Just look at Detroit!
Government mistakes become eternal…programs that can’t be stopped because too many jobs would be lost…useless community centers that can’t be closed…wars that go on forever…the bureau of this…the department of that…
More and more parasites…fewer and fewer honest workers. But parasites do not build honest prosperity. They just waste resources.
Driving home from work yesterday, we saw a billboard with a curious message:
“Birth defects? Call John McClure. Lawyer. Get what you deserve.”
Yes, even in the private sector – with generous help from the government court system – the parasites are everywhere… And always with the same message: get something from someone else…without working for it.
It all goes on…until it all goes broke.
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Ha ha. Lawyers are pathetic and get paid squat. Most owe 150 K+ in student loans backed by Uncle Sam. Read my blog bigdebtsmalllaw.wordpress.com for more info on the farce of legal education
Stimulus grows the economy. Jobs are the final component of stimulus. They, we are seeing, are now starting to grow. I bet no one reading here ever would have thought we’d see positive job growth so quickly.
That’s what stimulus does. It creates jobs. When people have jobs, they consume. That sparks more demand. Housing prices stabilize and begin to turn upward, as we’re seeing in CA now.
Whine all you want but it’s working beautifully right now and as I’ve said in the past, Bernanke is a hero.
Just like to add here, I’m a little skeptical of the buy Japanese stocks advice…just because the US market will be depressed another ten years, does that mean the Jap market will necessarily rise? I would recommend Lat. America over Japan, anyway.
lawiis4losers:
Lawyers produced nothing.They are takers.
They lead people to believe there is a financial redress for all their problems.Spill coffee in your lap, you’re not clumsy. It’s the coffee maker fault.
Not smart enough to work on Wall Street, become a lawyer. Not smart enough to become an engineer, become a lawyer. Not smart enough to become a doctor, become a lawyer.
Stop whining, use your law degree and sue you law school. They had a fiduciary duty
to inform you it was most likely you would not make living wage or repay your debt.
@lawisforlosers
Your blog is a scream! Thanks for the laughs
Would “anyone really (be) better off” if we prevent more buildings like those of the World Trade Center from being destroyed in another Afghanistan-sponsored attack?
I’d say, YES. It looks as though Mr. Bonner is not anyone to rely upon with regard to the defense of the Nation.
Here we go, complaining about lawyers is just showing your jealosy. They are just a natural consequence of more laws and regulations. Or do you prefer the greenspan no regulation cowboy capitialism model? If so then stop complaining that china leads the world in manufacturing and in counterfieting.
The… GREENSPAN…NO…REGULATION…CAPITAL…MODEL…???
Sir, have the nice men in the white coats check the dosage on your pharmaceuticals- there is nothing in the USSA which is unregulated.
“Stimulus grows the economy. Jobs are the final component of stimulus. They, we are seeing, are now starting to grow. I bet no one reading here ever would have thought we’d see positive job growth so quickly.”
You’re right. What job growth?
I forget the source, but I read somewhere that corporate America spends upwards of three times as much for lawyers as they do for engineers. Maybe I should go to law school…
And Bill, I’m still waiting on you to present me a viable, alternative employment option. If you’re going to criticize government “parasites,” then at least offer us an alternative.
Shawn:
Go figure out your own alternative like the rest of us have. The Government Bubble will bust too.
I don’t think Bill is Dear Abby, Shawn.
Do you have any self employed acquaintances? Ask them how they get by.
Maybe they’ll even hire you.
Is O’Connor really stupid enough to think Boeing’s profits have anything to do with the security of the nation?
Maybe closing our mouths and getting off of our knees from before Israel will prevent attacks.
The scam in Afghanistan has been going for 8+ years and we just had another (of multiple) terror attack, which luckily failed, in the time since. So that’s obviously not working.
The Federal goobermint has killed more civilians IN THE USA and cost us more money than al qaeda does even in their wettest of dreams.
Perhaps your model, O’Connor, of incessant worship of tax-grazers-in-camouflage and unquestioning belief that “safety” measures are effective doesn’t protect the nation very well either.
Shawn – what Bill encourages (and you would know this if you read his essays on a daily basis) is for people to readjust to the new “normal” by readjusting lifestyles, extended families moving in together etc. In the mean time let the depression do its work by tearing down failing businesses so that new profitable ones can take their place.
If the government could just “create” jobs for everyone AND be prosperous then why did communism in the Soviet Union fail?
If you want to read about fairy tales of government created job “growth” go read Krugman’s blog.
Bill alludes here to the real economy not the money economy.
In the money economy we borrowed and consumed more than we could afford.
But in the real economy did the world as a whole really produce more than it could afford?
If we could produce a certain amount world-wode in 2007, why should that amount not continue to rise?
The parasite economy is on the rise and why shouldn’t it be. Probably the only stable jobs in the country at present, at least for awhile anyway. AR is hiring more and more police officers without any significant rise in crime. Makes no sense, but why should it since we are living in an alternate universe and have been for a long, long time. The cops are “productive” at least according to their superiors since they pay for themselves with increases in traffic citations and forfeitures and the like. As BB likes to say, “it would be funny if it weren’t so tragic.”
Some very interesting information here, and a very interesting blog too.
I will have to bookmark this and stop by more often.
thanks.