From Bailouts to Bubbles in a Government-Centric America

The Dow Jones Industrial Average tumbled 119 points yesterday because, according to Bloomberg News, Ben Bernanke “avoided offering new growth plans.” The Dow continued plummeting another 300+ points today because President Obama is not doing enough to “create jobs” and the European Central Bank is not doing enough to prevent a Greek default.

All-in, the Dow has shed nearly 500 points because central banks and politicians are not doing enough to fix the stuff that’s broken. (The carnage in the European stock markets has been even more grisly). Perhaps the problem is exactly the opposite — central bankers and politicians are meddling so incessantly that the stuff that’s broken has no opportunity to repair itself.

It’s true that the Federal Reserve Chairman, throughout his speech in Minneapolis yesterday, refrained from promising a new barrage of monetary stimulus measures. But he did not say he would do nothing. To the contrary, he assured his audience, “the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus… The Federal Reserve will certainly do all they can to help restore high rates of growth and employment in a context of price stability.”

The stock market did not seem to believe him…or care. But the gold market had no doubts. With every word the Chairman uttered about “additional monetary stimulus,” the gold price ratcheted higher. By the end of the New York trading day, the gold price had jumped $53 dollars an ounce to $1,870.

The comatose stock market — like the lively gold market — can trace its roots to an economy that made a few wrong turns during the last few years. The lousy stock market and robust gold market can also trace their roots to governments that refuse to let failure fail.

Instead of letting failure fail, a succession of Federal Reserve Chairmen, Treasury Secretaries, Presidents and Congressmen have chosen to help failure succeed…or at least to not hurt very much. Every time the slightest hint of adversity drifted our way, out came the rescue packages and stimulus measures to make sure that no harm came to those who deserved it.

Thus the bailout of Long-Term Capital Management in 1998 begat the Nasdaq Bubble of 1999, which begat the Housing Bubble of 2005-6. Throughout this bubble era, the US economy seemed relatively robust. So almost no one bothered to worry about the long-term side-effects of failure-prevention. And even fewer folks seemed to worry about the expanding reach of the Federal government into almost every aspect American life.

The tragedy of September 11, 2001 opened the door to this sweeping federal intrusion. And that door remains open to this day. The tentacles of state-sponsored do-gooding and we-know-what’s-best-for-you regulation are blindly flailing about in every aspect of America life and latching on to whatever happens to pass within their reach.

This coming weekend, we Americans will solemnly recall the tragic events of September 11, 2001. Ten years have passed since that infamous day, but the agony of bereavement remains as acute as ever for those who lost loved ones in the Twin Towers. No pain can compare to the pain of losing someone who had made your life worth living. It is simply a tragedy…and there were 3,497 such tragedies on 9/11.

But the tragedies of 9/11 would not end that day. Instead, they would multiply. 9/11 triggered a national response that has produced a very long and lamentable list of tragedies, great and small.

Topping the list of tragedies, 4,683 US soldiers and 100,000-plus Afghani and Iraqi civilians have perished since the launch of “Operation Enduring Freedom” on October 7, 2001. Lesser tragedies would include the death of various American civil liberties, the creation of the Transportation Safety Administration and the rebranding of the “US Customs Service” as “US Customs and Border Protection.”

“Customs Service” sounds civilized and helpful, “Customs and Border Protection” sounds savage and paranoid. Perhaps the subtle name change means nothing at all, or perhaps it means everything about where we are heading as a nation.

US customs agents strut around the baggage claim area of international flights, packing loaded SIG-Sauer P229Rs on their hip. Really? Is this necessary? When was the last time you read about a shootout at baggage claim?

Couldn’t a friendly guy or gal, armed only with a smile, get the job done just as well…or better?

Not anymore, apparently. Not in post-9/11 America.

Eric Fry
for The Daily Reckoning