Where’s All the Money?

By the time you’re finished reading this, the country of Greece may default. Some analysts are predicting the likelihood of that occurring is 98%. Who will follow?

Italy seems likely. Many say the Euro is doomed as a currency---and Germany is livid as much of the debt of these and other floundering nations are held by its banks.

The ripple effect of these collapses on OUR already-weak economy is certain, although the magnitude can only be guessed at.

Debt, debt, debt.

Low interest rates for mortgages, but nobody is buying houses. Institutions like the Bank Of America in trouble.

If there is a way out, it would appear that most countries would be on board for a complete “re-set” of the global economy. The problems we are facing cannot be blamed on the current Administration—or the last ten. Instead, I suppose they are ALL to blame.

But then again, I have no idea what I’m talking about.

Maybe it’s ignorance or maybe it’s just confusion. The adage that if you ask ten economists the same question, you’ll get ten different answers has truth to it.

Unlike chemistry, physics and math, there seem to be no absolutes in economics.

For conservatives, removing government spending and turning the American capitalist free enterprise system loose is the only way to prosperity. For liberals, government oversight and regulation is necessary—and a safety net for society’s most vulnerable is equally necessary. Unchecked capalism, with all of its derivatives and sub-prime loans was partof the problem. The needed oversight and benefit programs like Medicaid and Social Secuirty all costs dough--YOUR dough.

Perhaps most frightening is the thought that one person—in this case, the embattled Federal Reserve Chairman Ben Bernanke---may be sending us down the path of destruction. A Bush appointee, he was retained by President Obama and has manipulated the money supply to keep inflation down and try to spur growth. Some say it’s exactly the right path—and others say he is dead wrong.

So.....who is right?

Check out this vintage program featuring noted economist Milton Friedman on the Great Depression. Looks like it was produced in the late 70’s,when, if I’m not mistaken, runaway inflation was the chief economic woe. It is three parts in length, but well worth the time. Understanding the SEEMINGLY minor actions of a few individuals and banks that led to a cascading effect in the 30’s is downright scary. Have we learned anything since?

Understanding the Great Depression (if you accept the explanation of Friedman) can give us insight on what is happening now. His view of the gold standard—and its role in the worsening of conditions in the early 1930’s—makes you take pause as well.

There are those stridently advocating a return to the gold standard---the act of tying our paper money to a precious metal. Some assert that the U.S. Government’s unbridled and continual printing of money will only last for as long as the dollar remains the world’s dominant reserve currency—and those days are numbered. Then, inflation will be extraordinary, the literal bushel-baskets of dollars needed to buy a loaf of bread.

This video may be over 30 years old, but are there lessons here? Watch this segment—and then click on Parts 2 & 3:




http://www.youtube.com/watch?v=_svuPVKiwjs&feature=related


I’d love to know your thoughts. The idea that Keynesian economics is dead may be true, but Friedman’s last thoughts on that video are centered on how disciples of his may have taken things a bit too far.

Can there be another global Bretton Woods conference? Can we avoid the domino effect of crashing currencies (and economies) WITHOUT taking decisive action?

All of the band-aids being applied to stem the bleeding don’t appear to be healing the wound.


If you’d like this blog in your box daily, just let me know: tim.moore@citcomm.com