How To Combat A Depression

The following list is taken from Murray N. Rothbard's book "America's Great Depression". I'm in the middle of reading this and find the parallels simple amazing.

• Prevent or delay liquidation. Lend money to shaky businesses, call on banks to lend further, etc.
  

Only one point in and our government has already broken a rule. The most recent example being the $300 bln bail out to Citigroup, which has for years been an unsustainable beast not worthy of being saved. AIG of course is another great example. Not to mention Paulson's and congress' continuous calls for banks to lend more, sheesh.

• Inflate further. Further inflation blocks the necessary fall in prices, thus delaying adjustment and prolonging depression. Further credit expansion creates more malinvestments, in their turn, will have to be liquidated in some later depression. A government "easy money" policy prevents the market's return to the necessary higher interest rates.

Strike two! The race to the global ZIRP is on as central banks around the world slash interest rates. Note that Greenspan lowered rates much below what market rates would have been in 2001 and held them there for too long, sparking a big wave of malinvestment at the expense of avoiding a meaningful recession then.

• Keep wage rates up. Artificial maintenence of wage rates in a depression insures permenent mass unemployment, keeping the same rate of money wages means that real wage rates have been pushed higher. In the face of falling business demand, this aggravates the unemployment problem.
  

Damn, strike three. The best example of this is the US automakers, whose UAW has crippled its competitive ability and remains to do so. Just wait and see how many lay offs are still to come with the US automakers.

• Keep prices up. Keeping prices above their free-market levels will create unsalable surpluses, and prevent a return to prosperity.

Housing prices continue in free-fall, now down 17.4% YoY. This is good and notice the speed of how fast home prices are falling, they must continue to do so. However, the Fed is now going to buy mortgages directly, which is counterproductive to home prices falling to where they need to fall.

• Stimulate consumption and discourage saving. We have seen that more saving and less consumption would speed recovery; more consumption and less saving aggravate the shortage of saved-capital even further. Government can encourage consumption by "food stamp plans" and relief payments. It can discourage savings and investment by higher taxes, particularly on the wealthy and on corporations and estates. As a matter of fact, any increase of taxes and government spending will discourage saving and investment and stimulate consumption, since government spending is all consumption. Some of the private funds would have been saved and invested; all of the government funds are consumed. Any increase in the relative size of government in the economy, therefore, shifts the societal consumption-investment ratio in favor of consumption, and prolongs depression.

Double Damn! 1) a $300 billion stimulus plan has already been wasted and 2) now Obama wants to authorize a projected $700 billion bail out and 3) wants to raise capital gains and dividend taxes and income taxes on earners above $250,000. We're out of strikes.

• Subsidize unemployment. Any subsidization of unemployment will prolong unemployment indefinately, and delay the shift of workers to the fields where jobs are available.

Just last week Bush signed a bill extending unemployment insurance for 7 more weeks, and 20 weeks in states with the highest unemployment rates.

The results are clear, our government is doing everything they possibly can to prolong this recession/depression for as long as humanly possibly by ignoring laissez-faire principles.

Printing press meter: $8.5 trillion!!!!!!!!!!!