The Next Time a Top Economist Predicts Disaster…

Shortly before Obama took office, many American banks, including the largest ones, were given a huge amount of money by the Federal government (“bailed out”). Why? Because Secretary of the Treasury Henry Paulson, Chairman of the Federal Reserve Ben Bernanke and other economists (not necessarily independent of Paulson and Bernanke) predicted a second Great Depression if they weren’t. I didn’t believe Paulson et al. — their track records of prediction were terrible. They hadn’t foreseen the crisis. Why should I think they knew how to fix it? I believed their predictions of disaster were too confident.

At the time I didn’t know this bit of history:

The blood-curdling threats [now] being issued by Eurocrats should sound familiar to British readers. We went through precisely the same experience 20 years ago, when we were stuck with an over-valued exchange rate in the Exchange Rate Mechanism.

As in Greece, our leaders – all the main parties, the CBI, the TUC, the Bank of England – assured us that leaving the ERM would be disastrous. On September 11, 1992, John Major solemnly told us that withdrawal was ‘the soft option, the inflationary option, the devaluer’s option, a betrayal of our country’s future’.

Four days later, we left the system, and our recovery began immediately. Inflation, interest rates and unemployment started falling, and we enjoyed 15 years of unbroken growth

Those who don’t know the past are doomed to over-trust experts.

2 Responses to “The Next Time a Top Economist Predicts Disaster…”

  1. Anand Srivastava Says:

    Actually if they did not bail out the banks very rich people would have lost a lot of money. Yeah the middle class gets the shaft either way. But this way they lose more than they would have lost without the bail.

    The largest banks would have crashed, wouldn’t that cause a depression.

    Bailing them out just postponed the problem. The USG is spending too much, and they have been spending a lot for a long time. China has been supporting their spending by mopping up all that excess USDs. Now that China is going into deficit, ie not mopping excess USDs anymore, how will USG pay for its deficit.

    Will some other entity mop up the excess? Or will the excess USDs be flooding the local market trying to prop up USGs lifestyle. Where will those excess USDs go? Will they cause inflation?

    If you look at the US’s Trade Deficit, if it cannot be reduced very soon, its a ticking bomb. It will explode and it will take down USD with it. Will USG reduce its expenditure?

    The interesting thing is that currently the Trade Deficit is completely due to the Budget Deficit, ie created by USG. When Inflation arrives, USG will print more money to continue to have the same budget in real terms, devaluing USDs further.

    Its not for fun that BRICS countries are making agreements for using local currencies for trade. And China and Russia are doing it with as many countries as possible. The end of the IMF system is near, you can chose to ignore it.

  2. Lothario Says:

    You should research Austrian Economics from the likes of Ludwig Von Mises, Henry Hazlitt, and Murray Rothbard. The school of economic thought has an incredible track record of prediction, and explanation of all economic events based on praxeology – the study of human action. It was supplanted by the current and quite opposite Keynesian Economic method of thinking without ever being disproved for one very specific reason – Austrian Economics posits that the key to society wide wealth creation is savings, which means everything the government does from taxation to bailouts is extremely deleterious to the wealth of a nation and in direct conflict to the Austrian School of thinking. The Keynesian School of thinking teaches that spending is the key to generating society wide wealth creation, and with this thinking, the government is given the green light to tax, spend, bailout, or whatever else they can do to increase private or public spending. For this reason, the curriculum of government schools have adopted the Keynesian method of thinking. The only problem is that the Keynesian School of thought has failed miserably, over and over again, both in predictions and results, and yet the government maintains the tagline, “well we stopped it from getting even worse,” and no one is the wiser because no one is taught Austrian Economics.

    An essay written by Murray Rothbard in the 60′s I believe, titled ‘Depressions, Their Cause and Cure,” explains exactly why our current 2008 recession occurred, and why not only did the government’s not actually fix any of the underlying problems, but in fact has set the stage for a cataclysmic depression that must result now to purge the system of the endless malinvestment that resulted from manipulated, non-market established interest rates, etc.

    Brace yourself ^^