The View From 1776
Sunday, April 05, 2009
New York Times Sums Up the Recession
In a single sentence, the New York Times, of all sources, succinctly states what went wrong.
During a decade of easy credit and loose spending, American businesses built too many cars, houses, stores and factories.
The housing bubble, the subprime mortgage meltdown, and the collapse of financial institutions did not cause our problems. They are products of the a money supply over-expanded by the Federal Reserve to fund Federal deficit spending.
Nor was President Clinton’s banking deregulation legislation a primary cause.
When fiat money, far in excess of real savings (and therefore real purchasing power) is floating the economy, interest rates drop far below rates based on real supply and demand, and many ill-advised purchases and investments are made. Human nature leads people to excess when an abundance of money is thrust upon them, from banks anxious to employ their mounting lendable funds and freely giving out credit cards and mortgages, from auto companies offering 0% interest on car purchases, etc.
All of that consumer purchasing power, built upon fictitious fiat money rather than real savings, induces businesses to gear up to meet the demand. Our current recession, as with all recessions, is the necessary economic phase in which excess inventories and unwise business investments are liquidated.
The bottom line is that government intervention in the free market always has bad effects. The only question is how bad.