Objectivism & Economics, Part 11

Objectivism and Austrian Economics: Salsman’s Revisionism. In the recommended bibliography of Capitalism: The Unknown Ideal, one finds more than a dozen books from economists associated with the so-called Austrian school, included eight works by Ludwig von Mises, whom Rand regarded as a “great economist” and whose works she recommended for dispelling the myth that ‘“laissez-faire’ capitalism is the cause of depressions.” Despite Rand’s endorsement of von Mises, Objectivism, under the influence of M. Northrup Buechner and Richard Salsman, has begun to distance itself from Austrian economics. Salsman has, in particular, focused his animus upon Austrian business cycle theory.

Another common claim about stock-price gains in the 1920s is that they were made possible by Federal Reserve “inflation.” This view is held by many supposed free-market economists—monetarists and Austrians—and is certainly a tempting thesis for those who oppose central banking. But was Alan Greenspan correct when he wrote [in the Rand approved CUI], in the mid-1960s, that the late-1920s represented a “fantastic speculative boom” that was triggered by “excess credit” pumped out by the Fed—credit which then allegedly “spilled over into the stock market”? This view of the late-1920s stock-price rise could not be more wrong.

Why is Greenspan and the Austrians wrong? Salsman explains:

In the Austrian theory of business cycles, it is easy to detect a lack of appreciation for the intelligence, wisdom and foresight of entrepreneurs, businessmen and investors. Austrian economists presume producers are easily fooled by government manipulations of money, credit, and the economy—especially by the alleged phenomenon of “artificially” low interest rates. They claim producers are conned into undertaking projects that later will turn out badly and require liquidation. In fact, producers are not fooled; they know, even if implicitly, which government policies are conducive to wealth creation and which are destructive. That is, they know when it’s worth producing and when it’s only worth shrugging. And when they shrug and production grinds to a halt, it does not grind to a halt because they had previously produced.

When the Austrian view of the business cycle is coupled with a malevolent-universe premise—with the view that in the economy or stock market “what goes up must come down,” that “all good things must come to an end,” that no long ride of unbroken prosperity can ever persist without taking on irrationally exuberant hitchhikers—the combination can be catastrophic. For it can bring even purported champions of capitalism to openly endorse destructive policies such as Federal Reserve interest-rate hikes, curbs on the stock exchange, and more burdensome government regulations.

I will discuss Salsman’s theory of the entrepreneur in my next economics post. I merely here wish to note the obvious ideological origins of Salsman’s ideas. Elsewhere on the web, Salsman has given 12 reasons why he disagrees with “contemporary” Austrian economics. I won’t list all the twelve reasons, since all but two of his reasons are either based on a malicious interpretation of Austrian doctrines or an inability to understand even the most basic economic concepts. But the last reason he lists is the most glaring and fatuous of all and gives the whole game away. Salsman complains of the “animosity (and/or indifference) towards Ayn Rand and Objectivism” manifested by Austrian economists. In other words, Salsman resents the failure of Austrian economists to bend the knee at the altar of Rand. But is that any reason to disagree with someone—that they don’t worship your own private idols? Does Salsman refuse to get medical attention from any doctor who is indifferent (or who entertains animosity) towards Rand? Does he disagree with any specialist who, even though Rand herself recommended him, is not an enthusiastic admirer of Objectivist (or approved of by ARI)? Here we see, quite plainly, the poisonous fruits of ideology—that is, of making subservience to a system of ideas more important than any other consideration, including every consideration of truth, justice, fact and science.

Objectivism & Economics, Part 10

The Fed. According to Jerome Tuccille, Alan Greenspan once testified in front of congressional committee that if it were up to him (i.e., Greenspan), the Fed would be abolished. But Greenspan quickly assured the committee that none of his colleagues agreed with him and nothing along those lines would ever be done. In taking this position, Greenspan was merely echoing a view that had long become gospel among his former associates in the Objectivist movement. “ [W]e need to end the government's ability to set interest rates and create inflationary booms—and their inevitable busts—by phasing out the Federal Reserve and allowing the United States to return to a gold standard,” writes the current President of ARI along with coauthor Don Watkins.

Now the real objection that Yaron Brook and other Objectivists have to the Fed is that it is associated with the government at all. It is the federal government’s bank run by the government’s appointees. The complaints about the government setting interest rates and creating inflationary booms and busts is merely an additional rationalization thrown in to strengthen their case. As such, it betrays a poor grasp of the relevant economic and political realities.

In denouncing the Fed, Objectivists tend to be ruled, not by intelligence, but by mere ideological pretension. Their identification of the Fed with “the government” constitutes their first error. It is important in such circumstance to look beyond words and other mere appearances and get at the actual realities. When Objectivists equate the Fed with the federal government, what can they possibly mean? What part of the government is the Fed beholden to? To the executive? To the legislature? To the judiciary? The answer is: the Fed is not beholden to any single authority in the Federal government. The Fed is an independent, quasi-private institution. The original legislation for the Fed intended for that institution to be entirely private. But this aroused fierce political opposition and so a compromised was arranged. Thus the Fed became a quasi-private institution that enjoys real independence from the federal government. The executive branch nominates those who control the Fed, but the nominations are spaced out in such a way that no single administration could ever gain control of the Fed by nominating their own people. As a matter of fact, the whole culture of the nomination process tends to favor choices approved of by Wall Street. Indeed, the Fed is far more likely to be pressured or influenced by Wall Street than by the federal government.

So if the Fed is not the creature of the federal government that it’s painted to be, what, then, is the objection to it? Objectivists might complain about the legal privileges enjoyed by the Fed. But it is not clear that getting rid of these privileges would get rid of the underlying problem. Even if the government had no official de jure bank, it would inevitably have a de facto bank that would enjoy many of the same privileges of a central bank.

Abolishing the Fed would not abolish the government’s need for banking. The government would merely have to do business with a private bank. Yet whichever bank the government decided to do business with would effectively become a central bank in all but name. It would, of course, have no legal privileges; but then again, it wouldn’t need them. The fact of doing the government's banking business would endow it with de facto privileges.

First of all, such a bank, holding, as it would, all the government’s wealth, could not be allowed to fail. No government would ever allow such a thing to occur. But once a bank find itself in a position where it won’t be allowed to fail, many of the other privileges of legally established central banks inevitably follow. Because it won’t be allowed to fail, the bank would become the lender of last resort. This would allow it to set a de facto equivalent of the discount rate, just as the Fed does today.

One privilege such a private bank would not enjoy is the ability to engage in Open Market Operations. While some laissez-faire ultras might regard this as positive benefit, it is actually nothing of the sort. The Fed’s ability to engage in Open Market Operations is its one redeeming characteristic. For even if no Fed existed, Open Market Operations would still take place; only, instead of being conducted by an independent body, they would be conducted by the Treasury, under direct supervision by the President himself. Anyone who believes that would constitute an improvement suffers from an egregious naivete. The one advantage that the Fed brings to the table is that it prevents the executive or the legislature from having direct control over Open Market Operations. How important is that? Very important. It is through Open Market Operations that monetary policy is conducted. Any control that the Fed has over real interest rates and inflation is almost entirely exercised by buying or selling government securities to banks. Now it is important to understand that Open Market Operations are not a consequence of the Federal Reserve. Any militarily powerful and solvent government would be able to conduct monetary policy, by virtue of the fact that is has ample revenues. All that money concentrated in one institution would give that institution an inordinate influence over the banking system, regardless of any “legal” prerogatives it may or may not enjoy. Objectivists are naive about this because they are more concerned with defending their ideological convictions than they are with understanding the sobering truths of government finance.

Objectivism & Economics, Part 8

Greenspan’s primary error. Despite the howls of condemnation hurled against Greenspan by the Objectivist rabble, which hsa been fervently trying to convince us that the former Fed chairman is some kind of Atila-like, arch-collectivist who long ago abandoned the free market, the most famous ex-Objectivist in the world is no such anti-market ogre. His attempts to “advance free-market capitalism as an insider” did not fail because of his straying from the Objectivist straight and narrow. Indeed, the Objectivist influence on Greenspan, if anything, remained a stumbling block, because it prevented him from fully appreciating the organic view of markets advanced by thinkers like Burke and Hayek (more on this in later posts). But even the Objectivist influence is secondary in importance to another, more serious problem. I have in mind Greenspan’s strong attachment to mathematics and statistics. “My primary obsession was math,” Greenspan admits in his biography. In 1951, Greenspan signed up for a course in mathematical statistics, and was immediately hooked: 



Today this discipline is called econometrics, but then the field was just an assemblage of general concepts, too new to have a textbook or even a name…. I immediately saw the power of these new tools: if the economy could be accurately modeled using empirical facts and math, then large-scale forecasts could be derived methodically, without the quasi-scientific intuition employed by so many economic forecasters. I imagined how the could be put to work. Most important, at age twenty-five I’d found a growing field in which I could excel.

Although Greenspan would later discover the limitations of forecasts based on econometric models, he would use his mastery of economic statistics to develop a successful private business (i.e., providing useful economic statistics to businesses), and later to establish himself as the most important economist in the Republican Party (which is why Reagan appointed him as Fed Chairman in 1987). So mathematics and statistics were the making of Greenspan. In places where such tools are useful and necessary, Greenspan was a consummate master. The problem is, mathematical statistics is a mere tool for acquiring economic facts: it does not, in and of itself, provide any understanding of those facts. Indeed, it predisposes one against understanding them by placing too much emphasis on calculation and technique rather than on understanding and “quasi-scientific” intuition. It causes economists to unwittingly regard the economy as a mechanism instead of a complex outgrowth of cooperating and clashing human motivations. Regarding the economy in this manner predisposes free-market orientated economists to accepting the errors of monetarism, particularly two beliefs that have governed the Fed’s monetary policy during Greenspan’s reign: (1) that the role of the Fed is to maintain price stability in consumer goods; and (2) that any crisis in liquidity (i.e. deflation) can be solved by merely increasing the monetary supply.

Greenspan and his colleagues at the Fed, by holding fast to these principles, failed to understand what was happening in the nineties. Specifically, they failed to appreciate how the deregulation of the eighties, by encouraging dangerous experiments in high finance, particularly in derivatives and debt leverage, had resulted in a massive credit bubble that had swollen asset markets to a very dangerous extent. Greenspan appears to have had an inkling that something was wrong in 1997 when he made his famous “irrational exuberance” remark. But he was either unwilling or unable to do anything about it. He would later claim that bubbles were impossible to identify until they burst—an obvious testimony to the poverty of Greenspan’s economic understanding.

What could Greenspan have done differently? What was his major policy error? His major error was not to have recognized the credit bubble in the nineties, when it could have been safely deflated. To be sure, he may not have been able to do anything about it: after all, the Fed chairman is not a dictator, but merely one vote among seven colleagues. Moreover, due to the increasing ability of non-banks to expand credit, the Fed was losing control of the money supply in any case.

Curiously, Objectivists like Richard Salsman have criticized Greenspan for raising interest rates and tightening monetary policy in 2000. “ Last week, for example, Greenspan told Congress that he'll keep raising interest rates,” Salsman wrote in March of 2000. “In response, the stock market plunged nearly 3%—meaning that about $400 billion of wealth was destroyed. We have only Greenspan to blame for the drop, because there's nothing wrong with the American economy.”

This is, of course, palpable nonsense, and demonstrates that Salsman’s understanding of economic reality is, if anything, even worse than Greenspan’s. As I wrote at the same time (in March of 2000):

The stock market is vastly over-inflated. It has risen by a factor of the more the six in the last twelve and a half years. Now what economic fact could possibly justify so immense an increase? No amount of rise in productivity, Gross Domestic Product(GDP), research and development, corporate profits, or stock dividends can possibly justify a six-fold increase in the stocks. To believe that the current stock market reflects the genuine economic realities of the present economic situation is to demonstrate a blindness equalled only by investors during the other great speculative euphorias in history.

Now how did I know, in March of 2000, that the Stock Market was grossly over-inflated? It’s really quite simple: I merely applied intelligence and the lessons of history to the economic facts. When the Stock Market goes up by a factor of six, there’s something seriously wrong. You don’t have to be a great mathematical economist to figure that out. So why did Greenspan and Salsman get it wrong? With Greenspan, I think (as I have explained) it had a lot to do with his mathematical training, which predisposed him to accepting mistaken monetarist notions. With Salsman, it is his commitment to ideology, which makes him sacrifice truth to advocacy. Hence the absurdity of his criticism of Greenspan. He is not interested in understanding Greenspan: he merely wishes to find a rationale for abusing the former Fed chairman because the institution of the Fed violates Salsman’s tender ideological scruples.

Objectivism & Economics, Part 7

Greenspan’s breaking away from Objectivism. In his autobiography, The Age of Turbulence, Greenspan explains why he stopped being an orthodox acolyte of Rand’s Objectivist philosophy:

Like any new convert, I tended to frame the concepts [of Rand’s philosophy] in their starkest, simplest terms. Most everyone sees the simple outline of an idea before complexity and qualification set in…. It was only as contradictions inherent in my new notions began to emerge that the fervor receded.

One such contradiction I found particularly enlightening. According to the objectivist precepts, taxation was immoral because it allowed for government appropriation of private property by force. Yet if taxation was wrong, how could you reliably finance the essential functions of government, including the protection of individuals’ rights through police power? The Randian answer, that those who rationally saw the need for government would contribute voluntarily, was inadequate. People have free will; suppose they refused?…

I still found the broader philosophy of unfettered market competition compelling, as I do to this day, but I reluctantly began to realize that if there were qualifications to my intellectual edifice, I couldn’t argue that others should readily accept it. By the time I joined Richard Nixon’s campaign for the presidency in 1968, I had long since decided to engage in efforts to advance free-market capitalism as an insider, rather than as a critical pamphleteer.

Greenspan here admits what has been suspected for some time: that he came to believe that Objectivism was flawed and so ceased being an orthodox advocate of Rand’s philosophy. More interesting is his decision to advance free-market capitalism “as an insider, rather than as a critical pamphleteer.” This is really where Greenspan most differentiates himself from his former Objectivist comrades. Objectivists want to change the system without being part of it. Hence their conviction that social change can be brought about through philosophical patter.

But what is the real reason why Objectivists shrink from attempting to make change through action rather than merely talking about it? I can think of two main reasons:


1. Most Objectivists don’t have the ability to make change as an insider. While this lack of ability may be rationalized as an unwillingness to compromise (which all insiders must do), let’s not be naive: if every advocate of the free market adopted the attitude of “I will never compromise, therefore I won’t ever become an insider,” all this would accomplish is to surrender the political realm to advocates of various anti-market nostrums. Greenspan became an insider because he had the political chops to do so. Few people who came under Rand’s orbit have comparable chops.

2. Trying to change things as an insider as risky: one is inevitably competing against people who want to change things in a different direction, and it’s quite possible they will win out. Just look what’s happened with Greenspan: from our current vantage point, his attempts to advocate free market capitalism as an insider do not appear altogether successful. But is that any reason for not trying at all? Either one is willing to fight for one’s ideals on the political stage, or one isn’t. Those who are capable of fighting on political stage but choose not to are cowards—plain and simple.

Objectivists are now frantically trying to rid themselves of the taint of Greenspan’s former association with Rand. Yaron Brook and Alex Epstein have accused Greenspan of being “the voice of government central-planning”—another instance of Objectivists discrediting themselves by over-stating their case. They do nothing but talk and scribble—while attacking the one of the few individuals influenced by Rand who actually had the courage and the capability of trying to affect change within the political realm. Where are such people going to come from if they know ahead of time how they are to be treated if they fail? The hysterical denunciations of Greenspan demonstrate once again why Objectivism will never succeed as an agent of political change.

Objectivism & Economics, Part 4

Market failure: Greenspan’s testimony Alan Greenspan’s curious testimony before a House panel on Thursday brings forth a curious admission from the former Rand acolyte. According to an AP report:

Greenspan called the banking and housing chaos a "once-in-a-century credit tsunami" that led to a breakdown in how the free market system functions. Accused of contributing to the meltdown, but denying that it was his fault, Greenspan told a House panel the crisis left him -- an unabashed free-market advocate -- in a "state of shocked disbelief."

The longtime Fed chief acknowledged under questioning that he had made a "mistake" in believing that banks in operating in their self-interest would be sufficient to protect their shareholders and the equity in their institutions. Greenspan called it "a flaw in the model that I perceived is the critical functioning structure that defines how the world works." ...

Committee Chairman Henry Waxman, D-Calif., suggested that Greenspan contributed to "irresponsible lending practices" by rejecting appeals that the Fed intervene to regulate a surging subprime mortgage industry. "The list of regulatory mistakes and misjudgments is long," Waxman said of oversight by the Fed and other federal regulators. "My question for you is simple," Waxman told Greenspan. "Were you wrong?"

"Well, partially," Greenspan said. But [Greenspan] went on to assign the blame on soaring mortgage foreclosures on overeager investors who did not properly take into account the threats that would be posed once home prices stopped surging upward. He said what had been "a critical pillar to market competition and free markets did break down. And I think that, as I said, shocked me. I still do not fully understand why it happened."

After reading this, Objectivists can take consolation in the fact that Greenspan no longer considers himself one of their number—and perhaps never did. Yet his vision of the free market is not so very different from Rand’s. Self-interest, Greenspan believed, would be sufficient to motivate banks to act in such as to protect their shareholders’ equity. Apparantly not so—much to Greenspan’s confusion and dismay!

Greenspan would have done well to have heeded Joseph Schumpeter’s insight about the sociological flaws of a free market based on “self-interest.” “[N]o social system can work which is based exclusively upon a network of free contracts between (legally) equal contracting parties and in which everyone is supposed to be guided by nothing except his own (short-run) utilitarian ends,” Schumpeter warned.

Objectivism & Economics, Part 2

Government interference. In Capitalism: The Unknown Ideal, Ayn Rand wrote:

If a detailed, factual study were made of all those instances in the history of American industry which have been used by the statists as an indictment of free enterprise and as an argument in favor of a government-controlled economy, it would be found that the actions blamed on businessmen were caused, necessitated, and made possible only by government intervention in business.

Let’s examine those aspects of the current financial crisis that unquestionably corroborate Rand’s thesis, starting with the government sponsored enterprises, Fannie Mae and Freddie Mac. Back in 1999, financial analyst Doug Noland gave a fascinating lecture entitled “Putting a Coin in the Fuse Box.” (The title is inspired by a phrase used by Alan Greenspan in his Objectivist period to describe the Fed policies that led to the Great Depression.) Nearly ten years ago, Noland saw what the GSEs were up to. They were keeping the credit bubble alive and thriving, flooding the market with a fresh supply of liquidity. As Noland explains:

[I]n the midst of financial crisis and dislocation in the mortgage securities market, mortgage rates dropped dramatically as Fannie & Freddie incited an historic refinancing boom. Fannie & Freddie, with their implied government debt guarantees, were able to borrow easily, largely from the money markets, and ballooned their balance sheets with new mortgages. The holders of the old mortgages ... received desperately needed liquidity as households refinanced and Fannie & Freddie bought these new mortgages as well as other debt securities in the open market. During the final three months of 1998, Fannie, Freddie and the Federal Home Loan Bank System together expanded borrowings by almost $130 billion.

Admittedly, this had both the look and feel of a true miracle, but in reality this was one of history’s greatest episodes of credit excess. Some may argue, of course, that Fannie and Freddie are not banks and do not create credit. I disagree and see this [as] a critical analytical misconception. Actually, I see Fannie & Freddie as the greatest instigators of credit excess in history. I even go one step further and believe they also create “money.” Consider: as these institutions borrow aggressively from money market funds ... they exchange their short-term IOUs for existing money stock. This borrowed "money" is then instantly used to purchase financial assets. Importantly, this "money" remains within the financial system where Fannie and Freddie can borrow it again and again, repeatedly replacing it with additional IOUs, thus increasing total money market assets. The money just spins around the system as the amount of debt multiplies. Actually, this mechanism works much like the old bank multiplier effect from econ 101, except for one crucial difference. Since Fannie and Freddie liabilities are not subject to reserve requirements, these institutions can virtually create an "infinite multiplier effect."

Here is an obvious example of the pernicious effect of government in the economy. Since no one believes that the government will allow a GSE to go out of business, such corporations are not beholden to market discipline—with cataclysmic results, as we’ve seen in recent months.

Another pernicious effect of government is the implementation, through various legal and tax devices, of incentives that work against rational decision making. The government wants more people to own homes. After all, homeowners make better citizens. So the government pressures the GSEs and other lending institutions into lowering lending standards. Of course, this winds up having the deplorable effect of increasing the amount of bad credit flooding the economy. Examples of this sorts mal-incentives could be multiplied endlessly.

One final example that could be used to bolster Rand’s thesis is the Fed. Again to quote Doug Noland:

Like the Fed of the 1920s, the 1990s Fed has repeatedly put "Coins in the Fuse Box" over what I see as a "Persistent Financial Crisis" going back to the 1987 Stock Market crash. I believe this post-crash accommodation helped foster the real estate bubbles in the Northeast and California, the junk bond fiasco, the S&L debacle and other excesses from the late 80s….And it was during the early 1990’s that the Greenspan Fed "let their guard down" and began to lose control of the financial system. First, the Fed’s aggressive move to bailout the bankers created a big moral hazard issue. Second, with short-term rates plummeting, an opportunistic Wall Street went into what I call "harvesting asset mode," inciting a major shift of funds from bank deposits to mutual funds, money market funds, and securities, thus sowing the seeds for today’s financial bubble. Third, by pushing Fed Funds to 3% and creating an unusually steep yield curve, the Fed incited unprecedented credit market speculation, thus playing a major role in the proliferation of both leveraged speculation and its close sibling, derivatives. After all, 3% Fed funds were a godsend for the hedge funds, Wall Street proprietary traders, and derivative players.

Fourth, ultra-easy money fostered leveraged speculation in high-yield emerging debt markets. And fifth, a very important but unappreciated factor, was the emergence of Wall Street inspired non-bank financial companies and the incredible growth of the asset-backed securities market. As an aside, it was in 1991, during the darkest days for the banks, that Fannie Mae and Freddie Mac began to aggressively expand their balance sheets. Yet, Greenspan acquiesced, apparently more focused on the "Strong Headwinds" of an impaired US banking system that he saw as restricting the US economic recovery. He was loose and Wall Street took full advantage. The explosion of non-bank financial credit had begun and the Fed was quickly losing control.

Objectivism & Economics, Part 1

My original intention was to start a series of posts on Objectivism and politics. But the seriousness of the crisis in the credit and finance markets suggests that our focus should turn to economics. What is happening to finance capitalism is extremely serious—more serious even then what happened in October 1929. While much of what has happened in the last 20 years can easily be laid at the hands of government interference, it is not clear that everything that has happened is the government’s fault. No specific ideology comes out of this mess looking like it has all the answers.

Yaron Brook from ARI has issued the following statement about credit debacle:

But the mounting financial problems reveal that Paulson and Bernanke are as clueless as any other central planners who try to control an entire economy. They are not saving us from anything; they are delaying some of the pain that necessarily follows from a Fed-induced credit bubble, and redistributing that pain to innocent victims. They are punishing responsible individuals and rewarding irresponsible individuals.

“The bailouts must stop. The government must make clear that from now on, those who are in financial trouble must turn to the private market for help if they are to avoid failure; the government must no longer foist their failures on others, and invite another crisis in the future.”



For better or worse, Brook’s "do-nothing" approach to the problem is not a viable option. Any politician who stood for it would be immediately discredited in the eyes of the electorate. The political reality is that market solutions are not allowed in crisis situations like the one we are facing. Hence we find former Objectivist Alan Greenspan (who understands the underlying political climate better than any of the ARI folks) suggesting another approach. "We need laws that specify and limit the conditions for bailouts -- laws that authorize the Treasury to use taxpayer money to counter systemic financial breakdowns transparently and directly rather than circuitously through the central bank as was done during the blowup of Bear Stearns," Greenspan has written in the paperback version of his autobiography, The Age of Turbulence. In other words, Greenspan is arguing that, since the government is going to intervene anyway (no preventing that), at least it should intervene in as rational a way as possible.

Can the government intervene without making things worse? Well, given how dire the situation really is, it may not really matter. If market forces were allowed to do their thing, the consequences would be little short of catastrophic. There is at least $2 trillion dollars in bad debt out there (and this is not even including bad derivative-related debt, which may be in the tens of trillions). If you allow company A to go under, then it can’t pay it’s obligations to company B. But then company B can’t pay company C, which in turn can’t pay company D, etc. etc. In other words, if the market it allowed to do its thing we would almost certainly see a collapse of a good portion of the financial system. Even more serious, such a collapse could trigger a very serious deflation, as the credit bubble bursts and suddenly you have massive contraction in the money supply (some of this deflation has already occurred, but it has been confined to the housing and asset markets). Deflation is one of the worse things that can happen to an economy in peacetime. If the United States went through a major deflation, that would greatly strengthen the anti-capitalist left in this country, which would put the nation in serious peril (and put an end to any hope for a market solution).

Perhaps the real truth is that nothing can be done one way or the other. Whatever we do, we’re screwed and there’s an end to it. As Doug Noland, the financial analyst who more than ten years ago saw what would happen as a result of wildcat financing of the nineties wrote:

As we are witnessing today, the issue is not some manageable amount of new “capital” to replenish banking system losses.  Instead, the predicament is the massive and unmanageable amount of new Credit necessary to, on the one hand, sustain a mal-adjusted Bubble Economy and, on the other, the Trillions more required to accommodate a gigantic speculative de-leveraging.  I have a very difficult time seeing a way out of this terrible mess.