What Is “The Economy”?
The economy is the cars, houses, food, computers, steel, oil, energy etc… that the world produces. It is not the stock market, mortgage market, credit market, Federal Reserve, or even the dollar. These are all tools that make it possible for the market to efficiently allocate resources to produce the items listed in the first sentence. So what would have happened it the financial markets collapsed?
What would have happened is all of those things that are over valued or have no value would have been corrected to their real value. People would have lost money that had bought things that are worth nothing, but there would not be less goods and services in the world. The people that would have really suffered were those that were holding the majority of the assets that had no real value. How do we figure out who those people are?
Its very easy look at who is screaming the loudest that the government must do something. These are the people that have been benefiting from the distorted and over valued assets that are starting to unwind. They know that the gig is up. The profits taken over the past decade on Wall Street by hedge funds and the like are not real they are a bubble filled with nothing but hot air. They were not producing anything of real value or at least not of the value they were claiming. So, what do they do now?
The same thing any person that owns something that is of little worth tries to do, sell it at the highest price possible. However, the price that anyone would pay is way below what they would want to sell it for. So, they spin the story to scare the general public into begging for and excepting government bailouts. Then they sell them to us, The People of The United States of America. So, now who holds these assets worth for less then what was paid for them?
We do. If you have never been robbed before. This past week was your lucky week. However, don’t worry you won’t notice that anything is missing. You will have the same amount of money in your bank account and wallet. Your taxes will not increase and neither will your prices (in the short run). So, how were you robbed?
You were robbed by deception. The Federal Reserve, The Treasury and Congress will over the next couple years erode the true value of every dollar you own. They will increase the deficit and the supply of dollars to the point that the paper you hold today will be worth only a small fraction in the future. So, how does this effect the economy that I described in the first sentence?
It will erode the one thing that all of the market “tools” relied on to help the people efficiently allocate resources, trust. When trust has disappeared the economy will then actually have lost something. The odd part is right now they claim everything they are doing is to build back confidence. Which makes me ask, since when is deceit the best way to build trust?
A speical thanks to a friend who reminded me of the only valuable thing our financial markets have (had?), TRUST. It is to bad they are throwing it out with all of their other trash.