The Recovery

Bill Bonner writes:

So, we’ll think a bit more about Tim Geithner and the other men who rule us. Geithner wrote an article for The New York Times, “Welcome to the Recovery.”

The gist of the article was that, though the recovery wouldn’t be quick and easy, it was still real and moving forward...

It’s really very simple. The private sector ran up too much debt. It didn’t have the income to support the debt. So, the bad debt has to be destroyed. Companies go broke – their stocks and bonds go to zero. Houses are foreclosed. Consumers declare bankruptcy. Banks close their doors...

They might have admitted their failure and promised to do better next time. Instead, they decided to rescue the debt-laded economy…yes, you guessed it…with more debt!

The project was so loony from the get-go, it made us laugh. But some of the biggest names in economics – Krugman, Stiglitz, et al – are still pushing for more debt-financed “stimulus.”

The trouble with it is obvious, theoretically. Practically, it is even more obvious. In order to get money to give to the private sector, the feds first have to take it from the private sector. Ha ha…

So…

The stimulus campaigns have wrought pretty much what we expected. Instead of stimulating the private sector, the feds have replaced private sector spending with government spending. Government spending and investing is notoriously inefficient – which is to say, the politicians waste money. Much of the spending goes down a rat hole where it neither improves peoples’ lives nor stimulates economic activity.

Since the counter-cyclical spending began, about $2.5 trillion has been put to work. What has it produced? More jobs? Nope. Higher incomes? Definitely not. Higher asset prices? Maybe.

Geithner’s response is that “it would have been worse if we hadn’t done anything.” Here at The Daily Reckoning, we don’t believe it. It would have been better if the feds had let the market clear…

Let it happen. Let it be. Let the chips fall where they may…so that others can pick them up and get to work again.

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