Posted on 09/25/2008 5:09:00 AM PDT by Leisler
In democratic societies, every great surge of the government’s size, scope, and power rests on a foundation of fear, and the present occasion is no exception. The president, the secretary of the treasury, congressional leaders, and the vultures now swarming Washington to pick the remaining flesh from the taxpayers’ bones would have us believe that unless the colossal rip-off now being formulated in Congress is enacted, the future will be too horrible to contemplate.
Journalists, as usual, are doing their part to create an atmosphere of fear. Reports characterize the bailouts as “a bid to unlock the flow of credit” and make reference to “the frozen credit markets.” It’s hyperbole, don’t believe it.
Although certain financial institutions are undeniably in deep trouble—difficulties of their own making, we might add—the problems in particular financial circles should be kept in perspective. Note especially that credit markets in general have NOT ceased to operate. Moreover, lenders are extending credit in historically great amounts. To see this reality, however, we must break away from anecdotes in the financial press, which is eager to attract readers, and from fear-mongering by the political class, which is eager to seize more power, and examine the data that describe wider market transactions. For this purpose, the St. Louis Fed’s Web site is a useful resource.
Commercial and industrial loans of all commercial banks, which are reported monthly, have grown rapidly. The most recent report, for August 2008, shows outstanding loans of $1,514 billion, an all-time high. This loan volume is 15.5 percent greater than it was a year earlier, and 30.8 percent greater than it was two years earlier. Frozen credit?
Consumer loans at all commercial banks, which are reported monthly, have also grown rapidly. The most recent report, for August 2008, shows outstanding loans of $845 billion, an all-time high. This loan volume is 9.2 percent greater than it was a year earlier, and 16.5 percent greater than it was two years earlier. Frozen credit?
Even real estate loans at all commercial banks, which are reported monthly, grew rapidly until very recently. The most recent report, for August 2008, shows outstanding loans of $3,642 billion, only slightly below the all-time high (in May 2008). This loan volume is 4.1 percent greater than it was a year earlier, and 15.5 percent greater than it was two years earlier. Frozen credit?
Lest one suspect that I have cherry-picked my examples, consider finally the amount of all bank credit at all commercial banks, which is reported weekly. For the most recent week reported, the one that ended on September 9, this credit amounted to $9,406 billion, which is only slightly less than the all-time peak of $9,485 reached in the week that ended on March 26, 2008. For the past six months, total commercial bank credit has remained on a high plateau, well above the levels reached in previous years, when everybody seemed to think that credit was ample.
One might object that a leveling off, after a long period of steady, rapid growth does constitute a substantial change in credit-market conditions. True, enough. But we must also recognize that the rapid growth of credit during the years from 2001 to 2007 was scarcely a healthy development. In fact, this effusion of credit fueled the housing bubble and countless other malinvestments that now must be liquidated, because without a continuation of the very-easy-money regime, these projects cannot be brought to completion or, if already complete, operated without further loss.
That malinvestments must now be liquidated merely reflects the mistakes made in the past, induced by bad government policy at the Fed and other credit-related agencies, such as Fannie and Freddie. Of course, some of the necessary adjustments will be painful for the parties directly involved. But the huge bailout now being concocted in Congress will only compound the errors of the past by keeping some malinvestments on life support, deferring the day that lenders must write off bad debts, and preventing the entire financial system from returning to a semblance of economic viability without ongoing subsidies and bailouts that impoverish the taxpayers and threaten the entire economy.
For now, however, the important point to recognize is that the sky is not falling. Lenders continue to lend at high rates, and the economy continues to operate reasonably well. If people panic and allow Congress to exploit the hyped-up fears of the moment, however, much worse outcomes may be brought about, not the least of which is another giant leap in the size, scope, and power of the federal government—a direct threat to our economy and our liberties.
Robert Higgs is Senior Fellow in Political Economy for The Independent Institute and Editor of the Institute’s quarterly journal The Independent Review. He received his Ph.D. in economics from Johns Hopkins University, and he has taught at the University of Washington, Lafayette College, Seattle University, and the University of Economics, Prague. He has been a visiting scholar at Oxford University and Stanford University, and a fellow for the Hoover Institution and the National Science Foundation.
He is the recipient of numerous awards, including the Gary Schlarbaum Award for Lifetime Defense of Liberty, Thomas Szasz Award for Outstanding Contributions to the Cause of Civil Liberties, Lysander Spooner Award for Advancing the Literature of Liberty, Friedrich von Wieser Memorial Prize for Excellence in Economic Education, and Templeton Honor Rolls Award on Education in a Free Society.
Dr. Higgs is the editor of The Independent Institute books Opposing the Crusader State, The Challenge of Liberty, Re-Thinking Green, Hazardous to Our Health? and Arms, Politics, and the Economy, plus the volume Emergence of the Modern Political Economy.
His authored books include Neither Liberty Nor Safety, Depression, War, and Cold War, Politická ekonomie strachu (The Political Economy of Fear, in Czech), Resurgence of the Warfare State, Against Leviathan, The Transformation of the American Economy 1865-1914, Competition and Coercion, and Crisis and Leviathan. A contributor to numerous scholarly volumes, he is the author of more than 100 articles and reviews in academic journals.
His popular articles have appeared in The Wall Street Journal, Los Angeles Times, Providence Journal, Chicago Tribune, San Francisco Examiner, San Francisco Chronicle, Society, Reason, AlterNet, and many other publications and Web sites, and he has appeared on NPR, NBC, ABC, C-SPAN, CBN, CNBC, America’s Talking Television, Radio America Network, Radio Free Europe, Talk Radio Network, Voice of America, Newstalk TV, the Organization of American Historians’ public radio program, and scores of local radio and television stations. He has also been interviewed for articles in the New York Times, Washington Post, Terra Libera, Investor's Business Daily, UPI, Orlando Sentinel, Seattle Times, Chicago Tribune, National Journal, Reason, Washington Times, WorldNetDaily, Folha de Sao Paulo, Newsmax, Financial Times, Al-Ahram Weekly, Creators Syndicate, and elsewhere.
Dr. Higgs has spoken at more than 100 colleges and universities and at the meetings of such professional organizations as the Economic History Association, Western Economic Association, Population Association of America, Southern Economic Association, International Economic History Congress, Public Choice Society, International Studies Association, Cliometric Society, Allied Social Sciences Association, American Political Science Association, American Historical Association, and others.
---Ludwig Von Mises
Paulson and Bernanke are choosing option #2.
My sister is buying a house as we speak. Credit IS flowing.
Another thing, I don’t see the financial crisis from where I live.
I’m not saying people are not hurting. But I don’t see the imagine painted by the liberals and the media.
I keep getting refi offers in the mail...at least SunTrust seems to not be having awful bad debt problems.
The boys at the WSJ and IBD are saying something much different. According to them, the bailout is needed NOW, and with NO strings attached. Go figure
This “crisis,” particularly the timing of it, has been manufactured, or maybe I should say “precipitated” by the dems and the msm. It was done because 0bama’s campaign was tanking, and this was seen as a way to steer the election to him. The cowboys are firing off a few shots to get the cattle herd to stampede, and we are being stampeded right off a cliff.
The American people are being played for fools.
This is one of the reasons, that Republicrats want to keep the spinning wheel, spinning.
So, if like a financial Dr. Feelgood, they have to inject a little bit of ‘stimulus’ to get the Fat Elvis economy up on stage sweating his ass off, they will.
It's a done deal. But, like you say, for now.
It's only if we make this so TRAUMATIC that they will immediately fire that next smart boy to propose some similar bright idea, that we will get some long-term sanity.
Nobody on Wall Street remembers 1929, they all believe the old, “It’s different this time.” It takes a crash to burn Von Mises’ lessons into the public memory. And we’ll get it, sure as the sun will rise tomorrow.
We talked to a lady the other day that was behind on payments. She called her mortgage company and they told her if she came up with HALF of what she was behind, they’d give her a 4 month payment free period, plus a 100 dollar reduction in monthly payments.
They are wanting desperately to keep people from defaulting.
Oh that’s funny...kitten is the worm, the worm is the kitten....”the golden path”!
Because apparently you don't live in a high-rise penthouse.
I just applied for and received a credit card with a $7500 limit. I put $7000 on it at 0% for a year with a 1.5% fee. Will pay it off at the end of the year before the rated jumps to 9%. I will use the money to buy inventory for my business, that’s how I finance it.
I see no evidence whatsoever of a credit freeze.
Another thing that I wonder about, maybe somebody knows. We keep hearing about 50 or 60 trillion that various institutions stand to lose due to CSD’s, or CDS’s or whatever the hell they are. Who is on the receiving end of all that money?
Just got an auto loan last week. Credit is tight only for the objectively uncredit-worthy.
Check here for the “star” rating of your banks:
www.bauerfinancial.com
Another good one is bankrate.com They have a “Safe and Sound Rating.” I noticed one of my banks for online savings, HSBC, had 2 stars (the worst being 1) so I moved most of my savings out of there for the time being.
Your savings (up to 100,000) are federally insured.
That may not mean much. They will just crank up the presses and give you worthless paper.
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