"Whatever It Takes"?


As we try to absorb the latest impossible-to-absorb news from governments in London and Chicago and watch Paulson gamble on ever more expensive intangibles, we are left with what Fareed explained recently thus:

I'm betting that, in the end, the world's governments will win this battle against fear. They have potentially unlimited tools at their disposal, especially if they act in concert. They can nationalize firms, call bank holidays, suspend trading for weeks, buy up debt and equity, and renegotiate home mortgages. Most important, the American government can print money. All of these tools have long-term effects that are extremely troublesome, but they are nothing compared with the potential collapse of the financial system. And Washington seems to have recognized that it must do whatever is required to shore up that system. Big questions remain. What will it take to stop the fall? How costly will it be? How long before the rescue plan starts to have an effect? But at some point, the panic that gripped world markets last week will end.

I think Fareed wants to reassure me here. But he doesn't. It seems pretty clear that he is right about the real causes of our current crisis: private individuals and government at all levels have lived far, far, far beyond their means for more than two decades. The debt was so reckless and so immense that it now threatens to destroy the entire financial system. That's what electing George W Bush twice has done for us. But then we are told that this threat requires us to do even more of the borrowing and spending before we can begin to get ourselves back in balance again. The unchallenged doctrine of the day is that: doing nothing would provoke a worse collapse than necessary and so we have to make our fiscal situation much worse now in order to make it much better later. Why am I not convinced?

Like most of you, I am not an economist although I try to make as much layman's sense of it all as I can and am not completely ignorant of history. But the radicalism of the current policies pioneered by Paulson and Brown and now getting even more outlandish seems to me to have two potentials: to somehow drag us out of this without an almighty crash now but make the recovery from debt even more arduous, or to add unimaginable mountains of debt to our current plight and still not manage to avoid the crash, thereby making it all much worse. The abandonment of any sobriety in this moment is disturbing. Evceryone is acting as if the worst thing that could possibly happen is that we should all feel the full impact of the massive fiscal recklessness of the past decade.

Why? Why does the world owe us a soft landing after the insanity of the last decade? Haven't the excesses of the past shown that it is only through such market discipline that we will ever avoid the easy path of borrowing out of greed? Yes, innocents will suffer terribly, and many of the guilty will escape. But that is life: we can and should try to help the poorest, but avoiding our collective responsibility for this insanity seems a very bad signal to send to ourselves.

The truth is: we had this coming. We deserve it. And we deserve leaders who are able to tell us that.

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