KRISIS!!!

There's an old saying, I think I learned it in the Navy, that goes like this: "When in danger or in doubt, run in circles scream and shout." This very much resembles the behavior of politicians in Washington these days.

There are some metrics in this that are pretty scary. Take a look at the following chart:

The "adjusted monetary base" is "the total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits held in the central bank's reserves. This measure of the money supply typically only includes the most liquid currencies." Now according to this chart, from before the Great Depression, to about 1972, the AMB stayed in a range of $1-30 Billion Dollars. In 1971, Nixon took the U.S. Dollar off the gold standard...you know, "In God We Trust," and from that point till September 2008, it grew from about $30 billion up to about $850 billion in September, 2008. Some quick math here...hang on, my shoes are still on...about $22 billion per year on average. Now...from September, 2008 till today, it has grown from just under $900 Billion to about $1750 Billion...hmm, that's $850 BILLION in less than six months. Well, surely something that dramatic must have had a profound impact on financial futures in our country right? Let's see...the Dow Jones Industrial Average stood at 11,020. Today it closed at 8,001. Well that's good isn't it?? Lower is better?

Umm, no. So while our money supply has increased almost 95%, the Dow has lost 27%. Bear in mind that the Dow is a forward thinking index...while it reacts to day-to-day news, in the aggregate it reflects the sentiment of investors for where they think this thing is going. By this rationale, if we assume that some version of the $900+ BILLION "Stimulus" bill does make it to Obama's desk and he signs it...after all, he has to do something!!!! It's a crisis!!! We can expect our 401K's to fall in a similar proportion...$900 Billion represents another 51% increase in the money supply, therefore, applying our ratio the Dow should go down another 15% to 6,800. Now I know there is not a DIRECT correlation, but these things are related and should not be ignored.

This is not a "bash Barry" piece. The panic began under Bush when he cried "fire" in a crowded theater. Without going into too much detail, because I've covered a lot of this in previous posts, this is a ten step anatomy of the abyss we find ourselves in:

1. Lousy policy that encouraged those that could not afford homes to buy them.
2. Lousy policy that encouraged banks to lend that money.
3. Lousy policy that created "public/private" entities (Fannie and Freddie) to insure said bad loans.
4. Lousy policy that allowed the practice to go on unabated despite warnings from every sector.
5. Human greed that figured out how to securitize these bad loans and sell them off as "mortgage backed securities."
6. Human greed that figured out how to re-securitize these bad securities into "collaterized debt obligations."
7. An excessive influx of capital into the United States and into real estate in particular.
a. China and India emerging with purchasing power wanting to put the money in a safe place.
b. The crash on Wall Street of 2000 - the "tech wreck" - led everyone to believe real estate
was safe.
8. Lousy governance and cronyism that constantly swept the warning signs under the rug.
a. Barney Frank
b. Christopher Dodd
9. Lousy leadership that led to a panic.
a. George W. Bush
b. Hank Paulson
10. Cynical leadership that sees opportunity in fanning the flames of a crisis for political gain.
a. Barry O.
b. Rahm "Knuckles" Emmanuel

Now in Barry's defense, he feels he has to do...ummm, something. The Hill Democrats see a special moment in time where they can ride off of Barry's popularity and the sense of panic in the country and ladel in some heavy doses of social engineering. Their clear aim is to add to their patchwork quilt of constituencies in the hopes of creating a permanent class that is beholding to them for their well-being. Please notice that in the above menu of ten items, six of them - 60% for those of you fascinated with numbers - are attributable to Democrats. The very same people who account for 60% of the problem are now the ones with their hands on the tiller steering the boat. (In case you need help, put a check by numbers 1,2,3,4,8 and 10.)

The money has to come from somewhere to pay this tab. Or, alternatively, you could just print it. Weimar Germany tried that and it didn't work out too well. Their panic led to a tyrant...you know one that everyone loved to chant slogans to. It's that or taxation and didn't we fight one war already for "taxation without representation?" These folks up on Capital Hill are spending money on their pet projects without even pausing to catch their breath and consider that it it not their money.

Sadly, the other impact of this Katrina of Money hitting the system is two-fold. First, once it makes its way out of the bank vaults and onto the street, it could cause hyper-inflation and to stem that, the Fed would have no choice but to raise interest rates dramatically, killing off any chance of a recovery in the cradle. Secondly, the dollar will lose its stature as the global market setter. The type of irresponsible policy with no thought to unintended consequences that is being exhibited today in D.C. should make you nauseous.

There is hope though. The House Republicans and 11 Democrats votes in opposition to this bill. And the more people that know about the guts of the bill, the more they are going to realize that this is nothing more than a grab bag for favorite Democrat projects. This from the Wall Street Journal:

So then what’s the multiplier for the $50 million for the National Endowment of Arts? How about the $400 million for global warming research, the $335 million for STD prevention, the $650 million for digital conversion coupons, the $81 billion for Medicaid, the $20 billion for food stamps, the $30 billion for Cobra insurance extensions, the $4.1 billion for neighborhood activist groups like ACORN, the $83 billion for the earned income credit to give tax refunds to people who don’t pay income tax, and the $6 billion to subsidize university building projects just to name a few.

Does that really say $4.1 BILLION for "neighborhood activist groups like ACORN???" Yup. And how does that stimulate anything productive? Well, it doesn't. If the word can get out that this is nothing more than a pork barrel of nonsense, there is a chance it can be stopped.

The teachings of Hippocrates should apply to public policy as it does to medicine - first do no harm. (It's not in the Oath, but it is in his writings.) Obama has inherited a terrible problem. One caused in large part by his fellow party members, though compounded by a rush to solution by the outgoing Bushies. And he faces the true test of leadership. He has pledged that he is going to do "something." The best possible "something" he can do right now is "nothing," but that is not in the cards. Further, he has surrounded himself with neo-Keynesians who ignore the lessons of history in the belief that they are the "best and the brightest" sprung from Mt. Olympus for our salvation. It's a toxic mix. Ironically, Barry O's best chance at salvation right now may well lie in the Republican party. If they can stop this bill...filibuster it to death if need be...or raise enough public awareness that the pollsters in the West Wing get the message, they may buy Barry another term. If.

Rumble on!