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No FREE Lunch! Is Capitalism Dead?

by Jim Taggart July 20, 2011

TrainDateline: May, 2008.

My wife, Sue, and I were rocketing across America on a three week, 6,500 mile Amtrak train trip. For a couple of Canucks from the Great White North, it was a phenomenal experience to spend time in Chicago, San Francisco, San Diego, plus many other cities and towns. Seeing the Grand Canyon, the Meteor Crater and the splendid beauty of Sedona, Arizona, was thrilling.

We also met dozens and dozens of wonderful Americans. Don’t believe the bullshit you read in the various media. Americans are amazing people: generous, resilient and friendly.

CityWhile we were travelling, senior federal civil servants such as Hank Paulson, Ben Bernanke and Timothy Geithner were panicking as the U.S. and, indeed, the international economy inched towards the abyss. They were meeting with a sordid cast of characters from the country’s major financial institutions, negotiating, and at times dictating, what was going to happen to prevent a national meltdown.

Being a long-practicing economist of over 30 years, I get a thrill out of reading analyses of economic events, including solid books. So I’m a boring 56 year-old. Get over it.

To gain an interesting insight into these events, check out Too Big to Fail produced by HBO, featuring a big hit-list of Hollywood’s best.

The stakes are HUGE for all of us, whether you’re a naïve, boring Canadian who believes that because your banking system is more solid than that of the U.S. you’re immune, or a Greek who lives on a distant planet pretending that you don’t need to pay taxes. We’re all in deep shit.

Crisis EconomicsThere’s one guy out there who has a few clues. His name is Nouriel Roubini

Viewed by some as Dr. Doom, Roubini is one of the few credible people who has a grasp of economic history and the dangers of what unbridled capitalism can exert on an uninitiated population in what discredited former federal reserve chief Alan Greenspan once dubbed as “Irrational Exuberance.” (Note: Greenspan’s remark back in 1996 threw the markets temporarily into a panic).

Nouriel Roubini’s book Crisis Economics is a must-read for anyone who wants to get a better grasp of what lead to America’s near-financial collapse. Whether you’re an economist, public servant, financial analyst or Joe-layperson, Crisis Economics is a compact distillation of history and the logic-defying events that lead to the 2008 financial meltdown. At the end, Roubini presents some “radical remedies.”

Here are some examples of Roubini’s observations:

On Alan Greenspan

"That Greenspan presided over the Federal Reserve is ironic….as a young man he became smitten with the power of the free market…. His ambivalence about government's role in regulating the free market was evident from the beginning. Four months after his appointment, the stock market crashed, and Greenspan immediately rode to the rescue. Out the window went any principled opposition to government intervention. As he memorably put it: 'In a crisis environment…we shouldn't really focus on longer-term policy questions until we get beyond this immediate period of chaos.'

…In 1996, as the stock market spiraled into a giddy bubble focused on tech and internet stocks, he warned of 'irrational exuberance,' then did nothing to stop the bubble from inflating….When the dot com bubble finally popped in 2000, Greenspan poured plenty more alcohol into the proverbial punch bowl. he kept cutting the funds rate, even after signs of a recovery started to appear. When he finally resumed raising rates in 2004, he did so in tiny and slow and predictable increments….The result was the housing and mortgage bubble.

On the risks associated with the U.S. mounting debt, financial bailouts, stimulus spending and loan guarantees to business

"Economists of a Keynesian bent tend to minimize these risks, pointing out that the United States ran enormous deficits during the New Deal and World War II and managed to pay them off without a problem. The total value of the public debt hit an all-time high in 1946, when it was equivalent to 122% of the nation's GDP. By contrast, current projections point to debt reaching 90% of GDP in the near future, though it may certainly go higher.

That's a highly comforting comparison, but it's highly misleading. In 1946, the United States was at the peak of its power…. the world's biggest creditor and net lender…and the dollar had just become the global reserve currency. Little wonder it was able to pay down its debt with ease. Whether same can happen today is another question….The United States of today is not the country of 1946.

Check out Crisis Economics. You won’t be disappointed.

I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.
- Alan Greenspan

Photos by J. Taggart