The Illusory Foundations Of Peak Trump, Part 3
Even a superficial postmortem of the data shows that the Great Recession was a drastic over-reaction based on the underlying economics. Demand did not fall by anything close to what was implied by the C-suite initiated “strum und drang”.
But it was a godsend to the Keynesian money-pumpers at the Fed who had actually caused the subprime crash and Wall Street meltdown in the first place. Instead of finding themselves impaled on the hot-seat of blame that they richly deserved, they swiftly turned the tables, morphing into putatively heroic economic firemen who saved the day.
Most especially, the C-suites’ frenzied assault on their own employees, inventories, fixed capital and other company operations permitted the phony Great Depression scholar and inflationista who had become Fed head, Professor Ben Bernanke, to run around Washington with his hair on fire.
So doing, he hysterically claimed that a reprise of the 1930s was at hand; and that extraordinary and heretofore unimaginable levels of monetary and fiscal intervention were needed to arrest a slide into Armageddon. He later even boasted that he alone had summoned the “courage to print” and had brought the rest of the government along kicking and screaming.
Needless to say, the entire Bernanke-inspired narrative was unadulterated hogwash. The circumstances of 2008 were not remotely similar to those of 1930, most notably because back then America was a massive global creditor and exporter, which got monkey-hammered when the stock market crashed, and the related foreign subprime loan bubble of the day had imploded. The latter was immense, exceeding $1.5 trillion in today’s economic scale.
The foreign bond crash caused overseas demand for what had been booming US exports to crater by 80%, which, in turn, triggered a sudden, violent plunge in previously soaring CapEx levels for what had been the urgently needed expansion of plant and equipment during the Roaring Twenties. This double-whammy, in turn, had necessitated a genuine old-fashioned liquidation of excess inventories, fixed capital, labor and unsustainable bank credits after the 1929 crash.
In contrast, by 2008 America had already become a giant global debtor and importer. Washington was also a prodigious dispenser of Welfare State income and safety nets, as well as the principal financier of what had become massive domestic health care and education cartels. Likewise, it had also become the fount of money for the nation’s obscenely bloated war machine—a source of demand and economic activity that barely existed in 1930.
Keep reading with a 7-day free trial
Subscribe to David Stockmans Contra Corner to keep reading this post and get 7 days of free access to the full post archives.