The final installment of our speech in Las Vegas…on why you can’t engineer a genuine recovery…and why GDP is just a number…and why China will blow up…
The problem with trying to engineer a ‘recovery’ is the same problem with all central planning – it substitutes the honest signals from the marketplace with imposters. For example, instead of getting the message that they need to conduct their business in a different way, the banks get the idea that the feds will always bail them out…and automakers – thanks to the Cash for Clunkers program – may get the idea that there is more demand than there really is…and everyone could get the idea that the economy is healthier than it really is, thanks to the feds $1.5 trillion deficits.
The authorities are trying to force the economy back into the shape it was in before the crash. They’re preventing it from taking a new, better shape…and preventing the correction from doing its work. A correction is supposed to cleanse out the mistakes from the 50-year credit expansion. But it’s hard to do so when you don’t know what is really going on.
Markets – when they are allowed to do their work – are always in the process of discovering what assets are worth. They were doing a good job of it in the fall of 2008. They were discovering that the US had too many houses, and too many shopping malls, (the US has 10 times as much retail space per person as France…) We also had too many derivatives backed by real estate, and too many private equity deals based on too many optimistic assumptions…..
…..read more HERE