Bill Bonner argues in A Successful Collapse for allowing the economy to collapse as the best remedy. In his view, the fixes are more costly than the problems. Bonner is not alone in this opinion. It is in fact the basis for much of the Austrian School’s business cycle theory and Ludwig von Mises’ work on Interventionism.
Simply stated, each intervention creates additional and bigger problems down the road. As Bonner explains recent history:
But the financial history of the last 20 years is a story of one successful fix after another, each grander than the last. The Asian debt crisis and the LTCM crisis were solved at trivial cost. But, trailing each solution, like shame following indiscretion, was a new problem. Two years after the Asian crisis came the dot.com blow-up. Then, the cause of the problem of sub-prime debt in 2007 was the solution to the problem of the post dot-com debt-driven recession of 2001. Bailing out the US economy with low interest rates begat a bubble in housing. Within 5 years, banks all over the world found themselves with too much mortgage debt and too little assurance of getting paid back. This problem was solved by the bank bailouts of 2008-2009. The bailout of Bear Stearns cost $29 billion. The TARP program cost more than $700 billion.
Soon after, bad bets in the banking sector became bad debts in the public sector. Now, the bailers themselves are sinking. In particular, Europe’s seaside states are taking on water. This led to the biggest bailout ever –Euro-TARP – at a cost of $1 trillion.
Each cycle further distorts the market economy and results in misallocated capital and resources. The world’s debt increases with each intervention, will lesser impact from each successive dosage. Finally, additional debt produces no benefits and the debt levels cannot be supported by the underlying economy. That is the point that we have reached.
Bonner quotes Bob Janjuah’s (chief strategist of RBS) description of where this leads:
“We are trapped in some horrendous Keynesian/monetarist nightmare, where policymakers, aided/abetted/advised by their buddies in the media, in the lobbyist cabal and in financial system, have YET AGAIN decided to go down the route which merely delays the problem/pushes it down the road, but which virtually guarantees that when the NEXT bubble collapses…there is NO pleasant way back.”
I am afraid we are at that point. The only question is when the collapse occurs. Recent market action might suggest we are at the beginning of it. Or, we may get lucky and have a few years before it occurs.
