Monty Pelerin's World

The empire continues to collapse. In the last half century, the government has converted a free market economy from a smooth self-functioning, self-equilibrating system into a Frankenstein monster.

The smallest problem or discomfort was addressed by government with an ad hoc “solution.” Each intervention spawned multiple new problems which of course had to be “fixed.” Sometimes the new problems became apparent shortly after an intervention but generally they took time to gestate, appearing years or decades later as new, bigger and more intractable problems.

Our government is like Dr. Frankenstein tinkering in his lab. Each new problem presents the opportunity to “improve” the creature while at the same time enabling Dr. Frankenstein to grow more powerful for future tinkerings. Each new intervention distorts the economy more. Finally the creation created by the wierd doctor grows so big that its master can no longer control it.

We are at the point where the monster has now grown so big and distorted that there is nothing the government can do to regain control. The monster is destined to destroy what is left of the economy and its creator, the government.

Crises now occur like a whack-a-mole skit. The latest one is the mortgage foreclosure crisis. It is just another in the long line of failures that government has either created or abetted. Nothing that government has done in the last fifty or more years has ever solved a crisis. At best, they have papered problems over, only to make them bigger and less tractable down the road.

The discussion (shouting match?) below is instructive of the problems and how they are likely to be addressed (not solved).

The housing problems began as early as the 1930s when the government intervened in the housing market. Government “fixes” continued to make matters worse over the years. Finally we are at the point where the banking system and government-owned Fannie and Freddie are irreparable. There is no remedy that can avoid a complete and total collapse of the banking system and the economy!

That does not mean government will not try to extend the game. After all, Fannie and Freddie were created to make “housing affordable.” Political tinkering and modifications to these agencies over the years are what enabled the current mess. Overlooking regulatory requirements on the banks was another expedient to “juice” the economy. Every step along the way was an attempt to avoid the problem and keep the music playing. The series of interventions succeeded in deferring the problem only to see it reemerge later in new garb and much bigger.

We have nationalized the mortgage industry. I suspect that we will nationalize or guarantee the Title Industry before this ends. Why not? We nationalized Student Loans.

None of this will work. The music has stopped and there are no remaining musicians. At best, additional outrageous interventions may buy time (very little) and worsen the inevitable collapse.

The Frankenstein monster created by government is now out of control and unable to be contained. It will destroy the economy and its creator. Hopefully we are able to rebuild after the collapse.

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