Pressing Details

Having spend a great deal of time on the other side of the Atlantic, I can tell you that people do not systematically assume we are so different. What does, however, create a bit of confusion for them is the ties we sometimes seem to have between our politics and religion. The religious connection in the United States is not often overt. There is an assumption that electing people with expressed religious ties will have no consequence. In essence, this form of logic might very well hold true.

What, however, becomes more difficult to defend is when political parties/candidates have openings like this one which has been played on most major networks at this point:

If one were to go to the doctor with a virus, and the doctor prescribed antibiotics, nothing would happen. Certainly one would be more prepared to fight off their next bacterial infection, but the viral problem for which you came to the doctor is just as bad as ever.

Such is the story of the current financial crisis. The housing market and bad credit began a crisis which is already being compared to that of the 1930's. Our leaders have taken steps to remedy the problem through the now infamous $700 billion 'bail out.' Without much surprise, the markets were unimpressed with the government throwing money at what certainly seemed like millions of dollars for every and any problem except the elephant in the room.

Today, the Federal Reserve lowered interest rates yet again. The only way he got away with it is that almost every other major bank lowered their rates as well, making a sell off of the dollar pointless.

Nonetheless, the thinking of the Fed and more recently the treasury seems to be rather backwards. The old idea remains that infusing the economy with money will do something to get the nation back n track. The idea works something like this: if you put more money into the market, that money will be spent, thus raising the amount of money flowing through the economy. More money in the economy means more prosperity which encourages companies to invest and thus create jobs in order to see out their new investments. More jobs means more consumer spending which in turn puts yet more cash back into the system and thus the cycle begins again.

The above is not in principle such a bad approach in theory. But in practice is has missed a key ingredient. It is the Achilles' heal of government economic policy. This secret ingredient is human psychology. This is not the first time that the government has taken steps to try and calm the crowd, ignoring almost entirely the obvious fact that the market has taken on a mind of its own. When this happens, no 'bail out' is going to quell the madness. Like the flu, it must take its course.

The long term ramifications of the lower interest rates, mixed together with the $700 billion deal and added in to that all of the other excess spending the United States currently engages in, is the dangerous amount of money being produced with the United States seal on it. If the dollar continues to be abused in such a way, the excess money supply with ultimately create worse and worse inflation. This is more dangerous than it sounds because given a large enough shift in the price of goods and services, one's pension or savings becomes entirely worthless by default.