Friday, November 26, 2010

A Preview of What's Coming

Here, Marcus Walker and Matthew Karnitschnig write in the WSJ about continuing debt problems in Europe.  And what of Ireland now going the way of Greece?  What of the EU and all it's bailout debates?  Will Portugal and Spain be quick on the heels of Ireland?  You betcha.

It appears that financial ministers and political leaders around the globe have simply lost touch with reality.  How is it that lending yet more money to a group of people who have already borrowed beyond their own willingness and ability to produce real goods and services will help?

Money is just money.  You can't eat it, wear it, live in it, heal yourself with it, or ride around in it.  It's just money.  Until the Europeans understand that money is not real goods and services --- a really simple point --- no amount of bailout funds from the European Financial Stability Fund or the International Monetary Fund will make any real difference.

Bailouts postpone and transfer.  Bailouts postpone a reckoning with reality.  And bailouts transfer losses from the non productive to the productive, from producers to looters.  We should know here in America. Our political leaders did the same thing with General Motors.

BHO and crew are all puffy about the chest just now, claiming that bailing out GM was clearly the right thing to do.  Jobs were saved.  GM is back on its feet. GM turned a profit this quarter. Toyota has been vanquished by trumped up allegations of accelerator problems.  Never mind that the evidence didn't support the allegations. 
People who don't produce goods and services that are valuable to other people just aren't going to be able to borrow their way to prosperity.  To prosper, humans must produce real stuff, using natural resources, their own labor, plus plant and equipment conceived and designed by good thinking, and financed by real saving --- that is, abstinence from consumption.

Why is it that political leaders and their central banks think that money is the issue?  Real production of real goods and services is the issue.  Financial bailouts won't help because it really isn't about the money.

The PIGS will turn it around if and when the people who live in Portugal, Ireland, Greece, and Spain understand that producing, not borrowing, is the way to prosperity.  You can't borrow what hasn't yet been produced.

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