[R-G] America needs period of pain

[Anthony Fenton]

Thursday, December 25, 2008
Comment Columnists / Eric Margolis
America needs period of pain

Recessions vital part of capitalist system

By ERIC MARGOLIS

http://www.torontosun.com/comment/columnists/eric_margolis/2008/12/21/7817551-sun.html

The shoes Iraqi journalist Muntader al-Zaidi threw at George W. Bush  
had more courage and truth in them than all of America's fawning  
media. Al-Zaidi reminded the world that Bush, Dick Cheney and their  
helpers have the blood of hundreds of thousands of Iraqis on their  
hands -- perhaps as many as one million.

In New York, fabled investment guru Bernie Madoff is accused of  
bilking clients of an astounding $50 billion while well-fed federal  
watchdogs snoozed.

Thanks to Madoff and Wall Street bandits, tens of millions of people  
have lost their life savings and retirement funds, and the world  
financial system is on the rocks.

Wall Street's big money con men, hedge fund Houdinis, and casino  
capitalists made a staggering $33.3 US billion in bonuses in 2007  
alone by shady financial engineering and hawking fraudulent  
securities. Yet they have so far escaped prosecution. They get to keep  
their swag and $30-million South Hampton beach houses.

Worse is coming. Chrysler and Ford will shut plants in January. GM is  
next. In spite of the $13.4-billion auto industry bailout announced by  
President Bush last Friday, many plants may never reopen. As this  
column has long said, the U.S. auto industry closely resembles the old  
Soviet Union: Economically declining, bereft of new ideas, producing  
unwanted products, run by dimwitted careerist bureaucrats.

America produces the wrong cars, and far too many. The bloated auto  
industry must downsize. It has been selling cars only thanks to the  
steroid of cheap, easy credit -- in effect, almost giving them away.  
Now that the drug is largely cut off, sales have nosedived.

The U.S. economy has been running almost entirely on credit for a  
decade.

The U.S. national debt is twice America's net worth. Government and  
business encouraged a reckless credit binge to which the nation became  
addicted.

SAVINGS

Manufacturing fell to only 12% of GDP. Finance -- the shuffling of  
paper -- became America's leading industry. Americans saved nothing  
and had to borrow $1.2 trillion from China and Japan to keep the orgy  
of consumerism going.

Washington's response was panic, then flooding the economy with  
freshly printed money in hope something positive would happen. Japan  
made precisely the same gamble when its bubble economy collapsed in  
the early 1990s. Today, Japan has one of the world's highest deficits  
and its economy remains dead in the water.

The U.S. economy must be weaned off credit addiction. Pumping billions  
and billions of dollars into the economy is like mainlining more drugs  
to a sick junkie.

The economy needs a period of cold turkey in which remaining credit  
bubbles, bad debt and financial distortions are purged. This is called  
recession, and it's a vital part of the capitalist free market cycle.

Without a period of pain, we can't restore economic health or sanity.

But panicky American politicians plan to spend $8.5 trillion to stave  
off this necessary, beneficial recession. Their misguided efforts risk  
igniting a future firestorm of inflation that will be far more  
dangerous and painful than any recession.

HYPERINFLATION

That is why the European Central Bank, with vivid memories of the  
terrifying 1920s hyperinflation in Germany when a loaf of bread cost  
80 million marks, has resisted deep interest rate cuts and printing  
money.

The Fed's recent slashing of U.S. interest rates to zero is a sign of  
utter desperation and an act of folly. Once investors realize that  
Europe, Canada and Asia are far safer investments than the U.S., watch  
for the U.S. dollar to nosedive -- as it should.

The remedy for America's economic ills is not more money but patience.

Americans must relearn the old verity that one must save for purchases  
and rainy days; that gambling with your home is idiotic; that there is  
no substitute for hard work or manufacturing; and that it's always  
very risky to trust politicians or financial "professionals" with your  
money.