Courtesy of Mish.
I was asked a few days ago by Zócalo Public Square, a not-for-profit daily Ideas Exchange, to contribute a brief comment to coincide with their upcoming event “Can We Fix What’s Wrong With Banking?“
I was specifically asked to address the question “should we have bailed out the banks?” Here is my response:
No, we should not have bailed them out. That’s the easy question.
Now that we have bailed them out, however, here’s the important question: “Will we fix what’s wrong with banking before there is a global currency crisis?“
On that score I have my doubts. The simple fact of the matter is we have a massive mountain of debt everywhere you look: Federal debt, State and local debt, student loans, housing, unfunded liabilities in Medicare and Social Security, and untenable pension promises at every level of government.
Most agree that is a problem. Unfortunately, that’s where the agreement stops. Yet, before we can address the debt crisis, we have to understand how it happened.
The source of the debt crisis is two-fold:
- Fractional Reserve Lending
- Fed (central banks in general)
Everything else is a sideshow, but few realize it.
Symptoms vs. Problems
The symptoms of the debt-bubble are slack demand, a lock of jobs, and stagnant growth. Most policymakers are hell-bent on attacking those symptoms, not the problem.
Many point to the end of Glass-Steagall, rating agencies, “too big to fail,” bank bailouts, and excess spending by governments. There are screams for more regulation in nearly every corner. The unions want more handouts. The socialists want to redistribute wealth. Those on fixed income want bigger Social Security checks….
