The Day the World Nearly Ended & Other Gloomy Stuff

There are a couple of pieces of information floating around today that might help us get a perspective on what's really happening with the economy.

I'll warn you right now, it's not pretty stuff. If you'd rather live the life of a mushroom (kept in the dark and fed you-know-what) that's fine. Go read the next post instead.

First, the remarks of Rep. Paul Kanjorski, D-Pa., are raising eyebrows. Kanjorski claims insider knowledge that, on Sept. 18 of last year, someone or someones began an incredible electronic run on the U.S. money market accounts. It hit $550 billion within an hour or so before the Federal Reserve decided to close the windows and regroup.

National Review Online's Katherine Jean Lopez, quoting from the financial blog ZeroHedge, adds this:

... They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn't be further panic out there.

If they had not done that, their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it. (Boldface in the original)

First, I don't know anything about the credibility of the blog site or Congressman Kanjorski. Lopez is reliable, but she posted the quotes and link without comment.

Second, as one of the Great Unwashed (non-elites) I make no claim to economic genius. However, I am a thinker who reads a lot of everything and tries to use common sense to figure out what's really going on. (And I believe this is one of the saving graces of America, that we have the freedom to be Renaissance people, and our collective gut reactions are often better than the opinions of the so-called experts.)

But here's my reaction to this, and it starts with questions: Is this what panicked the Bush Administration into taking so many anti-Free Market steps last fall "to save the free market system."? Who was behind the withdrawals? Was it a foreign company, big money people from overseas, or simply the collective action of investors worldwide?

The answers are important, and the American people deserve to know. If this was an organized attack on our financial system by a foreign government or by a consortium of uber-rich folks in the George Soros' income range, then shouldn't we at least know that these "market forces" were really an assault?

Let's assume that the event happened, for the sake of argument. By keeping the public in the dark, the administration tied its hands by limiting the range of potential responses. Were there not other measures that might have been available to directly go after a threat to our economic way of life? The Bush-Paulson response set in motion a series of events that inevitably lead us to where we are today: spending trillions of dollars we do not have to fix problems that cannot be solved by spending, and establishing strong precedent for a socialist-oriented president and Congress to continue down this dangerous path.

Why? Because we are too delicate to be told the truth? It's like the old government attitude toward UFOs: There's nothing there and you don't need to know the details. Stupid and insulting.

I try not to be a conspiracy theorist because it's generally a waste of time and the truth in most instances if that one should never underestimate the collective hubris of human beings, especially those in positions of power and influence.

But sometimes you just gotta wonder ...

(UPDATE - David C. John posts at NRO on what he thinks happened in September, that it was probably normal and not the result of a nefarious plot. I'm not sure how convincing is his position, but he's spot on with observations that confidence is critical to smoothly functioning markets.)

The second item is an opinion piece by Peter Schiff, posted yesterday. Schiff is the CEO and Chief Global Strategist for Euro Pacific Capital, Inc. A well-known bear on economic matters, he appears on financial shows frequently. As bad as things are right now, Schiff says, they will get worse. The why, however, is why I think he's worth reading. A few excerpts:

Thus far, our economy has actually been spared the worst due to the temporary strength in the dollar and the recent desirability of our Government's debt. ... In addition to cushioning the blow for us, the dollar rally has exacerbated the pain abroad. As money has rushed to our aid it has created a global credit crunch. The rest of the world is not only dealing with losses on toxic U.S. credit instruments but is also shouldering the burden of financing our new borrowing as well. ... In effect, Americans have been using these life-lines to pull the rest of the world into the stormy seas. However, there are signs that those holding the lines are about to cast them adrift. The dollar rally has run out of steam ...

This week President Obama claimed that failure to pass his economic stimulus bill will have catastrophic consequences for the U.S economy. The reality is the catastrophe will be far greater with his plan than without it. If the trends of January and early February of 2009 continue, the rug will be completely pulled out from beneath the U.S. economy, and the full cost of the President's "economic depressant package" will be apparent to all.

If foreign capital does not continue to pour into Treasuries, interest rates and consumer prices in the U.S. will soar. At that point, we will finally be confronted with the real crises that I have long predicted. When the day of reckoning arrives our policy response will be critical. If we continue on the course our new President has mapped out, the catastrophe will far exceed the scope of any he hoped to avoid.

Of course, President Obama says that all major economists share his view that the porkulus package will get the job done. He omits the views of Schiff and over 200 other well-known, big name economists who have come out against the package.

You'd think we'd have time to debate the details of all this, but Mr. Obama says there is no time to waste on frivolous things like public discussion in Congress.

Let's hope Schiff, the trained economist, is all wet, and Obama, the community organizer from the streets of Chicago, is secretly a brilliant economist.