I say it was a combination. There was too much regulation in some areas–where it was not necessary (see the Community Reinvestment Act, CAFE fuel economy standards, and dozens of other areas).

Meanwhile, there was too little regulation in other areas–where it was made necessary by the government taking on risk. Bank regulations are necessary as the mechanism by which the government keeps watch over its risk. If the government is going to guarantee bank deposits, then the government needs to do the due diligence that we would expect from a free market player making a large investment in a bank. The same thing is the true for Freddie Mac and Fannie Mae (the GSEs). So long as those institutions appeared to be solvent, Democrats swore that there was no government guarantee–therefore no need to regulate them. Of course, once the they became insolvent, then everyone stepped up and said they were too big to fail. So, we got the worst of both worlds. We had the government “investing” in the GSEs without doing its due diligence while “capitalists” took advantage of the fact that the risks were covered.

So we have “too much” regulations that don’t have to do with covering government risk and we have “too little” regulations that do.

I don’t understand foreign exchange (currencies ought to change value in response to transportation costs involved in buying from the cheapest source, in my opinion, and they seem not to), or why the Chinese like to hold surplus dollars rather then spend them; but if the Chinese want to sell the IOUs, what do they get for them? Dollars.

The only thing on God’s green earth that you can do with dollars is invest them in the US economy, or buy something from the US economy. Both of which solve our problem.

IOUs sold to Americans, at any interest rate, are not a national burden. The debt is to ourselves, and cancelled exactly by assets, namely the IOUs themselves.

The hazards are populist campaign issues they might threaten; and actual misallocation of resources by government spending in the first place.

His main points are:

• We have entered a period of extreme risk aversion, due to the Fannie/Freddie Collapse, particularly in the financial sector, and similar to that experienced in the Great Depression.

• The Obama stimulus package and his likely policies do little to make the market less risk averse and in the case of many his policies like his proposed higher payroll tax, make it much worse.

• The stimulus package may improve GDP numbers, but it won’t affect unemployment, because in effect the economy through the stimulus package may be buying less goods for more money.

The hallmark of a socialist bureaucracy is to increase the risk for investment.

Now the baby boomers are leaving their peak earning years. They are followed by less well educated and less well parented children (the rise of divorce and out of wedlock children).

To add to the problem, the babyboomers were used to living well and did not save much. Unless we can increase productivity and savings in this country, we are going to have to learn to live with less.

“Over the really long term, rising population growth and technological advancement probably guarantee a return to economic growth.”

Rising population constrained to a world with finite resources is a Bad Thing. Petroleum is about $48/barrel. Unfortunately this low price is due to demand destruction from the depressed world economy. Peak Oil is real and will eventually kill what’s left of our economy if we don’t transition away from fossil fuels.

Appropriate technological advancement is a Good Thing. However, keep in mind that nuclear proliferation is an example of inappropriate technological advancement. There are a whole bunch of technological booby traps waiting out there, e.g. weaponized viruses, the artificial intelligence “singularity”, fissionless fusion weapons, total loss of privacy (every conversation is computer monitored), etc. A big problem that we have in the United States is not enough money is being spent on higher education and advanced technological research and development. My profession is aerospace engineering. Most people don’t realize this but aerospace engineering went moribund around 1972 after the double whammy of the Apollo Program being terminated along with cancellation of the Boeing SST. Concepts are still coming out, e.g. UAVs, hypersonic propulsion, rovers on Mars, etc. However almost all of those concepts were initially developed on paper before 1972, e.g. hypersonic propulsion was invented by Antonio Ferri in the early 1960s. We’re drawing down ideas from a reservoir that is not being replenished with new concepts (eating our seed corn).

49erDweet said:

“The economy is controlled by “consumer confidence”. With its last few gasps the MSM will bugle how well the teensy messiah is doing “governing” his kingdom and fools will begin “spending” again.”

Actually the economy has been driven by bubbles. This is a consequence of our becoming a “service economy”, i.e. we’re not producing anything new and only recirculating old money. It used to be that a person could get rich by coming up with a better farming method, finding a new mineral deposit, opening a factory based upon a new technology or simply coming up with a technology that created new forms of wealth. That ship seems to have sailed. Now a person gets rich by coming up with some new Ponzi Scheme, e.g. the Dot Com, the sub-prime mortgage fiasco, Green/politically-correct technology, etc. The name of the game is to sucker elderly people into investing their 401K retirement money and then scuttle off before the suckers realize they’ve been had.

49erDweet also said:

“A move to Chile or Australia does look better, but those countries, too, will be affected by the gigantic “elephant” in the room.”

I don’t know about Chile but I lived in Australia for 7 years before returning to California. IMHO, Australia is one of the best places in the world to live but a lousy place to work. I left Australia because it was impossible to find steady employment. If you are planning on retirement and have your money in hand then moving to Australia or New Zealand would be a ***Good Idea***. However, I would advise keeping your money in Swiss Francs and only convert to the local currency as you need it, particularly if you opt for New Zealand. Australia’s fortunes will improve because the country is still very rich in natural resources such as high grade iron ore, bauxite and anthracite coal. Also Australia and New Zealand probably will not get nuked when the Islamic fascist thing reaches its logical conclusion (minimal issues with nuclear fallout, mega-deaths, etc.). However Australia’s economic situation will change in 20 years as the country gets mined out but that’s a non-issue if you’re already retired and your money safely squirreled away.

Peter Boston said:

“That’s when I noticed that the period from Cincinnatus – statesman, soldier, republican – to the patrician led and very public assault on Scipio Africanus – the man who won the war that could not be won – was 236 years. The time from George Washington to George W. Bush is about 232 years.”

I’ve done the same analysis. It’s clear that we’ve “timed out”. Obama isn’t smart enough and doesn’t have the distinguished military career to be a Lucius Cornelius Sulla. My guess is the American Sulla will appear after Obama hammers everything into the ground (our Sulla will be a handsome young man with several university degrees and a distinguished military record, e.g. a brilliant USMC officer, combat decorated for heroism).

That depends on what the Fed does when money starts moving again. At the moment, the new money just winds up back at the Fed as a deposit by the banks, as the financial system deleverages.

Money that doesn’t move in search of having the economy do something for it is money that doesn’t count. If you put dollars in your mattress, the Fed will notice the money supply is a little low and print a replacement. If you then spend your mattress money, the Fed sells a little debt to soak it back up.

All the new money at the moment is going right back into a government mattress, and so isn’t itself a cause of inflation.