PrestoPundit

ECONOMIC HISTORIAN ROBERT HIGGS

Posted by PrestoPundit on 09/25/2008

points out that credit is flowing just fine — and credit is being supplied by the private market at record and near record levels.  So what if things are beginning to level off?:

One might object that a leveling off, after a long period of steady,
rapid growth does constitute a substantial change in credit-market
conditions. True, enough. But we must also recognize that the rapid
growth of credit during the years from 2001 to 2007 was scarcely a
healthy development. In fact, this effusion of credit fueled the
housing bubble and countless other malinvestments that now must be
liquidated, because without a continuation of the very-easy-money
regime, these projects cannot be brought to completion or, if already
complete, operated without further loss.That malinvestments must now be liquidated merely reflects the
mistakes made in the past, induced by bad government policy at the Fed
and other credit-related agencies, such as Fannie and Freddie. Of
course, some of the necessary adjustments will be painful for the
parties directly involved. But the huge bailout now being concocted in
Congress will only compound the errors of the past by keeping some
malinvestments on life support, deferring the day that lenders must
write off bad debts, and preventing the entire financial system
from returning to a semblance of economic viability without ongoing
subsidies and bailouts that impoverish the taxpayers and threaten the
entire economy.For now, however, the important point to recognize is that the sky
is not falling. Lenders continue to lend at high rates, and the economy
continues to operate reasonably well. If people panic and allow
Congress to exploit the hyped-up fears of the moment, however, much
worse outcomes may be brought about ..

Of course, we been at the tipping point of the artificial boom / inevitable bust — which is putting the inevitable train wreck of the misregulated mortgage industry into play — and these stresses, along with the massive socialist intervention of the government, are showing up in the credit market.

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