Treasury Secretary Henry Paulson: White Queen Redux
- Date: 2008-10-17 - Word Count: 730
Share This!
Treasury Secretary Henry Paulson is going to put capital in the banks. In this concept, he shares a rich tradition with Santa Claus and the Easter Bunny. (He leaves free presents, theoretically only to the relatively good, but realistically rather more arbitrarily with a bias toward the privileged, and lastly and most importantly-- it's all a fantasy.)
It's true that Secretary Paulson may be able to improve bank capital, in the sense of benefiting the entries on the bank's balance sheet, but not in the sense of giving a productive capability that didn't exist elsewhere and now has come into being out of nothing. What Paulson can give is only a representation of real capital.
The Department of the Treasury can "inject capital" (Paulson's words from his statement of October 8, 2008), in the same way that the Federal Reserve can increase the money supply, but can't increase (or even maintain) the purchasing power of the new money at the same time.
There are some who'd argue that the balance sheets that Secretary Paulson can manipulate do matter-- that "injecting" "capital" (it's hard to choose which of the prior sets of quotation marks to invest with the most sneering invective; please feel free to curl your lip at both), into banks will buy time until the economy rebalances.
This can only have the appearance of truth when the economy isn't overextended (i.e., it only works when it doesn't matter). The markets are "frightened" and there's a "liquidity freeze" because of the recognition that real capital has been overextended and wasted.
The markets recognize that the only thing to do is sort through the rubble looking for salvage-- that when you're overextended you have to find a way to prioritize-- while Paulson and the government are convinced that they can spin the rubble in really fast circles and make it look like something shiny.
We mistake paper money for real purchasing power and real savings, when in fact it can only potentially represent these things, and that dependent entirely on government trustworthiness. We mistake the bank balance sheet capital (now demonstrating how real it really wasn't with the astounding speed with which it can disappear) for actual resources and capacity to produce-- again it's only a representation (and again an unstable one, since it's considered capable of whimsical "expansion" to "stimulate the economy").
Treasury Secretary Henry Paulson has asked for patience. He wants us to trust government, and share his confidence (his favorite word as things fall apart) that strength will be restored to the American economy.
Secretary Paulson doesn't deserve our trust and belief; the government doesn't deserve our trust and belief, and it's not because they've asked for this all along and failed all along-- it's because they're lost now, and can't possibly find their way in the future since their compasses are backwards.
It's not good for Americans to have confidence in something that's doomed to fail-- it's better to question folly than to have confidence in it. If for example, confidence in mortgage finance and real estate value was yet ongoing today in a continuation of yesterday's real estate bubble, then the confidence would be moving us from stunningly stupid waste of capital and opportunity, to supersaturated thermonuclear stunningly stupid waste of capital and opportunity. Economic confidence is very far from deserving the knighthood that government perpetually offers it.
While it's true that economic and political systems require trust, that only works when they also require trustworthiness. It's not a duty for Americans to unquestioningly accept government foolishness and waste, no matter how insistently the government tells us that questions are destabilizing. The reason our system can fall apart from too much questioning is not because it's built on trust (which we might have a duty to maintain); it's because it's built on leverage (which we do not).
-----
'Now I'll give you something to believe.' [the Queen remarked] 'I'm just one hundred and one, five months and a day.' 'I can't believe that!' said Alice. 'Can't you?' the Queen said in a pitying tone. 'Try again: draw a long breath, and shut your eyes.' Alice laughed. 'There's no use trying,' she said 'one can't believe impossible things.' 'I daresay you haven't had much practice,' said the Queen. 'When I was your age, I always did it for half-an-hour a day. Why, sometimes I've believed as many as six impossible things before breakfast.' (Lewis Carroll)
Copyright (c) 2008 Les Lafave
It's true that Secretary Paulson may be able to improve bank capital, in the sense of benefiting the entries on the bank's balance sheet, but not in the sense of giving a productive capability that didn't exist elsewhere and now has come into being out of nothing. What Paulson can give is only a representation of real capital.
The Department of the Treasury can "inject capital" (Paulson's words from his statement of October 8, 2008), in the same way that the Federal Reserve can increase the money supply, but can't increase (or even maintain) the purchasing power of the new money at the same time.
There are some who'd argue that the balance sheets that Secretary Paulson can manipulate do matter-- that "injecting" "capital" (it's hard to choose which of the prior sets of quotation marks to invest with the most sneering invective; please feel free to curl your lip at both), into banks will buy time until the economy rebalances.
This can only have the appearance of truth when the economy isn't overextended (i.e., it only works when it doesn't matter). The markets are "frightened" and there's a "liquidity freeze" because of the recognition that real capital has been overextended and wasted.
The markets recognize that the only thing to do is sort through the rubble looking for salvage-- that when you're overextended you have to find a way to prioritize-- while Paulson and the government are convinced that they can spin the rubble in really fast circles and make it look like something shiny.
We mistake paper money for real purchasing power and real savings, when in fact it can only potentially represent these things, and that dependent entirely on government trustworthiness. We mistake the bank balance sheet capital (now demonstrating how real it really wasn't with the astounding speed with which it can disappear) for actual resources and capacity to produce-- again it's only a representation (and again an unstable one, since it's considered capable of whimsical "expansion" to "stimulate the economy").
Treasury Secretary Henry Paulson has asked for patience. He wants us to trust government, and share his confidence (his favorite word as things fall apart) that strength will be restored to the American economy.
Secretary Paulson doesn't deserve our trust and belief; the government doesn't deserve our trust and belief, and it's not because they've asked for this all along and failed all along-- it's because they're lost now, and can't possibly find their way in the future since their compasses are backwards.
It's not good for Americans to have confidence in something that's doomed to fail-- it's better to question folly than to have confidence in it. If for example, confidence in mortgage finance and real estate value was yet ongoing today in a continuation of yesterday's real estate bubble, then the confidence would be moving us from stunningly stupid waste of capital and opportunity, to supersaturated thermonuclear stunningly stupid waste of capital and opportunity. Economic confidence is very far from deserving the knighthood that government perpetually offers it.
While it's true that economic and political systems require trust, that only works when they also require trustworthiness. It's not a duty for Americans to unquestioningly accept government foolishness and waste, no matter how insistently the government tells us that questions are destabilizing. The reason our system can fall apart from too much questioning is not because it's built on trust (which we might have a duty to maintain); it's because it's built on leverage (which we do not).
-----
'Now I'll give you something to believe.' [the Queen remarked] 'I'm just one hundred and one, five months and a day.' 'I can't believe that!' said Alice. 'Can't you?' the Queen said in a pitying tone. 'Try again: draw a long breath, and shut your eyes.' Alice laughed. 'There's no use trying,' she said 'one can't believe impossible things.' 'I daresay you haven't had much practice,' said the Queen. 'When I was your age, I always did it for half-an-hour a day. Why, sometimes I've believed as many as six impossible things before breakfast.' (Lewis Carroll)
Copyright (c) 2008 Les Lafave
Related Tags: real estate bubble, money supply, secretary henry paulson, bank capital, the federal reserve, department of the treasury, inject capital, real capital, liquidity freeze, stimulate the economy, lewis carroll
Les Lafavewww.themaestrosrep.orgThe true story of how the term "free market" became history's greatest oxymoron (and some of the morons who oxed it). Your Article Search Directory : Find in Articles
Recent articles in this category:
- Third Term - The Obasanjo Syndrome ... Ambition and the Place of God
I recently read a post in a blog (multibrand.blogspot.com) concerning President SBY of Indonesia amb - Black Veterans Still Not Receiving Their Due
With a Black President, many discussions have been re-kindled regarding the treatment of Blacks in v - Are Green Party Candidates Converting Voters?
Have you noticed that the Green Party Convention is hosting a few training sessions which include th - The National Debt: Young Americans Are Inheriting a Sinking Ship
The greatest fundamental weakness of the United States of America is its national debt. Debt weighs - America Must Return to Its Free Market Roots
The United States is the most prosperous country in the world. Its economy has been a constant engin - Policies Of President Obama And Democratic Congress Severely Undermine Job Opportunities For Young Americans
For Young Americans, this is the worst job market in decades. Despite politicians claiming we are on - The Virtues Of A Limited Federal Government And Why America Must Return To The Limited Federal Republic Laid Out In The Constitution
I consider the foundation of the Constitution . . . that 'all powers not delegated to the United Sta - Young Americans Have Largest Stake In Maintaining A Strong Military And Effective Homeland Security Policies
Americans are truly blessed to live in a country protected by the most powerful and effective milita - Why Hitler Wanted To Ban Guns
Whenever the name Adolf Hitler is mentioned one automatically makes a connection to the Holocaust, N - What Happened To The Mohave County Downwinders?
I always get a bit frustrated when I hear that the reason Mohave County was excluded from the Radiat
Most viewed articles in this category:
- Designer Shoes Come First In Global Poll Of Most Wanted Accessories
For both men and women, shoes have long been an essential fashion item. In fact, many women in popul - New US Ambassador for Indonesia Named
The US government has appointed Cameron R. Hume as the next ambassador to Indonesia, reliable source - 1984 By George Orwell
1984 by George Orwell In the book "1984" Orwell criticizes totalitarianism of all types and brings - Chaos Theory: Bush's delusions & Iraq's destiny (Part 2)
The classic counter-insurgency strategy of the US consists of the "ink-blotch" approach. This involv - Will Israel Attack Iran (Part 2)
In November of last year, I wrote an article speculating about whether or not the Israelis would tak - Rodrigues Island 'autonomy'
Rodrigues Island: 'Autonomy' The first few pages were qui - Obama Is Coming, Clear The Way!
"Obama biro, yawne yo!" (Obama is coming, clear the way)—Tens of thousands of cheering Luo "Tr - African Tribes
African Tribes In this article the economies and lifestyles of such African tribes as the Lele and - This Is Not Your Dad's Republican Party Anymore
Stock markets are strange because they reflect the sum total of all our hopes, fears and prejudices - How to Drastically Reduce our Foreign Oil Dependency While Saving you Money at the Pump
If you watch or listen to the news, discussions come up all the time about the price of a barrel of