Posted by
Andrews on Monday, February 23, 2009 1:50:26 PM
I have realized while writing about our economic problems that I am in a very small minority. In all my writing, I have assumed that this is a deflationary crisis coming after nearly two decades of rather consistent inflation. However, I realize that most people still think this was caused entirely by the subprime crisis and that only the CRA and Fannie/Freddie are to blame.
Now, much as I would like to blame the Democrats for this, I can't. The CRA/Fannie/Freddie did exacerbate the problem. By creating a housing boom, and generating an additional monetary expansion through the credit created in new, under-capitalized loans, they did create a mini-inflation of their own, but the overall problem is inflation.
As I described before, the inflation we have experienced is the real cause. Even without the CRA we would have experienced this crash. Maybe not now, maybe not in this particular form, but we would have. Yes, the CRA did misdirect an exceptionally high percentage of the new money into real estate of one form or another, but if it hadn't the money would have gone somewhere else, and we would be talking about a second dot-com crash, or a crash in oil stocks, or something else.
Every deflationary crisis has a catalyst. We don't call the Great Depression the Austrian credit crisis, even the that was the trigger of the world-wide collapse. Similarly, though the housing bubble bursting led to the subprime crisis, which eventually led to the entire collapse of our inflationary bubble, the subprime loans were not the cause, just a symptom.
Of course, I am sure some will disagree, and I would be happy to debate the point should anyone wish. But if you look at it, all the hallmarks of a deflationary crisis are there. Even if, as with the dot-com crisis, we refuse to recognize them.
POSTSCRIPT
I found one person who agrees. In
Debra Sanders' column today, she cites a British banker who said, regarding the British economy:
Brown presided over a policy based on
excessive consumer spending based on massively increasing property
prices, which were caused by excessively easy credit which could only
ultimately lead to disaster. But no, in Gordon's mind it was all caused
by global events beyond his and anybody else's control.
The same could have been said about the US, but strangely very few are.