So, although our government would appear to be comprised of sane, articulate, intelligent individuals, this continuous distillation process has resulted in a preponderance of properly deluded Believers running a System totally devoid of common sense. The few rational politicians left are overwhelmingly outnumbered and completely ignored. No wonder our economy is headed off a cliff. In an age when core beliefs among the elite in such things as hard work, capital investment, and creation of wealth through production have been replaced by government-sanctioned get-rich-quick schemes (and taxpayer bailouts when those schemes fail), the problem has reached all the way down into the foundation of our economy and our American way of life.

Given these facts, it’s obvious that attempts by our esteemed leaders and the Fed to restore confidence and save the economy by lowering interest rates are doomed to failure. First of all, repeated cuts over the last several months have been ineffectual. Writer par excellence Stephen King had an apt phrase to describe individuals who do the same thing over and over expecting a different result. But no need for vulgarity here. So, why won’t easier credit boost the economy? It all comes down to people. Let’s take a look at how the Fed’s carefully planned strategy will affect people:

First of all, the well educated, experienced, capable financial experts who could use the money to make more money and promote economic growth through hard work and investment in America will be unlikely to do so. They have grown accustomed to the sweet milk of easy profits. It doesn’t matter that such opportunities (and perhaps even some of their profits) have dried up. They’ll simply wait for the next cow. No need to get their hands dirty providing services or making stuff. They make money, not stuff.

Captains of Industry, who actually provide services and make things, will also be unlikely to promote economic growth by availing themselves of easier credit. Though some may build more factories and hire more people, they’ll most likely locate the factories in places like China, where nuisances like living wages, medical insurance and Workmen’s Comp can be avoided. If there are any corporate executives left who have the audacity to suggest a less-profitable investment in America, they’ll meet the same fate as the rest of their civic-minded brethren, who were long ago handed a golden parachute and shoved out the door. Nothing personal, of course. It’s all about profits. So sayeth the Board of Directors. So sayeth the shareholders.

Few executives of mid-sized American companies will want to risk leveraged investments in capital in an economy that appears to be tanking. However, small businesses, which are run by people who actually work, could take advantage of lower rates. But many of them are already feeling the pinch of a recession that is, to them, already very real. They will be exceedingly cautious about borrowing to increase capacity to provide goods or services for which there might soon be little demand.

So, who’s left? Hmm. . . Oh, yes— the working people. Let’s not forget about them. Homeowners who foolishly allowed themselves to be lured into massive ARM debt a few years ago will definitely benefit from lower rates. Foreclosures and bankruptcies may even decline for a while, much to the delight of bankers and mortgage speculators. But for the vast majority of homeowners, savings realized through refinancing will simply be spent paying down existing credit card debt, resulting in no economic growth. Other would-be homebuyers will pass, waiting for still-inflated prices to drop. True, a few eager and impatient investors have begun buying up foreclosures at close to real-value prices, but there will be a lot more foreclosures in the coming years. A lot more.

Though Believers in the System may worry about the economy, most will maintain their trust in the Almighty Experts…. Until the bottom falls out. But Disbelievers— people whose faith in the System faded long ago— are far less worried. We understand that a penny saved is no longer a penny earned. It’s now more like two pennies earned, after factoring in interest on all the debt that Believers are paying. We understand that institutionalized disregard for reality is going to have consequences. For us, the Bear-Stearns collapse was inevitable; merely the first domino in a chain that will end in (for Believers) catastrophic financial collapse. When that happens, we Disbelievers will just smirk and say, “Didn’t see that coming, didja?” While we’ll feel bad for the unemployed and displaced, we’ll understand that our leaders were not to blame. We’ve known for a long time that our country has no leaders, only politicians.

Those of us who quit the System years ago and arranged happier, more financially secure lives will simply continue to do what we’ve done all along: work hard at jobs we enjoy while living within our means. We’ll get by. And with a bit of economic adjustment, life in the land with a government Of the Rich, By the Rich, and For The Rich will go on…. With far fewer Believers, and far more debt slaves.


For more on a wide array of other topics, please visit the oftwominds.com weblog.