Some of you know that I doubt the claim that credit markets “seized up”. I don’t even know what seized up means. It wasn’t defined in any of my economics texts and I haven’t heard anything other than a high pitched squeal when I have asked the press that used the term to define it. I have no doubt that some people who used to get credit can’t get it now and I have no doubt that some people are paying higher interest rates. That’s probably a good thing in an economy brought to it’s knees in part by a government engineered credit bubble. But I see no “seizing up”. The credit data that I have seen shows steady increases in credit not decreases.
Can someone point me to the evidence of “seizing up” or that there is any good reason to continue to flood the economy with printing press money.
I keep looking.
Here is an example of the propaganda that we are expected to accept.
An Oct. 29 CNNMoney.com article is headlined Entrepreneurs to Congress: Help our failing businesses. The subtitle reads, A House committee hearing on the help small businesses need to survive the credit crunch offers many suggestions, but little indication of quick action.
Here is how they describe how the credit crunch has hurt a small business.
NEW YORK(CNNMoney.com) — Riemeier Lumber weathered every economic crisis since 1925, including the Great Depression, but it isn’t surviving the latest one. The Cincinnati building materials company will shut its doors November 6, laying off more than 100 employees.
Riemeier expanded its operations just before the bottom fell out of the housing market. As the company bled cash, its bank advised it to seek loans elsewhere, but owner Thomas Franke couldn’t find any willing lenders. On Tuesday, he traveled to Washington to share the story of his company’s collapse with the House Small Business Committee.
“For a business that has been in existence for over 70 years and survived the Great Depression to be closing its doors after all these years is very telling about the challenges facing entrepreneurs,” said Nydia Velázquez, D-N.Y., chair of the committee. “It’s time to provide small businesses with targeted assistance that will allow them to keep their doors open and help ensure a strong economy.”
I am a small businessman in a very cyclical business. Whenever I see a business fail I am sure to be grateful for every next payroll I can make. I certainly feel badly for everyone affected by Riemeier Lumber’s troubles. I have a question though. Why on earth did you choose to expand your operations in the middle of a bubble created by artificially low interest rates and unsustainable government mortgage policies? People have been predicting the bursting of this bubble for years. Didn’t you read the papers? Or could it have been that you took a calculated risk based on the best information you had at the time in hopes of making some money and in the process creating some jobs and helping some people get nicer places to live?
My point is that business decisions are a judgment call. It’s something the Austrian Economists call “economic calculation” and reliable economic calculation requires a reliable pricing system. If government artificially lowers interest rates – the price of money -and artificially pumps up demand for housing it amounts to a campaign of economic disinformation. The government tricked Riemeier Lumber into expanding. Now the company is on its hands and knees begging for it’s life.
It’s a game some salespeople (the more cynical of the breed) call “Make me sick, make me well”. The customer has to feel the pain before they will buy the medicine. Did the government do it because they are evil and wanted to deliberately hurt the company? Probably not, they are probably just incompetent to run an economy. Who is competent? You and me and millions of other people making their own economic decisions in an enviroment where the government does not engage in economic disinformation.
So sorry folks, this is not an example of the failure of free markets or proof that credit markets have seized up. It appears to be just the reassertion of a rational market correcting itself after the government did everything it could to distort it. Unfortunately there are a lot of innocent bystanders. I think Alan Greenspan who artificially lowered interest rates and every legislator who voted for the CRA and for GSEs should forfeit their salaries and pay damages to Riemeier Lumber. That’s who caused the problem. Let them pay for it out of their fat pockets.
And I am still not convinced that credit markets have seized up. They are just doing what they do best – correctly allocating resources.