After The Rescue

IT LOOKS as though the US Cavalry made it on time, and that Americans and indeed the people of the world will be spared a total financial meltdown. The stock market (which is the present value of the future earning potential of the economy) rocketed up yesterday and looks like it is taking a breather today.

But that doesn’t mean that we’ll be spared the actual experience of Ludwig von Mises’ definition of a recession: the period of liquidation of the malinvestments of the previous boom. There was plenty of boom until last year and plenty of malinvestment. Now we have to sort through the wreckage.

The good thing is that we are well along in the liquidation of the mal-invested houses of the housing boom of the 2000s. But there is probably a lot more out there that we haven’t seen yet.

After months of stumbling and bumbling, it looks like the world geniuses have come up with a plan to refloat the hard-aground banks. But obviously people are going to need to be rebuilding their balance sheets. That’s a euphemism for cutting spending.

Going forward, it would be nice if we learned something from the current credit crisis. And that simple something is that too much leverage is poisonous.

The chap who’s borrowed too much is an anti-social person who aims to make a killing if things go right, and walk away from a gigantic mess if things go wrong. That is wrong, any way you look at it.

Debt is debt. It ought to be secured and it ought to be limited. If you want to take a risk with Other Peoples’ Money then there is another way to go. It is called equity. When you borrow money you promise to pay it back, principal and interest according to a contracted schedule. When you buy shares in a partnership or a corporation you agree to share the profits and share the losses.

If you liquor—er, leverage—yourself up then you are likely to become financial impaired and unable to meet your obligations. If you confine your risky behavior to equity plays then you can always meet your obligations because you have just said that you agree to sharing in the risk of the enterprise.

This isn’t rocket science, is it?

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Christopher Chantrill blogs at www.roadtothemiddleclass.com. His Road to the Middle Class is forthcoming.

TAGS

Action

The incentive that impels a man to act is always some uneasiness... But to make a man act [he must have] the expectation that purposeful behavior has the power to remove or at least to alleviate the felt uneasiness.
Ludwig von Mises, Human Action

Chappies

“But I saw a man yesterday who knows a fellow who had it from a chappie that said that Urquhart had been dipping himself a bit recklessly off the deep end.” —Freddy Arbuthnot
Dorothy L. Sayers, Strong Poison

China and Christianity

At first, we thought [the power of the West] was because you had more powerful guns than we had. Then we thought it was because you had the best political system. Next we focused on your economic system. But in the past twenty years, we have realized that the heart of your culture is your religion: Christianity.
David Aikman, Jesus in Beijing

Churches

[In the] higher Christian churches� they saunter through the liturgy like Mohawks along a string of scaffolding who have long since forgotten their danger. If God were to blast such a service to bits, the congregation would be, I believe, genuinely shocked. But in the low churches you expect it every minute.
Annie Dillard, Holy the Firm

Civil Society

“Civil Society”—a complex welter of intermediate institutions, including businesses, voluntary associations, educational institutions, clubs, unions, media, charities, and churches—builds, in turn, on the family, the primary instrument by which people are socialized into their culture and given the skills that allow them to live in broader society and through which the values and knowledge of that society are transmitted across the generations.
Francis Fukuyama, Trust

Class War

In England there were always two sharply opposed middle classes, the academic middle class and the commercial middle class. In the nineteenth century, the academic middle class won the battle for power and status... Then came the triumph of Margaret Thatcher... The academics lost their power and prestige and... have been gloomy ever since.
Freeman Dyson, “The Scientist as Rebel”

Conservatism

Conservatism is the philosophy of society. Its ethic is fraternity and its characteristic is authority — the non-coercive social persuasion which operates in a family or a community. It says ‘we should...’.
Danny Kruger, On Fraternity

Conservatism's Holy Grail

What distinguishes true Conservatism from the rest, and from the Blair project, is the belief in more personal freedom and more market freedom, along with less state intervention... The true Third Way is the Holy Grail of Tory politics today - compassion and community without compulsion.
Minette Marrin, The Daily Telegraph

Conversion

“When we received Christ,” Phil added, “all of a sudden we now had a rule book to go by, and when we had problems the preacher was right there to give us the answers.”
James M. Ault, Jr., Spirit and Flesh

Democratic Capitalism

I mean three systems in one: a predominantly market economy; a polity respectful of the rights of the individual to life, liberty, and the pursuit of happiness; and a system of cultural institutions moved by ideals of liberty and justice for all. In short, three dynamic and converging systems functioning as one: a democratic polity, an economy based on markets and incentives, and a moral-cultural system which is plural and, in the largest sense, liberal.
Michael Novak, The Spirit of Democratic Capitalism

Drang nach Osten

There was nothing new about the Frankish drive to the east... [let] us recall that the continuance of their rule depended upon regular, successful, predatory warfare.
Richard Fletcher, The Barbarian Conversion

Education

“We have met with families in which for weeks together, not an article of sustenance but potatoes had been used; yet for every child the hard-earned sum was provided to send them to school.”
E. G. West, Education and the State

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