Wild Week on Wall Street

This past week saw great upheavals in the economy as the great investment banks and brokerage firms either collapsed in bankruptcy or were hastily sold off to more solvent institutions. AIG, a large insurance company, was bought out by the Feds midweek.

The stock market lurched up and down through the week, and late Thursday, the government announced a plan to buy upwards of a half trillion (that’s ‘trillion’ with a ‘t’) dollars of bad mortgages. And somehow, that made things all better: the market went up on Friday, and ended the week only a tick down.

Whew, that was close, but now it’s over. Or is it?

On one level, it makes sense: if we’re able to function with a national debt of $10 trillion, upping it to $10.5T or even $11T is only an incremental change.

But for the government to pump all that money into the economy in a short time will almost certainly be inflationary. No: it is inflationary, by definition. But the question is: has the economy been thirsting for cash for so long that the money will bring things into balance, or will prices shoot up as a result?

At best, we’ll get ourselves back to where we were perhaps two years ago, before the ‘housing crisis’ manifested itself. But I doubt that we will go back anytime soon to what we recognize as prosperity: where almost everyone who was physically and mentally able could find a job that paid a living wage and left one the time and energy to enjoy the non-work aspects of life.

This is because, in the view of the MBAs who run things, paying an employee more than is strictly necessary to keep him, or hiring more employees than will barely get the job done, represents wasted money and a lapse of profitability. And they continue to believe this, even though they are not exempt from their own bean counting: they can’t see what it’s doing to themselves.

An infusion of taxpayer funds won’t change that. And even the choice of the next President won’t change it, either.

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