"This government promotion of cheap money during and after World War I led at the time to private speculation and investment of resources in unsound business ventures, just as similar policies are doing now... With government pumping forth the money, all businessmen are inclined to become borrowers, until bankers eventually find themselves overloaned on bad risks."
Sounds like it was written in the last few years doesn't it? It wasn't. Dr. Paul Poirot published this essay 40 years ago. I am constantly amazed as to what lengths people will go to in order to criticize the free market. It never fails though that behind every so called "market failure" we find just another needless (and usually unconstitutional) government policy and the law of unintended consequences.
What is even more unsettling is the lack of generational knowledge being passed down from parent to child in Western Civilization. We have, as a nation, confronted this exaggerated boom and bust cycle numerous times since the Great Depression. Each of them caused by the same sequence of events. Easy credit from the Fed, increased borrowing and unsound investments by private business and individuals, some sort of panic that causes a contraction of that credit and finally a major bust. The last boom and bust we experienced was further complicated by Congress meddling directly in the economy (not content to simply use their pawns at the Fed) by forcing banks to make home loans to individuals who were not credit worthy. Who knew that forcing banks to liberally lend money for home loans, thus increasing the demand for homes, would lead to an astronomical increase in the value of real estate? Similarly, who could have predicted that those same borrowers, once deemed to be to much of a credit risk by the banks, would default on their loans under pressure, thus bringing down the whole house of cards? These are of course rhetorical questions. The answer is anybody with half a brain could have seen these things coming.
The oldest daughter of my oldest friend was complaining on facebook the other day that she just couldn't understand her history homework and didn't see the point. Many of her friends echoed that sentiment. 'You don't need all that knowledge of history in real life,' they told her. 'It won't matter at all once you graduate.' I beg to differ and the current financial mess our nation is in is the reason why. I know to this young lady I'm just an old man, like her dad. However, I hope she comes to realize, and soon, that if her generation doesn't learn from the mistakes of the past she, and her children, will repeat the same wealth eating, family destroying, heart breaking boom and bust cycle that we are going through right now. Unfortunately, next time, I fear it will be much worse.
