The Melt Returns

What's the biggest difference between October 2008 and October 1929?

In October 1929, there were no Treasury bills. They didn't get first issued until December of that year.

This is what got me down on Friday. All sorts of interesting things have happened these past few months, good and bad, but the most interesting of all, and the most bad by far, is the historic flight to Treasury bonds.

In times of uncertainty, why would anyone invest their cash in a business, which has to deal with the rigors of survival in a tanking economy, when they can put their money in Treasury bonds for a guaranteed return? And if everyone is willing to buy government debt, even at ZERO YIELD, why wouldn't the government expand its debt base?

Rather than having a market give money to those who can make it grow, which is the whole idea of capitalism, we instead have everyone loaning their money to the government, and the government in turn giving that money to people who have an unusual aptitude for making it shrink.

When all this started, people were fascinated by my pessimism at where this all might lead, but not even I thought it would get as bad as this. Government debt has royally screwed up our capital markets. This mess started with an explosion of bad debt, but it has spilled over into the mother of all economic downturns because the people who have the capacity to PRODUCE something can't get any money to do so. All the MONEY has been lent to the government!!

And the bigger problem is the way the bureaucrats are salivating at all this cash investors are throwing their way. The plan now is for Congress to draft and pass a "stimulus" package in time for Obama to sign it on his first day. The gossip about this plan is....

...beautifully absurd.

And now we all must take a deep breath and enjoy this ride, because this sucker's about to get wacky. The great Terry Gilliam movie Brazil is coming to life before our eyes. New airport runways, giant windmill farms, new bridges, old bridges, new roads, new railroads, "green" car-building factories, and any other excuse to give away all this cash to people who can help the politicians get rich and re-elected. All is on the table. All will be financed by the debt money. All will be overseen by government, so none of it is gonna work. A million new little defective projects all over America. "Bailout" is going to be replaced in our lexicon with "stimulus," as in, "Where's my stimulus?" "Harry's family got in on the stimulus," "He's just a no-good stimulus-grabbing loser." Twenty years from now, the landscape will be cluttered with beautiful, rusty ruins. We'll call them "stimulus projects."