Scary video

Last night I watched a short video clip of an interview with money manager Peter Schiff that scared the hell out of me. The gist of the interview was this: Bush did not allow the free market to operate under his administration, encouraged an economy built on borrow and spend, and now Obama is poised to make a bad situation worse with passage of the stimulus bill. What was already destined to be a sharp recession, he says, will now become a depression that will also witness the onset of hyperinflation.

While I am not sure how much I agree with that last prediction, I think he is at least on target with his diagnosis. At the onset of the last recession policymakers freaked out so badly that they did whatever it took to dull its impact, most notably slashing interest rates. In large part they succeeded, with the last recession fairly mild based on a number of metrics such as unemployment claims, the misery index (unemployment plus inflation), the service sector index or auto sales. The problem here is at least two-fold, with such policies both crimping the salutary effects of a recession -- basically cleaning out the detritus that had accumuluted during the previous boom -- while also setting the stage for growth based not on sound fundamentals such as increased productivity but easy money.

President Obama has talked a lot about the need for hard choices and change. If he really means that, then he needs to embrace the fact that a sharp recession may be what is needed to place this economy on a sound footing. His economic stimulus bill will accomplish nothing except slowing the necessarty adjustments and dragging the pain out. He could also undertake measures such as tax and regulatory reform that promote a more business friendly environment.

That, however, would not be the politically expedient path, and thus far Obama has shown that his talk of change, sacrifice and hard choices is little more than political bluster.