Leithner Letter Nos. 144-147
23 December 2011 - 23 March 2012

I consider economic laws comparable to natural laws, and I have just as much faith in the principle of the division of labor as I have in the universal law of gravitation. I believe that while these principles can be disturbed, they admit of no exceptions.

“De la production de la sécurité”
  Journal des Économistes (February 1849)

Will Our Rulers and Their Shills Never Learn?

The end of one calendar year and the beginning of the next is an appropriate time to reflect upon the outgoing year’s twists and turns, triumphs, trials and tribulations. It is also a good time to place these passing events into a broader context, consider their possible causes and consequences, identify one’s mistakes, learn one’s lessons and set a more sensible course for the forthcoming year. Late in 2011 and early in 2012, it seems to me, the wise course remains – as Leithner and Co.’s has been for a decade (see among many examples Letter 30, Letter 46, Letter 72-73, Letter 87-89 and Letter 114-116) – a very cautious one.

In Australasia, Britain, Europe, the U.S. and many other countries during 2011, the prices of most stocks, bonds and other securities were dangerously high (see below). Hence they’re vulnerable to drastic decline – either precipitously in 2012 or steadily over the next several years. Moreover, financial and economic diseases that for decades had been chronic and which became acute in 2007 grew even more critical in 2011. If an individual or a household cannot indefinitely live beyond its means, then how can a government? Do the laws economics somehow exempt states? Can central planners, a.k.a. politicians and central bankers, break them with impunity? Indeed, can they countermand them? Unfortunately, our rulers are convinced that they can. Accordingly, the best and the brightest have diagnosed these diseases incorrectly and treated them inappropriately. Medieval physicians “bled” patients by applying leaches; today, politicians (aided and abetted by accommodating central bankers) “treat” a symptom, namely massive debt that’s grown to crisis proportions, by borrowing even more frantically! Consequently, as it’s been since 2007 so it was in 2011: the anointed harmed the benighted. Alas, because the anointed have forgotten nothing and learnt nothing, it’s likely that in 2012 the benighted will continue to bleed at the hands of their rulers.

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Chris Leithner


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