Friday, August 1, 2008

Joseph Calhoun had an excellent commentary on the credit problem in yesterday's American Thinker

Joseph Y. Calhoun, III, had an excellent commentary on the credit problem in yesterday's American Thinker. I especially appreciated his wisdom when he pointed out that the real problem is a capital accumulation problem, not a credit problem. He began:

A long wave of credit stimulation has been allowed to obscure the underlying problem of capital accumulation in the United States. We are paying a price, but not solving the problem.

The political class simply cannot be trusted to provide solutions. They are too interested in retaining power for the sake of power. They do not have the guts to say what needs to be said for fear of alienating some group of supporters. They do not have the integrity to stand on principle and advocate unpopular but necessary policies. They are too beholden to special interest groups to do what is right for the country rather than what is right for their campaign contributors. It is high time that politicians were held responsible for the damage done by policies intended to benefit the few at the expense of the many....

In a recent market commentary, Bill Gross called credit the mother's milk of capitalism. That sentiment, echoed by our politicians and policy makers, is the source of our problems. It is not credit but capital that is the lifeblood of capitalism and the US doesn't accumulate enough capital to support the growth to which we've become accustomed. The savings rate has ticked somewhat higher over the last few months, but for years we've saved too little and spent too much. The difference to date has been provided by foreigners such as the Chinese who now own over $1 trillion of US debt and Middle Easterners who own even more.

The U.S. problem is not a lack of credit. Our extremely low interest rates are testament that there is plenty of money available to be borrowed if Americans were credit worthy. The basic problem is a failure to accumulate capital (i.e., a lack of savings). No amount of borrowing from abroad will solve the underlying problem.

Follow the following link to read his commentary:


No comments: