Laws Congress Can't Change

It's been a wild week, with irritations ratcheting higher and diplomatic tempers flaring.

"And now nothing shall be withheld from them which they have desired to do..." I mentioned this quote several weeks ago. It comes from one of the many attempts that foolish men have made to be as God. It also brought about one of the greatest cataclysms in history. You can read the whole thing in Genesis 11.

For us, it applies heavily to the advances of government into the field of business. It only makes sense: the occupants of the White House and the Capitol have done such a good job with their budgets over the years, they just want to help everyone else (over the cliff, that is).

It began, as it always does, with just the camel's nose in the tent. A bit of money here, some bank guarantees there. But then, as the fable tells us, the rest of the camel wanted in.

The government insisted on foisting money on companies that didn't even need it. Washington's excuse? If the only companies taking the money were the ones that needed it, those companies would suffer a "stigma." But if every company took the money, even if they didn't need it, the bad ones couldn't be singled out.

We, of course, would never know the difference between the two. So much for more transparency in government. Now the companies who didn't need the money are lashing back. Having to pay 5% interest on money they didn't need to borrow is only a greater liability to already burdened companies.

But the government's fun still wasn't over. It forced out a CEO at AIG, now one at GM... and it passed a stimulus plan that required contractual bonuses be paid, then issued a 90% tax on them when the public outcry became too great.

Now Chrysler is being pressured to bring green cars to the market by none other than their new "boss," the Obama administration. Of course, they already have a green car, but the "boss" says it's too expensive for the public to afford. So, essentially, he pulled the plug on it. Frankly, I'd like to know why he thinks that Chrysler's greenie is too expensive. It certainly could not cost more than the bailout price tag they have forced each of us to shoulder. Expensive is a relative term.

Make no mistake about it, we are living in times that will likely produce great changes in the world. There is a certain theory that attempts to explain the history of the world through great cataclysmic events.

Some are occurrences in Nature; some are wrought by the folly or the genius of men. Let me say at the outset that I am a subscriber to this philosophy, so have no illusions about what I am saying.

Actually, most people who ever think about such things believe that all of existence began with a great cataclysm. You can call it the "Big Bang" - no matter if you're referring to the "Big Bang" that set the evolutionary process in motion, or the "Big Bang" of God creating the heavens and the Earth.

At some point, life came into existence - a big event in the universal process of all things. Of course, this is the point where the two theories begin to diverge from one another. Evolution has no more "Bangs" left in its bag. It is a slow and relatively even process from there on. Which is, I suppose, why it takes them billions of years to get to the point that God was able to accomplish in six days.

But for the recorded history of men, it has been one cataclysm after another, of varying sizes and types. Famines, floods, pestilence, earthquakes, volcanoes... and other natural disasters take their toll, but seem to always right themselves over time.

The follies of men, however, are a different matter.

The wonderful world of economics is no exception, and has no exemption. As I have said before, economics bears within itself the very principles by which God has made it to be governed. The Law of Supply and Demand is not dependant upon Congress. It was not invented by the whim of elected or appointed regulators. It is not governed by the United Nations, the International Monetary Fund or the European Union.

It brings to mind a letter someone once sent to Congress. Perhaps you've heard about it before. If not, please enjoy:

Senator John W. Bricker
The Senate
Washington, D.C.

Dear Senator Bricker,

In my opinion I would suggest that if the Senate and Congress would abolish that awful law of supply and demand, it would increase production. Stop hoarding for high prices as is now being done by the government and others. Push all products for sale to the markets and start competition. The law of supply and demand is a burden to the Consumer because they foot all of the bills.

I trust you and your fellow senators and congressmen will act promptly.

Gerald V.

(Taken from Dear Mr. Congressman, by Juliet Lowell {New York: Duell, Sloan, and Pearce, 1948}, p. 91.)

I suppose we ought to give Gerald high marks for even knowing the term "supply and demand," since I tend to think you might be hard-pressed to find it in the vocabulary of modern high school students. I have long felt that it would be a good question for Jay Leno's "Jaywalking" segment of the Tonight Show.

At any rate, the laws of economics are established by a much Higher Power than we will ever be. And while we are at it, we should also understand that the Power is stronger than we can ever successfully contend with.

This is why, try as we might, we cannot substitute our own economic devices and have them succeed.

So let's put a finer point on all this. The value of a nation's currency is built upon the honesty behind it. Even a currency backed by gold becomes worthless if the government holding the gold cannot be trusted. While in days gone by it was easier for authorities to debase a metal and get away with it, all such obligations now are simply based on a government's willingness to part with its gold. Of course, these days it does not happen.

And while the United States has been an expert in telling other countries how to morally treat their people, we have been robbing them blind! It has gotten so bad that even the Evil Empire and the Red Menace have seen through our chicanery. We may look upon them as people less "evolved" than we are, but the jig is up. Our hypocrisy has been found out.

We have become like the man in the Biblical parable who tried to remove a speck from the eye of his friend, when he himself had a log in his own eye. "First remove the log from your own eye, and then you will see clearly to remove the speck that is from your friend's eye." Seems like pretty simple (and common-sense) advice. But in the words of newspaperman Horace Greeley, "Common sense is very uncommon."

I began this by saying that cataclysmic times are upon us. We are seeing the shaping of men and nations. We are setting the groundwork for the impoverishment of generations.

Spain fell in line with the prevailing models of economics by bailing out its first bank in a quarter of a century. And with a broad brush it painted its regional banks as "heavily exposed to property developers struggling during a deep recession."

I have told you often of the difficulties prevalent in Europe. Here is but one more piece of evidence. Authorities are planning to solve this with 2-3 billion euros - but, oddly enough, have promised up to 100 billion euros. Wow! That's a huge disparity. I believe they may think it will take more than just 2 or 3 billion.

On the same topic, European Central Bank President Jean-Claude Trichet sees more ongoing deterioration all across the Eurozone. Market forecasts believe Brussels will announce a 50-basis-point rate cut later this week. Germany, which makes up about 25% of the euro economy, is looking for an acceleration in economic deterioration.

This is a cataclysm.

Central Banks are flying blind with an instrument panel that has no configuration for the geography. The fixes they are trying will lead us to Zimbabwe (hyperinflation) or Tokyo (perpetual slump). Pick your poison.

In the meantime, I am forced to look for more overall dollar strength. The United States still possesses the deepest markets and the "deepest pockets" in the world. If other economies continue to fail, fiat currency supply and demand will favor the dollar. And by "deepest pockets," I mean they are committed to inflating their way out - and have more ability to do so than anybody else.

I know looking for dollar strength seems a little backward while they are inflating. But the truth is, ever since the credit crunch, everything has been turned on its ear. If you are new to the currency markets, say within the last couple of years or less, likely most of this action makes very little sense to you. But in these times we must remember this axiom: The market will eventually adjust to actual realities. In the meantime, it will be moved by perceived ones. As long as fear filters through the markets, the currency flows will come back to the dollar. When there are periods of vacillation between fear and risk, the currencies can swing wildly.