Sunday, March 22, 2009

The Panic of 1819

Yesterday, I happened upon the PBS series "The Supreme Court". As I tuned in, they were explaining some of the landmark decisions made by the Court under the leadership of Chief Justice John Marshall. A featured case was McCulloch v Maryland, which took place in the midst of the Panic of 1819.

I was intrigued by their description of the depression of 1818/panic of 1819, which featured a severe recession, bailouts of debtors, reduced foreign trade, and lots of anger directed at the banks and money men. Ohio History Central sets the scene:

During the various British-French conflicts, United States goods, especially agricultural products, were in high demand in Europe, [and] Americans had purchased Western land at an extravagant rate. In 1815, Americans purchased roughly one million acres of land from the federal government. In 1819, the amount of land had skyrocketed to 3.5 million acres. Many Americans could not afford to purchase the land outright. The federal government did allow Americans to buy the land on credit.

As the economy ground to a halt in 1819, many Americans did not have the money to pay off their loans. The Bank of the United States, as well as state and private banks, began recalling loans, demanding immediate payment. The banks' actions resulted in the Banking Crisis of 1819 and helped lead to the Panic of 1819. The federal government tried to alleviate some of the suffering with the Land Act of 1820 and the Relief Act of 1821, but many farmers, Ohioans included, lost everything.

As a result of the Bank of the United States' actions, money became scarce, making it even more difficult for people to pay their debts. Several states, including Maryland and Ohio, implemented taxes on the Bank of the United States. These states hoped that, by taxing the banks, money would then enter the grasp of state governments. The state governments could then make loans to their citizens, thus relieving the money shortage.
Gee, land speculation, easy credit, and debtors crying for relief when the economy tanked and they couldn't pay their mortgages.

The Federal Government had been selling land to pay off its debts from the War of 1812. Inflation (abetted by the use of paper money) made the debts cheaper. Wikipedia explains:

Austrian school economists view the nationwide recession that resulted from the Panic of 1819 as the first failure of expansionary monetary policy. This explanation is based on the Austrian theory of the business cycle. Government borrowed heavily to finance the War of 1812, which caused tremendous strain on the banks’ reserves of specie and led inevitably to a suspension of specie payments in 1814 during war & again in 1819-1821 during recession, violating contractual rights of depositors.[5]

The suspension of the obligation to redeem greatly spurred the establishment of new banks and the expansion of bank note issues. This inflation of money encouraged unsustainable investments to take place. It soon became clear the monetary situation was bad, and the Second Bank of the United States was forced to call a halt to its expansion and launch a painful process of contraction. There was a wave of bankruptcies, bank failures, and bank runs; prices dropped and wide-scale urban unemployment began. By 1819, land measures in the U.S. had also reached 3,500,000 acres, and many Americans did not have enough money to pay off to their loans.[6]

Today, we have a highly stimulative Fed policy, low interest rates (and getting lower by the day), and a government dedicated to printing money as fast as it can. We won't be done in by tight money like our forebears were in 1819. But is Washington setting the stage for a worse boom and bust in the future by its attempts to goose the money supply?

Totally Clueless

Andy McCarthy over at The Corner:
Is there any evidence, since the government began nationalizing swaths of the economy last autumn, that Washington has a clue about what causes positive corporate performance or about what is in the financial interest of a business enterprise? Yet the more value the Obama administration and the Democrat Congress destroy — their demagoguery and fiscally insane policies eviscerating the very tax base needed to pay for their exploding liabilities — the more control they get.
Why is it that our leaders in Washington and their staffs, are clueless about how wealth is really created? Could it be that they have never worked in private industry?

Consider the number of politicians and bureaucrats who have spent their entire working lives in the not-for-profit sector, including government, academia, unions, and non-profit NGOs. President Obama is a prime example of the leeching class, who make their living off the profits of others: obtaining money by taxation, or grants of tax monies, or donations, or dues.

The Democrats are good at winning elections, for which populist demagoguery is quite useful. It's not so hot as a governing philosophy. Joe Nocera writes in the New York Times:

What the country really needs right now from Congress is facts instead of rhetoric. Instead of these “raise your hand if you took a private jet to get here” exercises of outraged populism, we need hearings that educate and illuminate. Hearings like the old Watergate hearings. Hearings in which knowledge is accumulated over time, and a record is established. Hearings that might actually help us get out of this crisis. It’s happened before. In 1932, Congress established the Pecora committee, named for its chief counsel, Ferdinand Pecora. It was an intense, two-year inquiry, and its findings — executives shorting their own company’s stock, for instance — shocked the country. It also led to the establishment of the Securities and Exchange Commission and other investor protections. One person who has been calling for a new Pecora committee is Senator Richard Shelby of Alabama, a Republican and key member of the Senate Banking Committee.

“As we restructure our regulatory system, we need to be thorough,” he told me. “We need to understand what caused it. We shouldn’t rush it.”

Meanwhile, the House Financial Services Committee has scheduled a hearing on Tuesday featuring Mr. Bernanke and Mr. Geithner. The hearing has been called to find out only one thing: what did the two men know about the A.I.G. bonuses, and when did they know it?

Is that Nero I hear fiddling?
(H/T Mark Steyn)

Sunday, March 15, 2009

Emirates unhappy with Airbus A380

If this article proves true, Airbus' fragile reputation for the A380 superjumbo is in for a drubbing (H/T

DUBAI-BASED airline Emirates is unhappy with its first four giant Airbus A380 aircraft, which showed manufacturing faults that forced flights to be cancelled, a report said on Saturday.

The German weekly Der Spiegel, in its issue to be published on Monday, said Emirates in February gave Airbus officials a 46-page report listing its complaints, including burned electric cables, missing cabin fittings and engine defects.

A source close to Airbus told AFP on Thursday Emirates was seeking a delay in the delivery of several of the long-haul A380 superjumbo jets because of financing difficulties.

The airline is Airbus's biggest customer for the double-decker A380, having ordered 58 of them.

The quality issues could provide the Emirates with the leverage to renegotiate their contract, and ease their financing difficulties.

Related post: Airbus Discovers Integration Matters

Cross-posted at Thwarting Murphy.

Monday, March 09, 2009

War Games

The US and South Korea are running their annual war games. North Korea is objecting and being bellicose, China has harassed a US mapping ship, and Iran is closer than ever to being capable of building a nuclear weapon.

Rather than deriding Vice-President Biden for speaking off the cuff too often, maybe we should consider him a prophet. Remember back in October when he said:

"It will not be six months before the world tests Barack Obama like they did John Kennedy. The world is looking. We're about to elect a brilliant 47-year-old senator president of the United States of America.

"Watch. We're going to have an international crisis, a generated crisis, to test the mettle of this guy.

"And he's going to need help . . . to stand with him. Because it's not going to be apparent initially; it's not going to be apparent that we're right."


Truth and Consequences

Hugh Hewitt's favorite anonymous ad exec suggests that Republicans need a new watchword: "Truth".
The Truth is powerful on its own. It can be spoken in short sentences.

The Truth is simple. The Truth is pure. The Truth trumps opinion. And although "Free" is frequently considered the more powerful marketing word, the truth is, the Truth wins head to head. Irrefutable Truth eventually ends every argument. Emotional Truth eventually wins every heart and mind. There is, right this very moment, a massive opportunity for the Right to not only embrace, but to -- in a marketing sense -- "own" the concept of, and the very word: Truth.

The Democrats have gone too far down the road, now, of a faux concept of "Free," and made too many missteps along that road, to be able to own them both. It's ours for the taking, and the American people are showing every sign of hunger for exactly that: The Truth.

To pull it off, though, we must live as we speak. We can't call out their pork, and ignore or brush off ours. We can't talk around our own mistakes -- we have to own up. Living up to the Truth is difficult, in the best of times. But even in times like these, it's never impossible.
Charles Krauthammer, in a widely published op-ed, lists the evidence that our new President is willfully deceiving the American public to achieve his policy goals:
[F]ew undertake the kind of brazen deception at the heart of Obama's radically transformative economic plan, a rhetorical sleight of hand so smoothly offered that few noticed.

[...] The markets' recent precipitous decline is a reaction not just to the absence of any plausible bank rescue plan, but also to the suspicion that Obama sees the continuing financial crisis as usefully creating the psychological conditions -- the sense of crisis bordering on fear-itself panic -- for enacting his "Big Bang" agenda to federalize and/or socialize health care, education and energy, the commanding heights of post-industrial society.

Clever politics, but intellectually dishonest to the core. Health, education and energy -- worthy and weighty as they may be -- are not the cause of our financial collapse. And they are not the cure. The fraudulent claim that they are both cause and cure is the rhetorical device by which an ambitious president intends to enact the most radical agenda of social transformation seen in our lifetime.

The consequences of the stimulus bill and the Administration's budget plans are to reward failure, encourage dependency on the government, and punish the successful. Congressman John Campbell (R-CA) is hearing from his constituents who contemplate "Going Galt":

Last week, I spoke to Dave Weigel from the Washington Independent about the applicability of the fabled Ayn Rand novel, Atlas Shrugged, and it has generated some considerable buzz among liberal and conservative blogs and activists alike.

If you are unfamiliar with the book, this is the synopsis the Washington Independent provided:

Creative people (the “Atlases” of the title) are hounded and punished for their labor by an oppressive, socialistic state. In response, they retreat from society to a hidden enclave where they watch civilization’s slow collapse.

I spent the last few weeks recovering from surgery, and I’ve had a lot of time to talk with business owners in my district, and to be perfectly blunt, I am hearing more and more of those owners thinking of “Going Galt” in response to President Obama’s spending spree. After all, someone is going to have to pay for this massive expansion of government.

This is troubling because small business supplies a substantial number of jobs in America, and now they are beginning to see that they are being force-fed a de facto punishment for their ambitions and success.

Rep. Campbell is not the only one hearing this theme. Here's a letter to the editor from today's Wall Street Journal (not a permalink to the letter):

Deep Potholes on the Republican Road to Recovery

Rep. Paul Ryan's comments in "A Republican Road to Economic Recovery" (op-ed, March 2) point to the vast philosophical and practical divide between the Obama administration and the real world. Would someone, anyone, please point to one item in the stimulus package that makes it more likely that I, as a small businessman, will hire additional employees or make further capital investments in equipment? The recurrent ill-conceived antibusiness, anti-investment statements and policies of the current administration keep the stock market so depressed that none of us with large portions of our savings in the market can afford to retire. As far as I can see, that is the only thing that the Obama administration is doing to preserve jobs.

James N. Domingue
Lafayette, La.

Grim consequences indeed if this becomes a prevalent viewpoint among business owners.

Here are a couple more of today's op-eds worth a read (H/T Real Clear Politics):
Speaking truth to power, indeed!