Steve G.

U.S. going the way of Soviet Union (in more ways than one)

In Libertarian on September 17, 2008 at 3:00 pm

An article I wrote for Amateur Economists:

First, Fannie Mae and Freddie Mac were seized—Communist style—by the federal government. Then Lehman Brothers—which was worth $45 billion as recently as November—announced plans to file for bankruptcy. And now AIG, formerly one of the largest companies in the world, has been taken over by the Federal Reserve.

In 2000, American International Group, an insurance giant, was worth $250 billion. As late as August of 2008, the market set the battered company’s value at $80.4 billion. But following heavy losses on “Black Monday” (September 15, 2008) and the following day, AIG’s market cap now stands at just $10 billion—down over 94% for the year.

What Austrian Economists Knew All Along

These losses may be unprecedented, but they’re not unpredicted. Theorists from the Austrian school of economics have been prognosticating the implosion of the fiat-money-fueled financial system for decades. And according to Cato Adjunct Scholar Dr. Robert Higgs, we haven’t seen anything yet.

Higgs, who’s also a Senior Fellow at the Independent Institute and an Adjunct Scholar at the Ludwig von Mises Institute, predicts that many more financial dominoes will fall, with the end game being the collapse of Social Security and Medicare. “The question is not whether they will fail, but when,” Higgs says, “and then how the government that can no longer sustain them in their previous Ponzi-scheme form will alter them to salvage what little can be salvaged with minimal damage to the government itself.”

Higgs compares what he sees as the impending collapse of the U.S. financial system to what happened to the Soviet Union. And he points out that Keynesian economists—such as textbook king Paul Samuelson—didn’t see the Russian collapse coming, just like they didn’t see the collapse of Fannie Mae and Freddie Mac. Austrian theorists, however, did.

Read the rest.

  1. Biggest one-day gain for gold EVER today.

  2. AIG was lucky. Who will bail out the federal government when it goes bankrupt?

  3. I think the American taxpayers is right to feel angry and question where the US government is going. They must also question what the government have been doing given government oversight and regulation could surely have prevented this fallout.

    However, as much as I am against state intervention, I am convinced that the Fed had no choice, the speculators would have had a field day, with every company loosely associated with AIG, had they been allowed to fail. The cost in terms of pensions, market confidence and so on, would have been immeasurable. Just my humble opinion, I am no economist.

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