SemperFiUSMC
Master
- Jun 23, 2009
- 3,480
- 38
JewfromRussia posted this in the comments:
A couple good points. One thing I disagree with is Paul's belief of the cause of business cycles. I don't think central bank policies cause them. I think the market does.
Let's take motor homes. People in Elkhart build motor homes. They build a lot because people buy a lot. But what happens when the market for motor homes achieves equilibrium? There are no customers to buy motor homes. So the manufacturer starts by dropping prices or creating incentives. His cost didn't go down, so at current cost structure he'll lose money selling at a lower price. So he has to reduce cost to stay in business. How? By laying off people. By reducing what he pays to ship his motor homes. By buying less pencils, paper, and computers. So now the paper, pencil, and computer industries are selling less of their products. So they in turn have to initially lower prices then cut costs. Failure to do so could lead to failure and demise.
The graphite, wood, paper mill, silicon, copper, plastic, aluminum, and fiberglass raw material providers are all negatively impacted. They reduce production leading to higher raw material costs, which starts to shut down purchasing by other customers.
Most importantly, the motor home industry builds coaches from vans and trucks produced by the auto manufacturers. A slow down in purchasing by the motor home industry ripples into the auto industry as a whole, which affects a LOT of workers, suppliers, and other raw material providers.
People lose jobs, so they stop flying to vacation. Busines stop sending sales guys on business trips. Airlines sell less tickets, and put off purchasing new airplanes until travel demand go up. Less travel means less people renting hotel rooms, which means need for less housekeepers.
Now add in all of the unemployed that government provides free money to (borrowing it from our kids kids with no intention of ever paying it back). Crime goes up because of situational ethics. People lose houses. Banks tighten credit availability. All of the things we're seeing right now. And all this because of weakness in one major industry in our economy.
This cycle repeats itself throughout the economy, until one day someone decides they want a new motor home. They go to one of the manufacturers that weathered the storm, and buy one. Then another. And another. And suddenly the manufacturer is loaded with orders. He's able to bring staff back on, buy raw materials, and start production. All the other industries that supply and support the motor home industry have to ramp back up. Banks see that loaning money is a good risk again, so they do it. People regain employment, and start buying the new dishwasher, car, home, and clothes they've needed. They buy because they know they can pay off their purchases.
Teddy Roosevelt could not have been more wrong when he said "build it and they will come". Yet that is how progressives think. And this is why TARP and the stimulus didn't work, aren't working, and will never work. They break all the laws of economics. Demand creates supply, not the other way around. Progressives, regardless of party, don't understand the most basic and fundamental element of economics. The customer.
In order for there to be commerce you first and foremost need a customer. Then a supplier. Then the customer has to be able to pay for it, whether with cash or credit. There are still no customers, although it's starting to change. But not very quickly.
The bottom line is this. Bankers are in the business of making money, just like averyone else. They are risk adverse. They don't lend money unless they believe it will be repaid with interest. Hoarding cash is akin to losing it, if for no other reason than inflation. It's not in their self interest to stop the economy.