The PaperMache Calf

From Elliott Wave International:

Several weeks ago I took a bridge in Memphis across the Mighty Mississippi. The river had crested near a record high a few days earlier, yet it still looked extraordinarily wide.

Extreme flooding around Memphis had been a national story; as I drove I saw the swollen river first-hand.

The scale of the event was rare, as was the amount of damage to homes and businesses. The city was not prepared for a flood of that size.

That trip came to mind the other night as I watched a TV interview with a scientist -- the topic was what he called the "100-year wildfire" in New Mexico, which had come perilously close to the Los Alamos National Laboratory (a top U.S. nuclear research facility).

In brief, this scientist said the government was not prepared for a wildfire of that size.

Rare events also happen in other spheres of life: like finance. The subprime mortgage meltdown is one example among many.

Another is the build-up of credit in our financial system. In fact this buildup is beyond rare; it's unprecedented in at least the past 100 years of U.S. history (see below):

It would appear that the leaders of western democracies have learned nothing from the 2008 financial crisis.
Banks still are allowed to take outrageous risks with an explicit promise of bailout if something goes awry.
Insurance companies still take very high risks and are bailed out multiple times if they are large enough - hint, think AIG.
Countries still rack up enormous debt in support of both the socialist and fascist goals of the state.  Greece is the obvious example today, while America is an example that is still developing.
So my question is an old one, asked 3500 years ago.

Exodus 32 (NIV)
 1 When the people saw that Moses was so long in coming down from the mountain, they gathered around Aaron and said, “Come, make us gods[a] who will go before us. As for this fellow Moses who brought us up out of Egypt, we don’t know what has happened to him.”
 2 Aaron answered them, “Take off the gold earrings that your wives, your sons and your daughters are wearing, and bring them to me.” 3 So all the people took off their earrings and brought them to Aaron. 4 He took what they handed him and made it into an idol cast in the shape of a calf, fashioning it with a tool. Then they said, “These are your gods,[b] Israel, who brought you up out of Egypt.”

Today, we have learned nothing from history.

Like the ancient Hebrews who became discouraged when Moses did not come back as soon as they expected and began to worship a false god, an idol created by their own hands, we have created a currency in the likeness of our own desires.

This currency, we refer to as "money", made so by fiat, that is the declaration & command of government, is a shortcut similar to what the ancients looked for those centuries ago.

Economists will proclaim the benefits of a "flexible" currency.  Central bankers will promote the benefits of "fine tuning" the economy by interest rate manipulation.  Yet, here we are, after one of the biggest, longest bull markets in history, staring into a deflationary abyss.

It seems markets do not work on command, as many assert. 

Yes they can be influenced in the short term.  But over a longer time-frame, they revert to where they wanted to go in the first place.  They go to where there is demand for an item or service.
So what has happened, in my view, is that economists, central bankers, financial institutions, and governments have colluded and played God with the markets and with the liberty of their peoples.

Any student of history knows that doing this ends badly.

Napoleon conquered Europe and tried to declare himself pope.

Hitler killed and conquered his way across most of Europe in an attempt to impose his forth Reich.

Stalin expanded the Soviet Empire into Eastern Europe and killed millions in gulags.

Mugabe cheated, robbed, and impoverished on of the wealthiest countries in Africa through land redistribution and money printing.

And now Obama, Bernanke, and most Democrats and Republicans want to continue in the footsteps of these failed, autocratic regimes.

Instead of learning the hard truth that we can't conjure up wealth out of thin air and spend without consequences, instead people demand shortcuts from their fiat currency god, the paper mache calf.
While many have begun the long process of preparation, it is baffling to this writer that many more do nothing and trust the government, who helped create the crisis, to "do something".

This is akin to a drowning man refusing to reach for a life preserver when one is thrown to him as he expects someone to grab him by the collar and haul him into a boat.

May God have mercy on our foolish souls so that we do not look like this unprepared man post crisis.