BarroMetrics Views: The Law of Unintended Consequences
Two items came together for this blog - I have just finished reading:
- McLean and Nocera’s excellent history of the rise and fall of the sub-prime mortgage, ‘All the Devils are Here‘ and
- ShadowStats evaluation of ‘2010 Financial Statement of the US Government’.
They make for interesting reading.
Let’s first have a look at the US Government report. Accepting the US Government’s own assumptions, we see a US Federal debt of 94% of GDP and total federal obligations of 443% of GDP (and this assumes the US Government will not bail out any Fanny Mae or Freddie Mac collapse). As John Williams says, the resultant Federal Deficit is uncontainable and unsustainable. His view is we are heading for a hyperinflation led depression.
The question is: in its quest to avoid the inevitable pain a true remedy must bring, what else will the US Government do? And in so doing, what will be the unintended consequences of its actions?
If ‘All The Devils Are Here’ showed nothing else, it showed how pernicious some actions can be - witness the sub-prime creation….
Did you know that the creators of mortgage-backed securities (that led to sub-prime) were:
- Lewis Ranieri (you probably did)
- Larry Fink (founder of BlackRock) [I didn’t now that] and
- David Maxwell (CEO of Fannie Mae)
To quote: “These men were no saints, and they all knew there were fortunes at stake. But the idea that mortgage-backed securities would also …..create hidden system risks the likes of which the financial world had never before seen….wasn’t even in their frame of reference. …as Ranieri (said)….”I wasn’t out to invent the biggest floating craps game of all time. but that’s what happened.”
That’s the nub. Will the FED, when faced by rising inflation, do whatever it takes to contain it or will it adopt only half measures that will lead to unintended though foreseeable consequences?
Refer this blog post to a friend or colleague…
