Necessary Funds

Our friends over in the EU are in real trouble it seems. With the latest Ireland bailout, they have sunk to such a level that private investment may no longer be insured by public funds. In the event of further economic collapses among member states, actual investors may loose their capital. Well, things may be bad here but at least we can all sleep better at night knowing that the largest capital investments still have the golden "too big to fail" stamp on them.

I suspect part of the rationale, used to justify the administration's response to the current economic situation, is that many funds necessary for pension plans and individual retirement are threatened. "Re-inflating the housing bubble, " a direct quote from President Obama, to shore up banking collateral is viewed as a lesser liability than millions of unfunded pensioners. This begs the question "Why are necessary funds in risk based investments"? Who was responsible for their care? Why were they not in bonds or Treasury bill? I have noticed that the Chinese have been avoiding the stock market in favor of treasury bills for years. Its not as if these conditions were unforeseeable, rather we were too greedy to accept the lower rate of return in exchange for increased security.

In my opinion Greenspanism creates a disincentive to save responsibly by increasing the money supply past productivity, creating artificially low interest rates. When the money supply more closely tracks productivity, the demand for capital results in higher returns through higher interest rates. It may not be as fun as Reaganitis, (remember the late '70's) but I imagine it is a better foundation for a sustainable economy.