Hussman: When It Comes to Crisis, Washington Just Doesn't Get It

Tuesday, 12 Jun 2012 06:49 AM

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Economist and find manager John Hussman says the ongoing debate about the economy misses the heart of the matter: a warped financial system, both in the U.S. and globally, that directs scarce capital to speculative and unproductive uses, and refuses to restructure debt once that debt has gone bad.

“What is central here is that the government policy environment has encouraged this result,” Hussman writes in a note to investors.

"Specifically, over the past 15 years, the global financial system — encouraged by misguided policy and short-sighted monetary interventions — has lost its function of directing scarce capital toward projects that enhance the world's standard of living."

Editor's Note: The Final Turning Predicted for America. See Proof.

Deregulation and lower taxes will not fix this problem, nor will larger "stimulus packages," says Hussman. The right solutions are to encourage debt restructuring and strengthen capital requirements and regulation of risk taken by traditional lending institutions that benefit from fiscal and monetary backstops.

Also, Hussman says fiscal and monetary backstops should be removed, resolution authority over institutions engaging in more speculative financial activities ensured, reckless monetary interventions that encourage financial speculation and transitory "wealth" effects without any meaningful link to lending or economic activity halted.

“To restore the economy to the path of long-term growth, we need to allocate capital better,” Hussman says. “This requires the willingness to allow bad investments to work out badly, without being bailed out or otherwise rescued.”

The New York Times reports that, facing bad publicity on practically every front, the big banks are highlighting what has quietly become a hot growth area in recent years — backing projects and companies in sectors like renewable energy, emissions reduction and reduced-carbon transportation.

Editor's Note: The Final Turning Predicted for America. See Proof.


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