America Needs a Period of Pain

The shoes Iraqi journalist Muntader al-Zaidi threw at George W.
Bush had more courage and truth in them than all of America's fawning
media. Al-Zaidi reminded the world that Bush, Dick Cheney and their
helpers have the blood of hundreds of thousands of Iraqis on their
hands -- perhaps as many as one million.

In New York, fabled investment guru Bernie Madoff is accused
of bilking clients of an astounding $50 billion while well-fed federal
watchdogs snoozed.

Thanks to Madoff and Wall Street bandits, tens of millions of
people have lost their life savings and retirement funds, and the world
financial system is on the rocks.

Wall Street's big money con men, hedge fund Houdinis, and
casino capitalists made a staggering $33.3 US billion in bonuses in
2007 alone by shady financial engineering and hawking fraudulent
securities. Yet they have so far escaped prosecution. They get to keep
their swag and $30-million South Hampton beach houses.

Worse is coming. Chrysler and Ford will shut plants in
January. GM is next. In spite of the $13.4-billion auto industry
bailout announced by President Bush last Friday, many plants may never
reopen. As this column has long said, the U.S. auto industry closely
resembles the old Soviet Union: Economically declining, bereft of new
ideas, producing unwanted products, run by dimwitted careerist
bureaucrats.

America produces the wrong cars, and far too many. The bloated
auto industry must downsize. It has been selling cars only thanks to
the steroid of cheap, easy credit -- in effect, almost giving them
away. Now that the drug is largely cut off, sales have nosedived.

The U.S. economy has been running almost entirely on credit for a decade.

The U.S. national debt is twice America's net worth. Government
and business encouraged a reckless credit binge to which the nation
became addicted.

SAVINGS

Manufacturing fell to only 12% of GDP. Finance -- the shuffling
of paper -- became America's leading industry. Americans saved nothing
and had to borrow $1.2 trillion from China and Japan to keep the orgy
of consumerism going.

Washington's response was panic, then flooding the economy
with freshly printed money in hope something positive would happen.
Japan made precisely the same gamble when its bubble economy collapsed
in the early 1990s. Today, Japan has one of the world's highest
deficits and its economy remains dead in the water.

The U.S. economy must be weaned off credit addiction. Pumping
billions and billions of dollars into the economy is like mainlining
more drugs to a sick junkie.

The economy needs a period of cold turkey in which remaining
credit bubbles, bad debt and financial distortions are purged. This is
called recession, and it's a vital part of the capitalist free market
cycle.

Without a period of pain, we can't restore economic health or sanity.

But panicky American politicians plan to spend $8.5 trillion to
stave off this necessary, beneficial recession. Their misguided efforts
risk igniting a future firestorm of inflation that will be far more
dangerous and painful than any recession.

HYPERINFLATION

That is why the European Central Bank, with vivid memories of
the terrifying 1920s hyperinflation in Germany when a loaf of bread
cost 80 million marks, has resisted deep interest rate cuts and
printing money.

The Fed's recent slashing of U.S. interest rates to zero is a
sign of utter desperation and an act of folly. Once investors realize
that Europe, Canada and Asia are far safer investments than the U.S.,
watch for the U.S. dollar to nosedive -- as it should.

The remedy for America's economic ills is not more money but patience.

Americans must relearn the old verity that one must save for
purchases and rainy days; that gambling with your home is idiotic; that
there is no substitute for hard work or manufacturing; and that it's
always very risky to trust politicians or financial "professionals"
with your money.