Wednesday, April 9, 2008

New Regulations Will Shape the Next Crisis (Gary North)

Gary North makes some forecasts for the economy and says that now's the time to panic:
Treasury Secretary Hank Paulson put forth a number of "new" ideas for changes in the regulatory structures. Nothing I saw will help all that much in the current crisis. It's more like re-arranging the deck chairs as the ship is going down. It seems like most of it is being proposed to prevent another crisis like the one we are in from occurring in the future. That simply insures that Wall Street will have to invent whole new ways to create a crisis in the future. I am sure they will be up to the task. ~ John Mauldin (April 4, 2008)

We have seen this before. In 1980, Congress abolished the law that prohibited banks from paying market rates of interest on deposits under $100,000 – a law that had been designed to hurt small investors and also make low-cost funds available to banks. It was a price control. It blew up after 1976. Price controls restrict the supply of whatever is controlled.

The new law was the Monetary Control Act of 1980. Why did Congress pass it? Because the banks were hemorrhaging money.

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