Gun the printing presses and hope for the best

It occurred to me after a few minutes of watching Ben Stein on Larry Kudlow's show this afternoon that, unless there is another asset class out there that can be inflated in order to once again temporarily delay the inevitable "easy money sobering up" process that has been due for many years, it is going to be a rather hard slog for the U.S. economy for some time to come.

What's most disturbing about our collective long-term prospects is that all anyone really talks about today is how much and how quickly the Fed needs to cut interest rates, how much and how soon fiscal stimulus should be applied, and whether we'll avoid a recession completely or just have a mild one as we've been trained to expect.

Aside from Ron Paul and what the mainstream media characterize as a quixotic bid for the presidency, you hear very little about the fundamental problems of our current monetary system and what appears to be the end of an era of financial bubbles where, time and time again, millions of Americans thought they were becoming wealthy as one asset class or another rose faster than the new debt and easy money that fueled its rise.

In its simplest terms, from Wall Street to Washington and on Main Streets all across the country, cries are heard for more easy money to help cushion the blow that was caused by too much easy money.

You'd think that, by now, more smart people would start figuring out that there are serious problems with life as we've known it over the last twenty some years - after all, the real Reagan Revolution was more a story of credit expansion than it was a tale of lower taxes - but hope still springs eternal that some new asset class can be inflated.

Three recent news items help to frame the discussion.

In yesterday's Larry, Curly, Moe, and the Economy piece in the New York Times, Ben Stein likens Ben Bernanke to Moe of The Three Stooges fame for punishing the wrong guy. He seems to think that higher inflation due to rising energy prices is beyond the control of the Federal Reserve so the Fed should slash rates early and often to help right the economic ship as quickly as possible.

"We have a situation that calls for highly stimulative measures from the Federal Reserve. These will involve lowering interest rates charged to the banks for loans, and creating money to improve liquidity," Mr Stein writes. "This might even take the form of legislation allowing the Fed to buy stock in large banks on a temporary basis."

To some, there are apparently no limits to what can be done when a monetary authority can create money and credit with the tap of a computer key. It seems to have worked well since the 1980s - why not assume that we should forever be able to solve problems caused by easy money with more easy money?

In The new bubble-prone economy, Peter Gosselin of the LA Times has a much better sense of what might be going on in the world today but still doesn't quite grasp the magnitude of it all.

He notes "some are beginning to worry about a disturbing possibility: This may not be your traditional downturn. And the tools that helped restore prosperity in the past may prove less effective this time around."

After a series of financial bubbles that began in the mid-1980s with the advent of credit cards for the masses and all sorts of "innovations" on Wall Street that finally led to the explosion of credit over the last half decade, it seems the U.S. economy "has become increasingly prone to financial bubbles -- huge, seemingly irreversible rises in the value of one sort of asset or another, followed by sudden and largely unforeseen plunges."

His thinking?

In the future, bubbles should be identified early on and "pricked" so that the bursting process is either avoided completely or made less painful.

While this revelation will do nothing to help the current situation, it also requires another bubble candidate to be identified in order for the approach to be put into practice. Where might the next financial bubble in the U.S. be found?

Bill Fleckenstein has been a voice of reason for many, many years and is now fresh back from his holiday break at MSN Money, ready for the release of his new book on former Fed Chief Alan Greenspan.

In a column today, he gets quickly to the heart of the current dilemma in We've run out of bubbles, noting, "Booms and busts are natural to capitalism, but for years now an irresponsible Fed has interfered with the down cycle. The only choice now may be to let nature take its course."

But don't we now live in a world of serial financial bubbles? It is as if the citizenry just need to be pointed in the direction of the next bubble and we can all get on with it.

No, says Bill, "I do not believe there is a potential bubble left that could bail us out, nor do I believe a bailout should be attempted. Likewise, I do not believe any quick fix exists. What I do see as the real solution is to let the creative destruction of capitalism finally run its course, after having been held back for a couple of decades."

Alas, this course would seem the wisest of them all - finally stopping the easy money from flowing and stopping the series of financial bubbles in its tracks - but, hasn't harsh medicine like this been tried once before?

About 75 years ago?

More importantly, during an election year will any right-minded politician want to be accused of standing idly by, just watching another financial bubble burst?

There seems to be little hope left but to gun the printing presses once again, let the easy money rain over the country, and hope for the best.