Wednesday, October 1, 2008

Does the housing bust mean Osama Bin Laden is winning?

One of Osama Bin Laden's goals was to plunge the United States into economic chaos. Well, there's chaos now, and it can be traced back indirectly to September 11th. In 2001, the Federal Reserve lowered rates to compensate for a slowing economy after the dot-com bust. Then September 11th hit, and what looked like a painful but manageable slowdown suddenly looked a lot more dangerous. The Fed slashed rates even further. Interest rates would have been low anyway, but not this low.

This was the fuel for the housing boom. With so much cheap money available, house prices got pushed much higher than was justified. With so much potential profit, fraud, recklessness, and negligence allowed people to borrow money when no sane person should have lent them any. That was the genesis of the housing boom and bust, and the trigger event for this credit crunch.

It's quite likely there would have been a housing boom without September 11th. After all, interest rates were going down as it was. They wouldn't have gone down so much, though, and that makes all the difference. This economic crisis is a non-linear, chaotic event. A difference of 0.5% in the federal funds rate, or a more rapid raising of rates leading into the recovery might have made all the difference.

Osama Bin Laden wanted a war with the United States in Afghanistan, where he thought he could win and bloody the nose of the infidel imperialists. He was wrong, but then we served up Iraq. He provoked the war he wanted, but he lost it. And then we invaded Iraq, in response to September 11th, and gave him the war between Islam and infidel that he wanted. He didn't make us do it, but he provoked us into doing it to ourselves.

The same applies to the credit crunch. Osama Bin Laden did not cause the bust. It's something he wanted to happen, but he didn't cause it. It's worse than that. He caused us to do it to ourselves. The chain of causality is different, but the result is the same.

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