I give the book 3 stars even though I consider Mr. Geithner to have an erroneous understanding of how the economy works or should work.
Let me begin with two simple yet crucial economic concepts.
First. The one paragraph version of the "Austrian Theory of the Business Cycle" here it goes:
Imagine two couples, each with a toddler, want to go out tonight but there is only one babysitter in town. No matter how wealthy the couples are, or how much money the bank lends them, only one of them will get the necessary resource/wealth/babysitter needed to successfully execute their plan. What the couples need is not an increase in little pieces of paper with dead American presidents on them, they need an increase in wealth(another babysitter), and all the little pieces of paper regardless of how many zeroes there are in them will not change this fact. Let us now make this a little more realistic. At any moment there are millions of entrepreneurs who need wealth(tractors, computers,buildings, tool, engineers, salespeople, doctors/etc.) in order to carry out their business plans, but there is a FINITE amount of resources(tractors/computers/etc.) and injecting trillions of dollars into the banking system to drive interst rates down so that all of these entrepreneurs can borrow the money to buy such resources does not change the fact that not a single new ounce of resources has been created by printing trillions of dollars. The only thing that the government achieves by creating all this new money with which to lower interest rates and allow everyone to borrow money is to increase the prices of the various resources(tractors, computers/engineers/etc.) while creating unsustainable bubbles, and who gets to control the resources, and ultimately economic chaos/bust since it should be obvious that it will be impossible for every businessman to eventually complete their plans when it becomes painfully obvious that there just wasn't enough wealth at the right prices for all of them to profitably execute their business plans just like the couples would eventually realize. As the great Austrian economist Ludwig von Mises explained, it is as if at any given point society only has a certain amount of bricks[resources] with which to make a
certain amount of houses[profitable businesses], say 100 for my example. By artificially lowering the interest rates via pumping money into banks[not real wealth remember], say 150 entrepreneurs build bases for homes, yet unfortunately there were only enough bricks to complete 100 of them so what looks like a boom as everyone builds the bases, will eventually turn into a bust as less than 100 businessmen will be able to complete them. As Mises wrote: “However conditions may be, it is certain that no manipulations of the banks can provide the economic system with capital goods[bricks]. What is needed for a sound expansion of production[more houses or profitable businesses] is additional capital goods[bricks/resources], not money or fiduciary media. The boom is built on the sands of banknotes and deposits. It must collapse.” [bricks/etc.] added by me.
A related fallacy is to believe that just because the government creates a trillion dollars the economy has grown by a trillion dollars. If you are going to INCREASE the economic pie by say a trillion dollars’ worth of new homes, in order to achieve this you will have to DECREASE or CONSUME about a trillion dollars of wealth while doing so. Millions of home builders, their suppliers/etc. will be consuming fuel, food, housing, medial services/etc. as they work to PRODUCE the trillion dollars’ worth of homes. The lesson here is that the social order is in a constant cycle of production and consumption and that in order to produce you must also consume. If you are a good businessman, you produce more than you consume and have a profit leaving the social order or economic pie bigger. Economically ignorant people erroneously believe that you print a trillion and somehow people will create wealth to exchange for such a trillion thus increasing the economic pie by a trillion, but they don't realize that in order to create such wealth they must consume nearly a trillion and this wealth they consume as they produce is not created by governments when they print the trillion.
I believe or hope that these two brief paragraphs begin to prepare a mind to understand the so-called "Austrian Theory of the Business Cycle" which is among the many key pieces of information that people like Geithner do not properly understand. But this too is not his fault because the concepts just discussed simply do not exist in America's mainstream economics textbooks which are based on flawed Keynesian economics. The entire boom/bust anemic nature of the American and world economies is a result of not understanding the last two paragraphs, among many other things...
Ok. On to at least a couple of things form the book's content:
Obama is hated by many for using the crisis as a way to greatly expand government intervention in the economy. Yet Geithner writes "We told the President we had to err on the side of doing too much, even though the public thought we were already doing too much." The blame for our economic problems probably has as much to do with politicians' well intentioned yet economically ignorant Socialist policies as with the misguided Keynesian so-called "experts" that advise them.
Geithner writes "Every financial crisis is a crisis of confidence" This is nonsense. When the Federal Reserve keeps pumping money into the banking system, thus keeping interest rates low, allowing low wage earners to borrow huge sums of money with which to bid up the price of homes creating a huge bubble, and then the fed has to pop the bubble by raising interest rates and slowing down the money creation. Common sense and good-ol self-interest guarantee that there will be a huge sell-off/panic/crisis. Geithner writes "Human beings are prone to panics, just as we are prone to the kind of irrational confidence ( in real estate, or stocks, or seventeenth-century Dutch tulips) that produces the booms that precedes the panics." Again, nonsense, all of these bubbles (stock, real estate, tulip) were caused by erroneous/fraudulent banking which provided the easy money that would drive up prices leading to bubble. He writes in final chapter "Financial crises can't be reliably anticipated or preempted, because human interactions are inherently unpredictable. More nonsense. People with the proper understanding of how easy money by central banks causes booms and busts knew all along. Just youtube "Peter Schiff was right" .
When criticizing people who opposed his various bailouts he referred to some as having "Old Testament view". I can see why Mr. Geithner labels people as such. People who use moral arguments, especially those rooted in religion as most moral arguments are, are sometimes ignored or downplayed by the enlightened "experts" like Geithner who try to see past adherence to such simple rules. Geithner explains how in order to save the world's economy one had no choice but to prevent a deeper punishment of such reckless firms. I have some advice for people who preach the "Old Testament view" . Read Henry Hazlitt's best-selling "Economics in One Lesson" to refute Keynesian nonsense instead of using "Old Testament" arguments. In the final chapter Geithner provides a summary of all the great accomplishments. There is a chart showing how the US economy has been growing faster than other counties like Japan, France, Spain and Italy. The caption says "Because of the aggressive fiscal, monetary, and financial force we deployed, the U.S. economy has grown faster than other major advanced economies since the financial crisis". The USSA economy is still a freer one than places like Spain and Italy. The US always has lower unemployment and better growth than such places and this has nothing to do with what Geithner thinks he has achieved. In a little over five years in order to simply kick the can down the road for the coming megacrisis, the Obama administration has increased the national debt by over 60%. Once again real estate prices have been soaring, there is the massive student debt bubble. In 2013 the Fed bought over 60% of new government debt. Basically the Fed is just printing money to keep the current social order afloat.
Near the beginning of chapter 4 Geithner writes:
"In his 1973 book "Lombard Street", the bible of central banking, Walter Bagehot explained that the way to stop a run is to show the world there's no need to run, to put money in your window, to "lend freely, boldly, and so that the public may feel you mean to go on lending" " Then he mentions how "Bernanke believed in Bagehot, and he believed that central bankers who failed to act in a crisis could make it exponentially worse. In his academic life, Bernanke had been a leading scholar of the Great Depression". First, Bagehot's advice is the best way to attempt to fool the public about the fact that you have squandered their money. A proper honest bank has 1)deposits that are kept at bank and not loaned out and those you can be 100% sure will be there, and 2)deposits that carry risk which the bank might lend at interest for a time and you know you can't get back with certainty. No bank that is honest and does not fraudulently use type 1 deposits ever need to fear a bank run. It welcomes them to prove to the public that it is an honest bank.
Anyways.. I'm not going to turn this review into a massive book although you are welcomed to buy my "How the World Works" for 99 cents. With respect to Bernanke being the Great Depression guru. Even though his book must be forced down the throat of thousands of econ majors, Murray Rothbard's book on the great depression constantly outsells it and has far more glowing reviews.
So to wrap things up. From my perspective this book is good for seeing how a misguided person(a Keynesian economist) manages to inadvertently kick the can down the road by doing the very same things that got us into trouble to begin with. I would find it just as interesting as reading a book by an economist in the Soviet Union during the 1960s describing how they fixed something that was an inevitable consequence of their communist policies. Mainstream Keynesian economists are simply clueless and go from crisis to crisis just like in the Soviet Union they would blame their failures on the weather or saboteurs.
William E. Simon, former Secretary of the Treasury for presidents Richard Nixon and Gerald Ford, fills us in on the incompetence of the nation’s “most prominent economists” during the financial crisis of the 70s. His statements apply just as well to today’s government “experts”:
“The Wall Street Journal interviewed several dozen of the most prominent economists in the United States on the causes of the recession and on ways to prevent a recurrence. They disagreed about virtually everything save this: that there was much economists did not yet understand. The details of the economists’ ignorance are of interest, but I stress here the overriding conclusion to be drawn from their statements: The economists who had been advising our Presidents simply had not known what they were doing…Gerson Green, formerly of the Office of Economic Opportunity, summed up the attitude of many of his colleagues when he observed caustically, “The change I discern is that none of us knows what to do. In those days, we thought we did. The country has taught the social engineers a lesson.”… So who was running the store? The answer is: nobody. Not one human being in the whole vast realm of political control over the American economy has ever known what he was doing…For forty years the American ship of state has been lunging erratically toward economic disaster, with no awareness of its direction…”
Ok.. enough.
Enjoy fast, FREE delivery, exclusive deals and award-winning movies & TV shows with Prime
Try Prime
and start saving today with Fast, FREE Delivery
Stress Test: Reflections ... has been added to your Cart
Loading your book clubs
There was a problem loading your book clubs. Please try again.
Not in a club? Learn more
Join or create book clubs
Choose books together
Track your books
Bring your club to Amazon Book Clubs, start a new book club and invite your friends to join, or find a club that’s right for you for free.
Download the free Kindle app and start reading Kindle books instantly on your smartphone, tablet, or computer - no Kindle device required. Learn more
Read instantly on your browser with Kindle for Web.
Using your mobile phone camera - scan the code below and download the Kindle app.
Flip to back Flip to front
Follow the Author
Something went wrong. Please try your request again later.
| Price | New from | Used from |
|
Audible Audiobook, Unabridged
"Please retry" |
$0.00
| Free with your Audible trial | |
|
Hardcover, Deckle Edge
"Please retry" | $13.49 | $1.59 |
|
Audio CD, Audiobook, CD, Unabridged
"Please retry" | $39.80 | $7.50 |
- Read with Our Free App
-
Audiobook
$0.00 - 14 Used from $7.50 4 New from $39.80
Discover the latest buzz-worthy books, from mysteries and romance to humor and nonfiction. Explore more
Frequently bought together
- +
- +
Total price:
To see our price, add these items to your cart.
Choose items to buy together.
What do customers buy after viewing this item?
Page 1 of 1 Start overPage 1 of 1
About the author
Follow authors to get new release updates, plus improved recommendations.
