It's Not as Bad as You Think: Why Capitalism Trumps Fear and the Economy Will Thrive

226 Pages·2009·1.54 MB·English

by  Brian S. Wesbury

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It’s Not as Bad
as You Think
Why Capitalism Trumps
Fear and the
Economy Will Thrive
Brian S. Wesbury
John Wiley & Sons, Inc.
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Copyright © 2010 by Brian S. Wesbury. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data
Wesbury, Brian S.
It’s not as bad as you think : why capitalism trumps fear and the economy will thrive /
Brian S. Wesbury.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-470-23833-2 (cloth)
1. Capitalism. 2. Economic forecasting. 3. Global Financial Crisis, 2008-2009.
I. Title.
HB501.W4855 2010
330.12'2—dc22
2009035137
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
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To Kyle and Graham
My fervent prayer is that both of you live in a time and
place that allows your God-given talents to be multiplied in
a way that improves the lives of all people.

Thank you both for your love and understanding.
You mean more to me than words will ever express.
. . . children are a heritage from the Lord . . .
Psalm 127:3
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Contents
Foreword ix
Introduction 1
Chapter 1 Getting the Right Perspective 9
Fear and Anger Are Understandable 12
History versus Emotion 18
Buck Up and Remember History 22
Chapter 2 Capitalism Wins (Again) 23
Demand versus Supply 24
The History of the World 29
Inventions and Innovation 32
Entrepreneurship 33
The Turning Point 35
Capitalism Wins—It’s Not Over 36
Chapter 3 Creative Destruction 39
The Big “X” 41
The Industrial Revolution 44
The Call for Change 47
A Wrong Drift, but a Cool Wind 49
Infl ation, Creative Destruction, and the Crisis 51
v
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vi CONTENTS
Chapter 4 A Government-Sponsored Recession 53
The Housing Boom 56
The Crisis Begins 57
The Acceleration 60
Why in the World Were They Doing That? 61
So Why Blame Capitalists? 64
Chapter 5 Who Makes Your Glasses? 67
Are Consumers Rational? 68
What Is the Natural Rate of Interest? 70
Calculating the Natural Rate 72
The Nominal GDP Rule 74
Money and the Interest Rates 76
The Fed-Induced Bubble 77
We’ve Been Here Before 79
Stupid Bankers, or Not? 81
It Always Ends Badly: Volcker to the Rescue 82
Then . . . 84
. . . And Now 85
Chapter 6 Mark-to-Market Mayhem 87
Government Failure versus Market Failure 89
Some Mark-to-Market Accounting History 92
Mark-to-Market Creates Volatility 93
Suspend Mark-to-Market 99
A False Feeling of Control 101
A Miracle Happened 102
Chapter 7 Panic and the Speed of Money 105
What Recession? 107
The Panic of 2008 110
Mark-to-Market Mayhem 115
AIG, Credit Default Swaps, and Derivatives 117
The V-Shaped Light at the End of the Tunnel 120
Chapter 8 It’s Not as Bad as You Think 125
Consumer Spending 129
Debt 131
Growth, Debt, and China 135
Deleveraging 138
Unemployment 142
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Contents vii
Savings Rates 143
The Economy Will Recover 144
Chapter 9 It’s Boom Time Again 147
Don’t Fight the Fed 150
1975–1976 Redux? 151
Can It Happen Again? 153
Panics End 153
It Won’t Stay Down Forever 155
Undervalued Markets 156
Productivity and Profi ts 159
But Government Is Growing . . . 161
Chapter 10 Investing in the Midst of Mayhem 163
The Super-Easy Fed 165
Buy U.S. Stocks for the Short to Medium Term 166
Stocks for the Long Term: Small Cap, Value, and
Momentum 169
Infl ation Plays for the Medium and Longer Term 171
Foreign Equities 174
Fixed Income 176
Emotion and Investing 180
Chapter 11 The New Normal 183
Big Government Hurts 188
Keynes and Government 190
How Bad Can It Get? 191
Roosevelt, Carter, or Clinton 192
The Future Still Looks Bright 195
Notes 197
Acknowledgments 203
About the Author 205
Index 207
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