The Lehman Bros plan!

People often ask me, "What do you think the government should do instead of QE inflation?" My stock answer is that the government should not try to fight the depression with government spending and cheap credit. Trying to stop the market from correcting the errors of the past only delays the consequences and makes them much worse.

Government should balance its budget. There should be no new credit expansion by the Federal Reserve. Most importantly, government should not meddle in markets to try to soften the consequences of the correction. Specifically, that means no bailouts, stimulus packages, or new public-works projects. Do not prop up wages. Allow competition to lower the prices of land, labor, and capital. The only positive steps for government to take are implementing tax cuts and spending cuts, eliminating regulations, and allowing free trade.

Now, I have a name for this policy. It's called the "Lehman Bros. plan," after Lehman Brothers, the large financial firm on Wall Street that was allowed to go bankrupt in September 2008. This plan relies on allowing big firms to fail. Had this policy been followed from the beginning, I have little doubt that the crisis would already be over and we would not have added to the debt problem.

Henry Lehman got started in business in 1844 with a dry-goods store in Montgomery, Alabama. After his two brothers joined him a few years later, they named the business Lehman Brothers. They accepted raw cotton in exchange for their goods. This increased the volume of their business because people had more cotton than money, and it increased their profit margin because they made money selling the goods, and then they made more money selling the cotton. They later opened an office in New York and helped start the New York Cotton Exchange in 1870. Later, they joined the New York Stock Exchange and helped take companies such as Sears, Macy's, B.F. Goodrich, Woolworth's, and Studebaker public by selling their initial public stock offering. It was a great American success story from Dixie.