Jordy Blog

Economic Woes: Understanding the Cause and the Cure

Robert Lefevre observed that “Government is a disease that masquerades as its own cure.“

Obama’s “Economic Stimulus” package, like Bush’s and Bernanke’s banking bailouts, typify this statement. No sooner is the economic knife twisted in on our belly than our haggardly assailant disappears into the night. Immediately our saviour appears, riding on his white horse and swearing revenge. But how did he get here so fast?

Obama’s Economic Stimulus Package

Let’s just look at the Obama’s so called “economic stimulus” package logically.

Was our current economic situation really caused by a lack of green energy? Did we really just not have enough STD prevention education? Was it all this really because we didn’t have enough high speed internet in rural areas? Was it because our current highway system is inadequate? Did we just not have enough food stamps?

If none of these problems were part of the underlying problem, how does fixing them constitute a solution? Yet that’s literally what we’re being billed. Government simply changes out the labels in its pork processing plant, and all-of-a-sudden we can’t get enough. In government, just re-brand whatever your selling as “Economic Relief”, “Stimulus Package”, or “Cure to Whatever Happens to Ail You Today”, and it’s bound to sail right through.

Sure, there’s much more to Obama’s “Economic Stimulus” plan than funding STD prevention education, but it’s all crap because it all ignores the recessions’ underlying causes. Even the tax cuts are crap because, just like the Bush tax cuts, there is no associated cut in spending. In fact, to say that we’re getting quite the opposite of spending cuts is a remarkable understatement.

Cutting taxes without cutting spending requires either inflation or debt. The former (like taxation) steals from current citizens, while the latter steals from future citizens. Both payment vehicles are immoral. Should income taxes be decreased or even eliminated? Absolutely. But the only lasting way that government can stop stealing the wealth of its citizenry is to stop spending it!

Our Current Recession: the Cause and the Cure

If we really want to fix our economic problems, we need to fix them at the cause. But remarkably few people understand the cause –and that’s what makes us so vulnerable to government deception.

To understand the cause and the cure of our current recession, shouldn’t we look to the people with proven track records –you know, the people that actually foresaw the current crisis before it happened? Remarkably, the solutions offered by people like Peter Schiff and Ron Paul –people who were dead right about the economy even before the bubble burst– are still being relatively ignored. The alternative approach: what our economy really needs is more people teaching kids how to use condoms. Good grief!

If you want to understand the cause of recession, as well as its cure, Ron Paul says it pretty succinctly:

Cures for Our Economic Disease

I have recently had several opportunities on various news programs to discuss the economy and what is wrong with the so-called economic stimulus package. I have said over and over what we shouldn’t be doing, and now I’d like to explain what we should be doing.

But to improve the situation, you must first have a solid grasp of how we got here. Government policies and central planning created the housing bubble, now going bust. About a decade ago the government made expanded homeownership and affordable housing a public goal. Through Fannie Mae, Freddie Mac and the secondary mortgage market the government incentivized creative, low down-payment, more widely available mortgage products, and discouraged the market-proven lending standards of the past. The Federal Reserve kept interest rates artificially low, which added more fuel to this fire. Many related sectors temporarily flourished because of this, and many people got into homes they otherwise could not have afforded. The increased demand for housing sent prices soaring until in many markets housing became even more unaffordable, necessitating even more creative mortgages, and impossibly leveraging homeowners. Many risky investment vehicles such as mortgage-backed securities, derivatives, credit default swaps grew out of this unsustainable situation. As the foreclosures began, the house of cards started to tumble. Too many people have confused the symptoms and the pain of the bust with the problematic policies that caused the bubble, which is really what needs to be treated.

First of all, just as the best cure for a hangover is not to drink so much, the best cure for a recession is a recession. It is time to sober up and return to free market sanity, risk and reward, supply and demand, without political intervention. Politicians are good at catering to the needs of special interests, but very bad at determining what needs to take place in the market. Government should stick to punishing fraud and enforcing contracts. When they use the tax code, bureaucratic departments and their manipulative rules and regulations to dictate social and economic behavior, we end up with distortions and malinvestments. Bailing out banks, continuing failed Fed policies and strapping the taxpayer with toxic debt will worsen the pain, and punish the innocent.

If Congress really wanted to do something helpful, it would cut taxes. Ideally, we would repeal the income tax altogether and get the IRS off the economy’s back, which would be a huge boon. We should also cut spending. Cut every unconstitutional department and program, every wasteful governmental encroachment on the people’s liberty and money, starting with our massive overseas empire. The cost of our empire is bringing us to our knees, just as the Soviets’ empire did to them. Congress should also abolish the Federal Reserve and take back its responsibilities to ensure sound money, safe from the manipulations of powerful banking interests.

These things would constitute real change, real economic stimulus. The plans being bandied about Washington are just more of the same. As long as no one seriously considers the cure, we are unfortunately destined to prolong the disease.

There it is, refreshingly simple.

Now that we’ve identified our assailants as big government and central banking, maybe we can go after them! Or wait, here come a couple brave knights who seems more than willing to do that for us. Hold on a second… Don’t we know you?

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Knight of the Old Republic

This is who I’m being for Halloween.  :)

Ron Paul was dead right about the economy. If you haven’t watched his videos on YouTube, you should. He was calling the bursting of the housing bubble well before it happened. And the credit crunch? Yep, he’s warned of that too.

Ron Paul would have smoked Obama in the debates, especially on questions regarding the economy. Anyway, there certainly wouldn’t have been any bantering about who didn’t support the bailouts enough. Good grief!

Sadly, the way things are looking I think we’re in for more of the same at best, no matter which major party candidate wins. Now that’s scary.

Happy Halloween!

Ask Congress to Stop Socialist (Fascist) Bailouts

Today the US House of Representative is very likely to pass one of the most stupid pieces of legislation I have ever seen. They’re getting MAJOR pressure by the president, majority and minority leaders in congress, both major party presidential nominees, the Federal Reserve, and everyone else you can think of to pass an “emergency” bill that does NOTHING to help people stay in their homes.

Instead the proposed bill introduces liquidity into the market by purchasing garbage mortgage-backed securities from private companies, thereby socializing their risks while privatizing their profits. Warren Buffet described the derivatives we are to buy as financial weapons of mass destruction. Incidentally, they’re the same kind of stuff that brought Enron down, but do you see anybody going to jail from our current scandal? No, instead we reward them purchasing these bad assets at above-market prices.

Believe me, if these things had real value, the free market would be forking out the dough for themselves. Ask yourself, “Why in the world should you and I be forced to purchase ’securities’ that cannot sell on an open market?” It’s analogous to having congress force you to buy every car in the junkyard and then have the nerve to tell you it might actually be a good investment.

“But surely,” you ask, “people who are upside-down in their homes will finally get some much-needed relief?” Absolutely not! This bill does nothing for them –not that it should. But since the whole seductive point of socialism is supposedly to benefit the working class, you would think they would make some effort at it. This bill actually hurts upside-down buyers because it reduces their bargaining power by flooding the coffers of their debtors.

“You mean that congress might not be acting in our best interests?,” you ask.

The Center for Responsive Politics, a Washington nonprofit group that studies money and politics, reports that on average, lawmakers who voted in favor of the bailout bill have received 51 percent more in campaign contributions from sources in the finance, insurance and real estate industries.

Hmmm… Could congress possibly be acting in their own interests? Might those be directly opposite yours? One commenter hits it right on:

Why wouldn’t America, the greatest nation on earth, have the best congress money can buy?

This is especially true considering the sheer amount of pork added to the bill to insure that it passes in the house.

Wait, you thought the a motivated Senate might insuring passage by actually adding something substantive to the bill, or maybe cutting out some of it’s blatant threatening verbiage? Nope, too hard. Just throw on a bunch of tax-credits from a completely unrelated bill to make sure it has enough earmark grease to squeak through. Tax credits for green appliance manufacturers? That should get some Democrat votes. Oh NASCAR needs some tax credits? Republicans will like that. Tax rebates for Puerto Rican rum duties? Sure, throw it in. All of a sudden the bill is 451 pages of meaningless pork, which by the way our maverick hero John McCain swore to veto. Can you say double-speak?

Seriously, any house member who changes to an approval vote this time around has clearly been bought and sold. There are almost no differences whatsoever that relate to the main subject matter at all. Just more grease.

Want more?

This bill rewards companies that behaved foolishly (and probably dishonestly). It consolidates unprecedented power to the Federal Government, the Treasury, and the Federal Reserve. It increases the average American citizen’s tax burden. It grants unprecedented power (with no oversight whatsoever) to a consummate banking insider. And it undermines our so-called “Free Market” system at every step of the way.

And just in case you thought I was kidding that there’s no oversight whatsoever in how the $700 billion is spent, here’s the verbiage directly from the bill:

“Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

By the way, how did they come up with the $700 billion figure in the first place? The answer: it had to be a lot. Now that’s good math in action. What’s it for? Well, if we knew we could have come up with a real number by now.  Besides, wouldn’t you rather leave that up to one man with no recourse to the American people whatsoever. He alone decides who wins and who looses. Checks and balances be damned!

Oh yeah, and did I mention that nobody is saying that this thing will work? It’s always pitched as a “band-aid” at best. But when this $700 billion band-aid is saturated with blood, it will need to be ripped off so another one can be applied. This is a slippery slope, a terrible precedent. Bad companies need to be allowed to fail so that markets can adjust gracefully, and so that basic market principles can be reinforced.

Make no mistake: this is power grab, a consolidation of wealth, and a giant step toward socialism. Furthermore, it does NOTHING to address the actual problems at their source. This bill actually prolongs the problem by side-stepping the free market with heavy-handed government intervention. And on top of everything it’s blatantly unconstitutional! No wonder everyone is in such a hurry to get it passed! But seriously, if people took time to read and think about this, it would never pass; thus the rush.

Please tell your congressmen that failure to honor their oaths to uphold the defend the constitution will disqualify them from every getting your vote again. They already know that this bill is vastly unpopular, but they need to hear it from you. They actually do keep a tally, and letting them know how you feel really can work –so long as their phones are ringing off the hook.

For background, here’s how House members voted last time around (when it failed). Here’s how the Senate voted on the bill that they will try to jam through the House today.  Here’s a list of House members that may change their vote. Here’s a list of all congressmen with their contact info.

Please contact House members first since this bill has already sailed through the Senate.  A simple 2-line email will do. This legislation is insideously dangerous, so please contact them right away.