The Perfect Storm Shows Congressional Ignorance

The financial bailout proposal is both an educational experience and a revelation of the quality of your representatives.

Clear all of the political smoke and take heed: If you ever wanted a lesson in representative government and see first hand how our representatives handle a crisis, pay close attention because you’re witnessing the process during the most opportune time as a voter.

Constitutionally, the process begins with the president exercising his limited authority by proposing a solution to this financial crisis based upon input from his advisors and cabinet members.

Using his limited presidential power to persuade, Bush takes to the air by televising his plea to the public, albeit filled with unsubstantiated scare tactics, all in an effort to convince citizens to demand immediate action by their representatives.

But, that didn’t work.

Congress, regulated by the constitution and under the growing suspicion and outrage emerging from the public, performed its constitutional duty and took its time to contemplate Secretary Paulson’s proposal, and summarily rejected it by expanding the proposal from 3 pages to 110.

That bill failed, and the economy, despite the pleas from the administration that the sky is falling, is still limping along.

The constitution is working, but our representatives aren’t.

What we’re witnessing is a house full of representatives, under the leadership of Nancy Pelosi, scrambling around and illustrating their incompetence by pointing fingers at each other because they do not know what to do.

What a perfect storm– a major crisis and an upcoming election all rolled into one.

Pay attention, John Q. Public. It’s not the presidential election that is important here, it’s your representative’s behavior and their ability to show all of us, once and for all, if they have what it takes to hold office.

If not, it’s your constitutional right to vote the incompetent ones out this November.

Economic Turbulence

Here is an article that I wrote on December 8, 2007 regarding the imminent ecomonic crisis:

Everyone should prepare to withstand imminent economic turbulence in 2008.

Without being an economist, I feel confident in making this assertion just by looking at very simple, but huge indicators that anyone can witness and evaluate.

Our country is involved in an expensive war in the Middle East that costs billions of dollars. Our current administration is looking to expand the war. The invoice for the war will certainly be presented to the nation soon, which means the burden to fund war operations rests exclusively with taxpayers.

The size of government is growing, and elected officials are legislating guaranteed pay raises and benefits every single year for themselves and bureaucrats. Government employee salaries alone are increasing by a rate of at least 3% each year.

Those increases are being subsidized innocuously through, for example, the imposition of higher licensing fees, cigarette taxes and other creative taxing methods that fly under the radar of most taxpayers.

Small business retailers are finding it difficult to make ends meet. Next time, as you drive down Main Street in your community, take note of the number of retail vacancies that are slowly beginning to pop-up in shopping centers and strip malls.

Gasoline prices fluctuate every week by a margin of 10 to 15 cents per gallon. And, in case you haven’t noticed, utility companies are requesting and obtaining rate increases from your local public service commissions.

Housing values are slowly, but surely declining, meaning that your nest egg- the equity you’ve accumulated in your home- is beginning to disappear right before your very eyes.

What does this all mean?

Your margin of discretionary income is beginning to narrow exponentially, and you will be required to make up the difference by tapping into your savings and emergency funds.

Once those funds are tapped out, financial trouble begins.

Take the time to review and adjust your spending habits and the reliability of your source of income. Pay attention to your what your local and state representatives are doing to increase government spending.

Be cognizant of the fact that, as you’re taking steps to reduce your financial burden, others are taking steps to increase it.

Ron Paul: My Answer to the President

Ron Paul posted this article recently regarding our government’s plan to bail out Wall Street:

The financial meltdown the economists of the Austrian School predicted has arrived.

We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy – all the capital misallocation, all the malinvestment – and prevent the market’s attempt to re-establish rational pricing of houses and other assets.

Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I’d only be repeating what I’ve been saying over and over – not just for the past several days, but for years and even decades.

Still, at least a few observations are necessary.

The president assures us that his administration “is working with Congress to address the root cause behind much of the instability in our markets.” Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?

We are told that “low interest rates” led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments – investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.

Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or “wildcat capitalism” (as if we actually have a pure free market!).

Speaking about Fannie Mae and Freddie Mac, the president said: “Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.”

Doesn’t that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn’t that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn’t the federal government shown that the “many” who “believed they were guaranteed by the federal government” were in fact correct?

Then come the scare tactics. If we don’t give dictatorial powers to the Treasury Secretary “the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet.” Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.

It’s the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.

The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.

F.A. Hayek won the Nobel Prize for showing how central banks’ manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day – and which are being proposed, just as destructively, in our own:

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.

To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection – a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end… It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.

The only thing we learn from history, I am afraid, is that we do not learn from history.

The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?

Oh, and did you notice that the bailout is now being called a “rescue plan”? I guess “bailout” wasn’t sitting too well with the American people.

The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you’re supposed to have a voice in all this actually seems to annoy them.

I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects – the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.

H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.

In liberty,

Ron Paul

Time is Running Out – By Ron Paul

Ron Paul issued this article regarding our government’s proposal to bail out Wall Street:

“Whenever a Great Bipartisan Consensus is announced, and a compliant media assures everyone that the wondrous actions of our wise leaders are being taken for our own good, you can know with absolute certainty that disaster is about to strike.

The events of the past week are no exception.

The bailout package that is about to be rammed down Congress’ throat is not just economically foolish.  It is downright sinister.  It makes a mockery of our Constitution, which our leaders should never again bother pretending is still in effect.  It promises the American people a never-ending nightmare of ever-greater debt liabilities they will have to shoulder.  Two weeks ago, financial analyst Jim Rogers said the bailout of Fannie Mae and Freddie Mac made America more communist than China!  “This is welfare for the rich,” he said. “This is socialism for the rich. It’s bailing out the financiers, the banks, the Wall Streeters.”

That describes the current bailout package to a T.  And we’re being told it’s unavoidable.

The claim that the market caused all this is so staggeringly foolish that only politicians and the media could pretend to believe it.  But that has become the conventional wisdom, with the desired result that those responsible for the credit bubble and its predictable consequences – predictable, that is, to those who understand sound, Austrian economics – are being let off the hook.  The Federal Reserve System is actually positioning itself as the savior, rather than the culprit, in this mess!

•    The Treasury Secretary is authorized to purchase up to $700 billion in mortgage-related assets at any one time.  That means $700 billion is only the very beginning of what will hit us.

•    Financial institutions are “designated as financial agents of the Government.”  This is the New Deal to end all New Deals.

•    Then there’s this: “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.”  Translation: the Secretary can buy up whatever junk debt he wants to, burden the American people with it, and be subject to no one in the process.

There goes your country.

Even some so-called free-market economists are calling all this “sadly necessary.”  Sad, yes.  Necessary?  Don’t make me laugh.

Our one-party system is complicit in yet another crime against the American people.  The two major party candidates for president themselves initially indicated their strong support for bailouts of this kind – another example of the big choice we’re supposedly presented with this November: yes or yes.  Now, with a backlash brewing, they’re not quite sure what their views are.  A sad display, really.

Although the present bailout package is almost certainly not the end of the political atrocities we’ll witness in connection with the crisis, time is short.  Congress may vote as soon as tomorrow.  With a Rasmussen poll finding support for the bailout at an anemic seven percent, some members of Congress are afraid to vote for it.  Call them!  Let them hear from you!  Tell them you will never vote for anyone who supports this atrocity.

The issue boils down to this: do we care about freedom?  Do we care about responsibility and accountability?  Do we care that our government and media have been bought and paid for?  Do we care that average Americans are about to be looted in order to subsidize the fattest of cats on Wall Street and in government?  Do we care?

When the chips are down, will we stand up and fight, even if it means standing up against every stripe of fashionable opinion in politics and the media?

Times like these have a way of telling us what kind of a people we are, and what kind of country we shall be.”

Ron Paul on Economic Bailouts

Ron Paul’s statement regarding the current economic crisis:

“Many Americans today are asking themselves how the economy got to be in such a bad spot.

For years they thought the economy was booming, growth was up, job numbers and productivity were increasing. Yet now we find ourselves in what is shaping up to be one of the most severe economic downturns since the Great Depression.

Unfortunately, the government’s preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention.

Ever since the 1930s, the federal government has involved itself deeply in housing policy and developed numerous programs to encourage homebuilding and homeownership.

Government-sponsored enterprises Fannie Mae and Freddie Mac were able to obtain a monopoly position in the mortgage market, especially the mortgage-backed securities market, because of the advantages bestowed upon them by the federal government.

Laws passed by Congress such as the Community Reinvestment Act required banks to make loans to previously underserved segments of their communities, thus forcing banks to lend to people who normally would be rejected as bad credit risks.

These governmental measures, combined with the Federal Reserve’s loose monetary policy, led to an unsustainable housing boom. The key measure by which the Fed caused this boom was through the manipulation of interest rates, and the open market operations that accompany this lowering.

Because the boom comes about from an increase in the supply of money and not from demand from consumers, the result is malinvestment, a misallocation of resources into sectors in which there is insufficient demand.

In this case, this manifested itself in overbuilding in real estate. When builders realize they have overbuilt and have too many houses to sell, too many apartments to rent, or too much commercial real estate to lease, they seek to recoup as much of their money as possible, even if it means lowering prices drastically.

This lowering of prices brings the economy back into balance, equalizing supply and demand. This economic adjustment means, however that there are some winners — in this case, those who can again find affordable housing without the need for creative mortgage products, and some losers — builders and other sectors connected to real estate that suffer setbacks.

The government doesn’t like this, however, and undertakes measures to keep prices artificially inflated. This was why the Great Depression was as long and drawn out in this country as it was.

I am afraid that policymakers today have not learned the lesson that prices must adjust to economic reality. The bailout of Fannie and Freddie, the purchase of AIG, and the latest multi-hundred billion dollar Treasury scheme all have one thing in common: They seek to prevent the liquidation of bad debt and worthless assets at market prices, and instead try to prop up those markets and keep those assets trading at prices far in excess of what any buyer would be willing to pay.

Additionally, the government’s actions encourage moral hazard of the worst sort. Now that the precedent has been set, the likelihood of financial institutions to engage in riskier investment schemes is increased, because they now know that an investment position so overextended as to threaten the stability of the financial system will result in a government bailout and purchase of worthless, illiquid assets.

Using trillions of dollars of taxpayer money to purchase illusory short-term security, the government is actually ensuring even greater instability in the financial system in the long term.

The solution to the problem is to end government meddling in the market. Government intervention leads to distortions in the market, and government reacts to each distortion by enacting new laws and regulations, which create their own distortions, and so on ad infinitum.

It is time this process is put to an end. But the government cannot just sit back idly and let the bust occur. It must actively roll back stifling laws and regulations that allowed the boom to form in the first place.

The government must divorce itself of the albatross of Fannie and Freddie, balance and drastically decrease the size of the federal budget, and reduce onerous regulations on banks and credit unions that lead to structural rigidity in the financial sector.

Until the big-government apologists realize the error of their ways, and until vocal free-market advocates act in a manner which buttresses their rhetoric, I am afraid we are headed for a rough ride.”

Keep Digging!

The media keeps on diggin’ in an effort to find as much dirt as possible on McCain’s running mate Sarah Palin.  Each word from her acceptance speech is scrutinized by the media.

The latest?

Palin’s statement that she placed the state jet used by former Alaskan Governor Murkowski on Ebay is now being vetted by the media.  Apparently, the plane didn’t sell on Ebay.  Rather, it sold via an aviation broker for less than it’s original purchase price.

Who cares?  The fact is that Governor Palin eliminated a unnecessary state expense that she believed was unjustly dropped in the laps of Alaskan taxpayers.

What’s more important– how the plane was sold, or the fact that is was sold?

Ventura Questions Government’s Veracity

According to the US Government, who was the mastermind behind the destruction of New York’s World Trade Center during the 911 attacks?

Usama Bin Laden, right?

Former Minnesota Governor Jesse Ventura raised an interesting point during his speech at Ron Paul’s “Campaign for Liberty” convention that operated simultaneously with the Republican National Convention in Minneapolis this week.

According to Ventura, the government accused Bin Laden of the terrorist act, but never indicted him in federal court. Moreover, the FBI’s “Ten Most Wanted Fugitive List” includes Bin Laden, but doesn’t mention his culpability for 911 anywhere.

Ventura surmises that our government justified the Iraq and Afganistan wars by making the 911 connection to Bin Laden as the leader of Al-Qaeda.  So, if the government’s theory is true, then why isn’t Bin Laden connected to the act on the FBI’s website?

Do We Want to Know That Much?

Governor Sarah Palin’s unanticipated entry into this manufactured Presidential   Election only adds more fuel to a fire that needs to be stomped out.

The attacks on Governor Palin’s daughter confirm the intensity of this obnoxious power struggle between democrats and republicans.  As we’ve come to expect, it’s getting nastier everyday and turning American’s off.

Keep in mind, this commercial-free garbage is being televised to the world via television and the internet.

Are the candidates providing us with solutions to serious issues like the multi-trillion dollar debt that strangles our nation; the enormous amount of reckless spending that our legislators continue to approve by stealth; or, how about the erosion of our liberty and privacy?

No, you won’t hear that from this “high school class president-level” of discourse.

Both parties are certainly responsible for the mess that faces our country, and despite their promises, once elected they’ll do nothing to change our situation, unless the next president has the power to persuade congress.

Recent history tells us that congress is now controlled by lobbyists fueled by powerful special interest organizations.  It’s so much easier for an elected representative to take their money, and vote as directed in order to perpetuate membership in these political machines and personal power.