OK Don wrote:
There is the minor discrepancy where he's decrying the lack of free
market principles, when it's those uncontrolled free markets that got
us into this mess.
I think it's uncontrolled government meddling that got us into this mess.
As stated in an email I received from a Congressman on 9-25:
Dear Friends:
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
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