Problem
Bush is wrong. His $700 Billion bailout is not taxpayer money. It is more debt. The federal government already has a deficit. So there is no “tax payer money” laying around unused. We spent it all in Iraq and on Medicaid. If we want $700B more we are going to need to borrow it from China .

If we borrow our way out of this hole we may be just moving the crisis from Wall Street to Washington. If you have not read my post on the Chinese Paper Nuke you should give it a look. We will only make the problem worse if we try to borrow our way out of our debt.

Old Solution
During the great depression the goal of the Big Chiefs was to preserve the value of the dollar at the cost of liquidity and credit. The result was a credit crisis while the dollar gained in value during the depression. At the end of the recession and following war we had one of the strongest currencies in the world. This lead to some of the most prosperous years in our nation’s history.

New Solution
Now our goal is to preserve our need for liquidity even at the cost of the dollar. The result? Inflation. We can inflate our way out of this hole if we don’t care about our currency.

My Solution
Maybe we should focus on trying to pay off our debt. By that I mean you as an individual paying off your mortgage ahead of time. I mean corporations paying off their loans and the government paying off its bonds. Maybe getting out of debt is a better solution to a debt problem than more debt.  But that’s just me.

Blame
Ron Paul has seen this problem coming for a while. The democrats have denied it all along and the republicans can’t find a solution because they are unwilling to cut spending or allow a painful market correction. The media blames the free market and lack of regulation. yuck. As if regulated economies don’t have more problems.

Cause
The cause? A mix of over regulation and under regulation. The government penalized banks for not lending to sub prime borrowers. Then it required them to mark their assets to the market daily. This caused several banks to become insolvent on paper over night when they could not sell their mortgage backed securities.

Take Away
The economy is too complex for a handful of policy makers and central bankers to effectively manage. These sorts of mistakes are only to be expected. More regulation will not fix the problem. Getting out of unnecessary debt can.

House of Cards: Clinton’s Fault

http://uk.youtube.com/watch?v=1RZVw3no2A4

What do you think?
I would love to hear what you think about our troubles. I talked with Michael Clark at length about this and he had some interesting insights. He feels a market correction is too painful and that the bailout is not that dangerous.

I also talked with Dr. Larry Woodward the Wizard of UMHB. Woodward saw this problem coming and didn’t lose any money on the market slide. He is still very bearish and thinks we are far from the market’s bottom. He thinks we need to modify our current regulations and cut taxes and spending.

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