It is important to understand why our economy is not doing well. I wanted to share with you some videos that help explain why we are in this mess. Unfortunately our choices are either paying the price now with a recession or putting the recession off by getting in more debt. The recession might turn to a depression so it’s a tough call.
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.
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.
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.
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.
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.
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.
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
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.
The way the monetary system is structured, though, if everyone paid off their debts, there would be much less money in circulation.
This is due, of course, to the fractional reserve banking system we have, whereby money is multiplied 10x (or even more, perhaps… I'm not sure what the current bank reserve levels are at).
What would you advocate regarding the monetary system? A simultaneous return to the gold/silver standard, perhaps?
I totally agree with you that debt is a bad thing, and that we should, both personally and as a nation, get out of debt. Since our currency is based on debt, though, if we were to all pay off all of our debts and shrink our money supply to 10% of the current money in circulation, that would have quite a drastic effect.