Rescuing the Economy

Over the past week, I’ve listened to much debate regarding how to rescue the economy from an apparent recession. It took them long enough to realize the dire situation we live in, and now I hear the same old solutions proposed once again.

We’ve witnessed “rapid” growth of the economy over the past few years. This was a result of expansionary monetary policy and the creation of easy/free money for lenders to loan. The result is, of course, a flurry of economic activity that made our economy look robust. The Federal Reserve lowered interest rates into oblivion, and offering the ability for people who would otherwise not be able to afford certain effects to suddenly find themselves able to. Most notably was the effect on Real Estate, where in 2001 home prices were rather affordable – in the mid-$200k range in my area, now cost over $400,000 – a price I certainly would be stretched to afford. Those who were given short term, low interest rate mortgages (ARMs), found themselves in a pickle when the rates reset to market after the introductory low rates expired. They could not afford the house they live in when they bought it, and they can’t afford to live in it today.

And what is it I am hearing from the Government? They propose to do the following:

1. Lower interest rates and create additional “stimulus” for people to borrow and buy things.
2. “Save” people who took out loans they can’t afford by “freezing” interest rates at the expense of the taxpayer.
3. Start “handing out” money to people in the form of tax rebates.

The cause of the recession is now being also offered as the solution. The core problem is our monetary system, it has no backing and based on the Government’s decision to increase or contract it through a variety of mechanisms. Therefore, at any time, the Government can decide to inject more money into the system thereby devaluing whatever money you may have in savings. As a result, the costs of goods increase – including basic needs such as food, and shelter. This is called the “inflation tax.”

A good measure to determine whether the value of our currency is being maintained is to compare it to other paperweights such as the Euro, and British pound. Both currencies have appreciated against the dollar upwards of 40-50%. That means the world views our dollars as half as valuable as it once was.

The aforementioned solutions offered by the Government are analogous to short term fix-ups. And essentially the higher we inflate the balloon, the harder it will hit the ground when it bursts. What is needed now, to bring record costs under control, is a recession. Yes, I’m serious. A short-term correction to realign the markets will ensure long term stability. We need to put an instant cap on all spending in order to bolster our currency’s value. The less we spend, the less supply there is relative to the overall global demand. Government can start in-house. We need Government to eliminate every non-sensical department they have created – including the Department of Energy, and the Department of Education. Since when should a Federal Bureaucracy be in charge of the nations’ education? I don’t see the US Government opening up universities, etc. Education should rightfully be left to the local communities and the State to manage. The Government also needs to look at ways of reducing our national deficit and stop the deficit spending. The nation’s taxpayer money generally goes to fueling local pet projects around the country, in some cases researching shrimp in the Gulf of Mexico. All this non-sense does not provide any value whatsoever to individuals such as myself. To please the people, the Government attempts to play Robin Hood by appropriating our taxes in the form of welfare handouts, and sometimes subsidizes “poor” farmers. The Government actually pays farmers not to grow Corn – it was spurred by a Corn surplus and farmer’s were struggling at the time. Uncle Sam bailed them out alright, now we have a shortage since there is a large demand for Corn-based ethanol. Why are your tax dollars being used to pay a farmer out in the Mid-West? He should compete in the free market like the rest of us, if Corn doesn’t pay the bills I’m sure eggplant and a variety of other alternatives will. What really baffles me is what value does the Federal Government provide me at all? Most of the services I use, such as roadways, local protection (police), etc. is rendered and provided by Local and State Government, and not the US Government. And yet, I pay the US Government 2.75 times what I pay Local and State Government (Not including Social Security, throw that in and I pay the Feds 4x that of what I pay the State). I’d rather pay the State than the Federal Government since they provide more direct, locally appropriated services to me.

The Federal Government also subsidizes people to remain on welfare. Essentially, they say “If your income is below this level, we’ll give you food, shelter, etc.” What in turn happens is, people are incentivized to remain “poor.” If they make any more than the poverty guidelines, they lose public benefits. The other day, waiting in line at the Supermarket, I observed a rather dapper individual pay for his groceries with a Food Stamp ATM-type card in Brooklyn. I began noticing almost everyone paid via Food Stamps. This appeared rather odd to me since they all were dressed rather stylishly. Since we left around the same time, I noticed that the individual rode in a late-model BMW automobile. Clearly, this is a misappropriation of my taxpayer dollars. Money is best spent by those who earn it.

I think I’ve made it abundantly clear that you could probably trim the Government’s budget by over 75% and still have no effect on our collective daily lives. The US Government was supposed to provide for only our common interests, limited to “establishing justice, insure domestic tranquility, provide for the common defence, promote the General Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.” How come I feel as if the Government is now providing none of the above?

A return to the free-market is the best solution to our ills. There will be a noticeably more stable economy, where value is protected. Prices will become predictable. Combine this with low taxes and we’ll have a vibrant economy. A main ingredient to a stable free-market economy is an appropriate currency system – and that entails the abolishment of the Federal Reserve. We need a currency that maintains the same value – ie. Gold or Silver as authorized by the US Constitution, or even a restricted paper supply. No Government entity should decide how much money should flow through the system – the result is an uncontrollable mess. With a stable currency system, the free market will assign appropriate interest rates to loans and the Government won’t have to worry about that either. Essentially, the Government won’t have to pull any levers to “stimulate” the economy – it will run perfectly fine on its own.