1,918 words, 8.5 minutes approximate reading time.

 Economic Crisis 2008 and Beyond

By: Jim Burns

“Never in the history of the world has there been a situation so bad that the government can't make it worse."

Smoke and Mirrors

The politicians and bureaucrats in Washington DC caused the economic and credit crisis!!!

The crisis situation has been organized in ways that can easily confuse, baffle, and bamboozle us.

It has been reported that Bernard Madoff, Wall Street financier, has confessed to running the biggest non-government Ponzi scheme ever. Reports say it has cost his victims $50 billion dollars. This is tragic. Because fraud is criminal, if guilty, Mr. Madoff should lose his property to his victims and he should go to jail for a long time. However, the actions of Mr. Madoff no matter how appalling, inexcusable, and atrocious and how much harm was done to the victims, he did not cause the credit crisis.

The politicians and bureaucrats in Washington DC with the help of hot shot Wall Street types have given us a financial system that is deliberately complex. The result is a system that makes possible large profits for a select few at the expense of others with disregard for honesty, and the rights of others.

One version, called Sub-prime Mortgages, was supported by Senator Chris Dodd (D-CT), Representative Barney Frank (D-MA), and others politicians both democratic and republican.

People are given Sub-prime Mortgages that would not qualify normally for a loan, the loans are ultimately guaranteed by taxpayers and when the loans fail, which many do, the taxpayers can be stuck. The select few profit with fees every step of the way win or lose.

Another version is called Mortgage-Back Securities. Basically, mortgages loans are put together and treated as if they are bonds. There are different rules for bonds. Throw in some Sub-prime Mortgages, collect fees and the select few watch the money roll in. Taxpayers get the risk; the select few get the profit.

These are but two of many non-sense programs that use smoke and mirrors to cover large-scale fraud. There is no moral difference between the actions of Bernard Madoff and the programs of the politicians and bureaucrats in Washington DC.

The actions of the politicians and bureaucrats in Washington DC have and continue to steal our money. They caused great harm to the economy (never have so few done so much to harm so many!). Nevertheless, these actions no matter how appalling, inexcusable, and atrocious are not the major cause of the credit crisis.

If we continue on the present path, then just as Hoover and FDR turned a recession, which should have been short lived, into a depression that lasted about a decade, so too, Bush and Obama can cause real harm to our well-being with the interference done by the politicians and bureaucrats in Washington DC.

Credit

We are told that the current economic crisis is due to a lack of available credit: Wall Street must be saved to save Main Street*. If there is a true lack of credit, credit responds to the laws of supply and demand if the market** is unhampered***.

The politicians and bureaucrats in Washington DC under the leadership of the Federal Reserve System control interest rates and the money supply, which in turn influences if not controls available credit.

If the politicians and bureaucrats in Washington DC cause the interest rates to be under what the market would choose, then, under most conditions, the amount of credit will become restricted – that is, more people will want to borrow (cheaper rates) and fewer people will want to loan (less profit): therefore, a credit crunch and fewer loans – less gets done, fewer jobs.

On the other hand, if the politicians and bureaucrats in Washington DC cause the interest rates to be more than what the market would choose, then, under most conditions, fewer people will want to borrow (higher rates) and more people will want to loan (more profit): therefore, fewer loans - less gets done, fewer jobs.

The higher the interest rate, the less popular interest rates usually are especially with people who want to borrow. There are generally more people who want to borrow than want to loan. Until the money for loans run out, lower interest rates appear to improve the economy, actually it causes more bad investments: sometimes called bubbles.

Lack of available credit can be solved when adjustments are correctly made to the interest rates. What should the interest rate be? I do not know, neither does anyone at the Federal Reserve System. The people who know what the interest rates should be are the people who make and the people who receive loans. When they agree, a loan should be allowed to occur.

Why Smoke and Mirrors?

“Oh, what a web we weave, once we practice to deceive.”

Rather than the Federal Reserve System increasing interest rates, politicians and bureaucrats in Washington DC with help from almost everyone use smoke and mirrors to change the subject and avoid adjustments. Adjustments may be painful to the public and make the politicians and bureaucrats in Washington DC unpopular. The longer they wait, the harder the correction: More danger, more hardship.

Smoke and mirrors makes it possible for people such as Treasury Secretary Henry Paulson to say, without proof or questions to him or serious questions about his program, that the sky is falling and Paulson encourages the Congress to pass a bill quickly and without meaningful questions and few objections for $850 billion. He gets $700 billion.

Smoke and mirrors makes it possible for Federal Reserve System Chairman Bernanke and his crew to create and distribute trillions of dollars out of nowhere with little reporting, no vote from Congress (not that that saves us very often), and spend the money who knows where for who knows what with no accounting or responsibility. Maybe, there is the chance that there may be corruption or waste? Maybe the money will cause more harm than benefit? Maybe, I’m just paranoid, or maybe they are after our money and our liberty?

Spending

The politicians and bureaucrats in Washington DC have been supporting the war. Not only does the war kill and injure people and brake things, it also cost a lot of money, and I mean a lot of money.

Add all the other contemptible and destructive programs of the politicians and bureaucrats in Washington DC, and they are spending an obscene amount of money. They pay for these things by stealing (taxes), counterfeiting (inflation), and borrowing.

The amount of spending and borrowing done by the politicians and bureaucrats in Washington DC is devastating to our economy and has left little room for the rest of us to compete for money: Therein, another reason for the credit shortage.

The politicians and bureaucrats in Washington DC want to borrow large amounts of money. They control the rules. So, they make interest rates low for loans, which make a better deal for them. One of the costs for us is less available credit: More requests for money bidding for the same available credit.

Pork Anyone?

Some might say that we would have been better off had the House given the seven hundred billion dollars to Treasury Secretary Henry Paulson that he asked for at first.

When he lost the vote in the House in his quest for $700 billion dollars, he appeals to the Senate. The Senate discarded the Constitution and passed a bill with an additional one hundred and fifty billion dollars (Harry Reid and his buddies know how to get things done in the Senate – oink, oink), then the House past the bill at a cost of eight hundred and fifty billion dollars, that is, it cost the taxpayers $850 billion to give Henry $700 billion. Guess who, you know the defender of Capitalism, signed it into law: Pork anyone?

To pass a bill giving Secretary Paulson one penny, let alone, $700 billion to spend mostly as he sees fit is insane! The Secretary said at the time that he did not know if his program would work! I worked in the gaming industry in Las Vegas for almost 20 years, the house loves it when people bet and do not know if it will work. It is really good when the bet is made with other people’s money and better still if the person making the bet does not have a penalty if they lose!

Some might suggest that the Secretary wanted to use the money to reward his friends and punish his enemies. Bailouts for Freddy and Fannie, you know, that is where ex-political activist with juice go to get very very rich and they use the taxpayer’s money to lobby their cronies in Congress to maintain and improve their deal: Bailouts for AIG whose people go to luxury hotels to “work”: Bailouts for Goldman Sachs where Paulson use to work. Save the rich, bailouts for rich friends everywhere. No friends, people Paulson used to work against -- Lehman Brothers (not that you deserve it) no bailout for you.

The actions of Federal Reserve System Chairman Bernanke and his crew (trillions of dollars from no where) are probably worse than our buddy Paulson. We just don’t know. But, I use to think that the amount of money Paulson was dealing with was hard to imagine. Bernanke and his crew put them all to shame. We may never know what hit us. When it hits the fan – remember Bernanke!

Is there light at the end of the tunnel?

To solve the economic and credit crisis:

The solution: No more bailouts, loans, subsidies, grants, loan guarantees, stock purchases, nor other special privileges -- nor theft and larceny of the taxpayer’s money. Law against fraud should be enforced.

The solution: the politicians and bureaucrats in Washington DC must uphold the Constitution, which would lead to the abolition of the Federal Reserve System (a major cause of the current economic crisis).

The solution: whoever makes an investment should receive the benefits if successful and bare the loss if failure occurs and fraud should be prohibited and punished.

The solution: dramatically and then, even more dramatically cut spending by the politicians and bureaucrats in Washington DC.

Hope Anyone?

President Obama appears to believe that he is the new FDR (look at the way he often holds his head – chin up looking to the left or right).  He seems to believe that FDR brought the country out of the depression and saved Capitalism. If he actually believes that, he is delusional and dangerous to our well-being. The more he has his way the more harm he will cause.