In the last week, many peers, business friends, and fellow students have heard me griping and issuing warnings about the state of the economy. As a result, many have requested that I address the reasons behind the recent collapse.
Unfortunately, the problem is much deeper than the average apathetic American cares to realize, and this current crisis is hardly the result of a collapsing housing market or unethical financial institutions. These are mere symptoms of a much more serious disease.
In the last few days, the big wigs in Washington have proposed new legislation that will cost the American taxpayers $700 billion (probably much more) in the name of “fixing the cause” and saving the markets. Ironically, this type of legislation is exactly the disease that has caused our current problems.
The collapse of the financial sector, the slumping housing market, and the unstable stock market are the direct results of loose monetary policy. Restated in simple terms: the reason for the failing economy is due to the government’s ability to manipulate the market.
After 9/11, the Federal Reserve cut interest rates to as low as 1% in order to “stimulate the economy.” As a result of the extremely low rates, individuals were given the illusion that they could afford extremely large loans. For example, a woman on the Dave Ramsey radio show revealed that she was given a loan for $1.5 million, while her income was only $28,000. This idea of living beyond one’s means became commonplace and was the reason for the incredible housing boom that we saw from 2002 to 2006.
Now, this failed policy has caught up to the economy. Those who have been living beyond their means and taking out huge loans are now unable to repay them. The financial institutions knew that many of these loans would be defaulted, but the low interest rates gave the illusion of affordability, allowing more loans than ever to be issued.
This is why there are so many homes in foreclosure. This is also why banks are failing – they aren’t receiving a return on the loans that they issued.
To “save the economy,” the government has proposed spending $700 billion to soak up these bad loans. However, it is this type of loose monetary policy that has caused the problem in the first place.
Some have suggested that the alternative, that is, doing nothing, would be more harmful than spending the money to “correct” the markets. However, the opposite is true.
If the market were allowed to fail, then it is true that there would be a difficult recession in the short run. Housing prices would drop sharply over the next twelve months, and there would be considerable layoffs and higher unemployment. It would be painful for a short time (one to two years). In economics, this is known as the market purging itself.
It’s like flushing the toilet – the market gets rid of all the bad loans and wasteful junk that has built up over the past years. The market does this when prices fall and marginal producers go out of business. After the prices fall, then people will again begin to spend money again, and the market corrects itself. Indeed there would be pain at first, but it would be short-lived.
However, if we stop the market from purging itself, then the bad loans and economic “junk” stays in the market. Prices are not able to correct themselves, so we continue to see an increase in housing, food, and gas prices while our incomes stay the same. Therefore, we don’t have a bad year or a bad two years…
we have a bad DECADE or TWO DECADES.
This bailout is for the rich. The CEOs of these failing companies are getting millions of dollars, while the shareholders get nothing. Meanwhile, poor people continue to pay high prices while their incomes stay the same.
Think about it this way: when the government buys up these bad loans, who gets the money? The rich get it. Poor people get nothing. As a result, poor people continue to pay high prices while seeing no increase in income.
If the market was allowed to fail, the rich would get nothing, but poor people would receive some benefit from paying lower prices.
This economic crisis is NOT a failure of the free market. It is the opposite; this crisis is the result of poor monetary and economic policy by the United States government. Instead of bailing out those who can no longer compete, companies should be allowed to fail. In doing so, the market will purge itself and be much more healthy in the long run.
My Predictions for The Next Ten Years
When I tell people this, they often ask, “So what does this mean? What’s going to happen?”
What will likely happen is that the government will continue to take over bad debt and socialize companies that are considered “too big to fail.”
As a result, there will be a buildup in debt and dependency that will collapse into the largest economic decline since The Great Depression. In order to “fix”
this problem, you will see politicians and the media lobby for a more stable system, and this will allow the North American Union to rise.
If you are unfamiliar with the North American Union, watch this video:
http://www.youtube.com/watch?v=vuBo4E77ZXo
This is the agenda. This is the reason why the government takes over and bails out these companies…there is a much bigger plan than what the American people realize.
All of these “bailouts” and increased government spending to “save the market” is part of a system known as Keynesian economics. John Maynard Keynes was an economist whose ideas were used by Hitler in order to justify fascism. It is the process of the government becoming bigger and bigger in order to “regulate and take care” of its citizens.
Yet Keynesian economics is what the United States government implements. It is what is taught in schools. It is the reason why the government continues to bail out the rich while oppressing the poor.
This trend will continue until the American people wake up and realize that we no longer have free markets in the United States. We do not have sound currency. We have a failing dollar. We have no national sovereignty.
And the New World Order is rapidly approaching.
Friends, I urge you to come out of ignorance and stand against this type of corruption. Call your Congressman and urge him or her to vote against this $700 billion bailout. And most of all, educate yourselves. Learn about free market economics and reject the ideas that we are dependent on our government.
It is only when we eliminate our dependency on Big Brother that we can become free again, and only then can the economy heal itself and become prosperous once again.
