The financial meltdown the economists of the Austrian
School predicted has arrived.
We are in this crisis because of an excess of artificially
created credit at the hands of the Federal Reserve System. The solution
being proposed? More artificial credit by the Federal Reserve. No
liquidation of bad debt and malinvestment is to be allowed. By doing
more of the same, we will only continue and intensify the distortions
in our economy - all the capital misallocation, all the malinvestment
- and prevent the market's attempt to re-establish rational pricing
of houses and other assets.
Last night the president addressed the nation about
the financial crisis. There is no point in going through his remarks
line by line, since I'd only be repeating what I've been saying over
and over - not just for the past several days, but for years and even
decades.
Still, at least a few observations are necessary.
The president assures us that his administration
"is working with Congress to address the root cause behind much
of the instability in our markets." Care to take a guess at whether
the Federal Reserve and its money creation spree were even mentioned?
We are told that "low interest rates" led
to excessive borrowing, but we are not told how these low interest
rates came about. They were a deliberate policy of the Federal Reserve.
As always, artificially low interest rates distort the market. Entrepreneurs
engage in malinvestments - investments that do not make sense in light
of current resource availability, that occur in more temporally remote
stages of the capital structure than the pattern of consumer demand
can support, and that would not have been made at all if the interest
rate had been permitted to tell the truth instead of being toyed with
by the Fed.
Not a word about any of that, of course, because
Americans might then discover how the great wise men in Washington
caused this great debacle. Better to keep scapegoating the mortgage
industry or "wildcat capitalism" (as if we actually have
a pure free market!).
Speaking about Fannie Mae and Freddie Mac, the president
said: "Because these companies were chartered by Congress, many
believed they were guaranteed by the federal government. This allowed
them to borrow enormous sums of money, fuel the market for questionable
investments, and put our financial system at risk."
Doesn't that prove the foolishness of chartering
Fannie and Freddie in the first place? Doesn't that suggest that maybe,
just maybe, government may have contributed to this mess? And of course,
by bailing out Fannie and Freddie, hasn't the federal government shown
that the "many" who "believed they were guaranteed
by the federal government" were in fact correct?
Then come the scare tactics. If we don't give dictatorial
powers to the Treasury Secretary "the stock market would drop
even more, which would reduce the value of your retirement account.
The value of your home could plummet." Left unsaid, naturally,
is that with the bailout and all the money and credit that must be
produced out of thin air to fund it, the value of your retirement
account will drop anyway, because the value of the dollar will suffer
a precipitous decline. As for home prices, they are obviously much
too high, and supply and demand cannot equilibrate if government insists
on propping them up.
It's the same destructive strategy that government
tried during the Great Depression: prop up prices at all costs. The
Depression went on for over a decade. On the other hand, when liquidation
was allowed to occur in the equally devastating downturn of 1921,
the economy recovered within less than a year.
The president also tells us that Senators McCain
and Obama will join him at the White House today in order to figure
out how to get the bipartisan bailout passed. The two senators would
do their country much more good if they stayed on the campaign trail
debating who the bigger celebrity is, or whatever it is that occupies
their attention these days.
F.A. Hayek won the Nobel Prize for showing how central
banks' manipulation of interest rates creates the boom-bust cycle
with which we are sadly familiar. In 1932, in the depths of the Great
Depression, he described the foolish policies being pursued in his
day - and which are being proposed, just as destructively, in our
own:
Instead of furthering the inevitable liquidation
of the maladjustments brought about by the boom during the last three
years, all conceivable means have been used to prevent that readjustment
from taking place; and one of these means, which has been repeatedly
tried though without success, from the earliest to the most recent
stages of depression, has been this deliberate policy of credit expansion.
To combat the depression by a forced credit expansion
is to attempt to cure the evil by the very means which brought it
about; because we are suffering from a misdirection of production,
we want to create further misdirection - a procedure that can only
lead to a much more severe crisis as soon as the credit expansion
comes to an end... It is probably to this experiment, together with
the attempts to prevent liquidation once the crisis had come, that
we owe the exceptional severity and duration of the depression.
The only thing we learn from history, I am afraid,
is that we do not learn from history.
The very people who have spent the past several years
assuring us that the economy is fundamentally sound, and who themselves
foolishly cheered the extension of all these novel kinds of mortgages,
are the ones who now claim to be the experts who will restore prosperity!
Just how spectacularly wrong, how utterly without a clue, does someone
have to be before his expert status is called into question?
Oh, and did you notice that the bailout is now being
called a "rescue plan"? I guess "bailout" wasn't
sitting too well with the American people.
The very people who with somber faces tell us of
their deep concern for the spread of democracy around the world are
the ones most insistent on forcing a bill through Congress that the
American people overwhelmingly oppose. The very fact that some of
you seem to think you're supposed to have a voice in all this actually
seems to annoy them.
I continue to urge you to contact your representatives
and give them a piece of your mind. I myself am doing everything I
can to promote the correct point of view on the crisis. Be sure also
to educate yourselves on these subjects - the Campaign for Liberty
blog is an excellent place to start. Read the posts, ask questions
in the comment section, and learn.
H.G. Wells once said that civilization was in a race
between education and catastrophe. Let us learn the truth and spread
it as far and wide as our circumstances allow. For the truth is the
greatest weapon we have.
In liberty,
Ron Paul
What
you can do: It only takes a few moments to fill out an online email.
Write your representative here: http://www.house.gov/writerep/
Wednesday, September 24, 2008
Whenever a Great Bipartisan Consensus is announced,
and a compliant media assures everyone that the wondrous actions of
our wise leaders are being taken for our own good, you can know with
absolute certainty that disaster is about to strike.
The events of the past week are no exception.
The bailout package that is about to be rammed down
Congress' throat is not just economically foolish. It is downright
sinister. It makes a mockery of our Constitution, which our leaders
should never again bother pretending is still in effect. It promises
the American people a never-ending nightmare of ever-greater debt
liabilities they will have to shoulder. Two weeks ago, financial analyst
Jim Rogers said the bailout of Fannie Mae and Freddie Mac made America
more communist than China! "This is welfare for the rich,"
he said. "This is socialism for the rich. It's bailing out the
financiers, the banks, the Wall Streeters."
That describes the current bailout package to a T.
And we're being told it's unavoidable.
The claim that the market caused all this is so staggeringly
foolish that only politicians and the media could pretend to believe
it. But that has become the conventional wisdom, with the desired
result that those responsible for the credit bubble and its predictable
consequences - predictable, that is, to those who understand sound,
Austrian economics - are being let off the hook. The Federal Reserve
System is actually positioning itself as the savior, rather than the
culprit, in this mess!
• The Treasury Secretary is authorized to purchase
up to $700 billion in mortgage-related assets at any one time. That
means $700 billion is only the very beginning of what will hit us.
• Financial institutions are "designated
as financial agents of the Government." This is the New Deal
to end all New Deals.
• Then there's this: "Decisions by the
Secretary pursuant to the authority of this Act are non-reviewable
and committed to agency discretion, and may not be reviewed by any
court of law or any administrative agency." Translation: the
Secretary can buy up whatever junk debt he wants to, burden the American
people with it, and be subject to no one in the process.
There goes your country.
Even some so-called free-market economists are calling
all this "sadly necessary." Sad, yes. Necessary? Don't make
me laugh.
Our one-party system is complicit in yet another
crime against the American people. The two major party candidates
for president themselves initially indicated their strong support
for bailouts of this kind - another example of the big choice we're
supposedly presented with this November: yes or yes. Now, with a backlash
brewing, they're not quite sure what their views are. A sad display,
really.
Although the present bailout package is almost certainly
not the end of the political atrocities we'll witness in connection
with the crisis, time is short. Congress may vote as soon as tomorrow.
With a Rasmussen poll finding support for the bailout at an anemic
seven percent, some members of Congress are afraid to vote for it.
Call them! Let them hear from you! Tell them you will never vote for
anyone who supports this atrocity.
The issue boils down to this: do we care about freedom?
Do we care about responsibility and accountability? Do we care that
our government and media have been bought and paid for? Do we care
that average Americans are about to be looted in order to subsidize
the fattest of cats on Wall Street and in government? Do we care?
When the chips are down, will we stand up and fight,
even if it means standing up against every stripe of fashionable opinion
in politics and the media?
Times like these have a way of telling us what kind
of a people we are, and what kind of country we shall be.
In liberty,
Ron Paul
