***** I hope you enjoy this week's straight talk. Ron Paul don't pull any punches.
Texas Straight Talk
A weekly column
Cures for Our Economic Disease
I have recently had several opportunities on various news programs to discuss the economy and what is wrong with the so-called economic stimulus package. I have said over and over what we shouldn't be doing, and now I'd like to explain what we should be doing.
But to improve the situation, you must first have a solid grasp of how we got here. Government policies and central planning created the housing bubble, now going bust. About a decade ago the government made expanded homeownership and affordable housing a public goal. Through Fannie Mae, Freddie Mac and the secondary mortgage market the government incentivized creative, low down-payment, more widely available mortgage products, and discouraged the market-proven lending standards of the past. The Federal Reserve kept interest rates artificially low, which added more fuel to this fire. Many related sectors temporarily flourished because of this, and many people got into homes they otherwise could not have afforded. The increased demand for housing sent prices soaring until in many markets housing became even more unaffordable, necessitating even more creative mortgages, and impossibly leveraging homeowners. Many risky investment vehicles such as mortgage-backed securities, derivatives, credit default swaps grew out of this unsustainable situation. As the foreclosures began, the house of cards started to tumble. Too many people have confused the symptoms and the pain of the bust with the problematic policies that caused the bubble, which is really what needs to be treated.
First of all, just as the best cure for a hangover is not to drink so much, the best cure for a recession is a recession. It is time to sober up and return to free market sanity, risk and reward, supply and demand, without political intervention. Politicians are good at catering to the needs of special interests, but very bad at determining what needs to take place in the market. Government should stick to punishing fraud and enforcing contracts. When they use the tax code, bureaucratic departments and their manipulative rules and regulations to dictate social and economic behavior, we end up with distortions and malinvestments. Bailing out banks, continuing failed Fed policies and strapping the taxpayer with toxic debt will worsen the pain, and punish the innocent.
If Congress really wanted to do something helpful, it would cut taxes. Ideally, we would repeal the income tax altogether and get the IRS off the economy's back, which would be a huge boon. We should also cut spending. Cut every unconstitutional department and program, every wasteful governmental encroachment on the people's liberty and money, starting with our massive overseas empire. The cost of our empire is bringing us to our knees, just as the Soviets' empire did to them. Congress should also abolish the Federal Reserve and take back its responsibilities to ensure sound money, safe from the manipulations of powerful banking interests.
These things would constitute real change, real economic stimulus. The plans being bandied about Washington are just more of the same. As long as no one seriously considers the cure, we are unfortunately destined to prolong the disease.
Posted by Ron Paul (02-02-2009, 02:27 PM) filed under Monetary
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Comments: 13
I swore I wouldn't let people do this to me again, and I failed miserably today.
This is exactly correct. Until we learn to live within our means and make people responsible for their actions, we will continue to slide deeper into trouble. We should never have even hinted at bailing our the first business. If they can't manage to thrive, they need to be gone.
I laughed at this. “Sure,” I said. “But the flu only lasts a week or so, and now, when I get better, you’ll say it was the Chinese medicine, right?”
He smiled and agreed. “Yes. You are right.”
Obviously the Obama administration recognizes that it needs to keep the finger of blame for the current economic collapse squarely pointed at the Bush administration, which is certainly fair in large part (though the Clinton deregulation of the banking industry played a major part in the financial crisis and its enthusiastic promotion of globalization began the massive shift of jobs overseas that has left the nation’s productive capacity hollowed out). But it also seems to recognize that it cannot tell the bitter truth, which is that our national economy will never “bounce back” to where it was in 2007.
America, and individual Americans, have been living profligately for years in an unreal economy, propped up by easy credit which inflated the value of real estate to incredible levels, and which led people to spend way beyond their means. Ordinary middle-class working people have been encouraged to buy obscenely oversized homes at 5% down, or even no down payment. They have been lured into buying cars the size of trucks, one for each driving-aged member of the family (in our town, so many high school kids drive to school that the school ran out of parking spaces and the yellow school buses, largely empty on their runs, are referred to by the students as the “shame train,” an embarrassment to be seen riding). They’ve installed individual back-yard swimming pools, unwilling to share the water with their neighbors in community pools. Boring faux ethnic restaurant franchises of all kinds have befouled the landscape, filling up with families too stressed out to cook, and willing to endure over-salted, over-priced and tasteless cuisine and tacky plastic décor night after night.
Now this is all crashing down."
Read more at: http://www.counterpunch.org/lindorff01302009.html
But, the change in America won't be because the people don't live in the kind of homes that you would choose or drive the kind of cars that you would drive or eat in the kind of restaurant that you would visit. Your tastes will have little or no effect on the U.S. economy.
The economy will bounce back (if the government gets out of the way) to new affordable levels because the American people will absorb their losses and will start over as thousands of small business owners do each year in our competitive economy. Today's uneconomic "castles" will be turned into multifamily dwellings by American ingenuity (once they become affordable), just like we did during WW II when new housing couldn't be built. And "gas guzzling" cars will be bought for a song by low mileage drivers. Our chain restaurants are already suffering because low cost home cooked meals are making a comeback, and many will disappear.
As long as our liberal government stays out of the way with their "one size fits all" solutions, change will occur and American ingenuity will solve our problems and build a new economy using available resources as it always has. The new America may not live, drive, or eat out as you would prescribe, but it will be just what the American people need for the start of the 21st Century.
This gives us some idea of why you disagree with one of the few thinking members of the U.S. Congress.
The problem is that they woln't. At least we might get some bridges and roads repaired or replaced, maybe some schools upgraded.
Colonel, as usual Ron Paul is spot on. The government is and has been the problem for decades, only by backing off will it give any real relief or stimuli to the economy.
Randy, unless the government forces the issue, most Americans will prefer as they always have, to have their own homes. Central planners for city/state governments have tried for decades with zoning laws/taxes to change that and people just move on. Restaurants are popular because of ease, not just because of need. If people have the money, they will go out. Home cooking is great but dining out has been popular for a long time as long as the money is there.