Following is from Liberty Forest. I think it is a decent representation of the r3VOLution’s position regarding the economy. -

what created the economic bubble that got us in the huge mess?

---

i know government created a massive bubble in the economy, but how exactly?did the fed lower artificially lower interest rates to a ridiculous amount? did government inject too much capitol into the system?

what did government exactly do that led to all the mal-investment????

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

---

—-artificially low interest rates from the fed (plowed through much needed correction in 2001-2003)
—-”homeowner society” which includes CRA, Fannie, Feddie, Sallie, Ginnie, and lists of federal policies and regulations regarding housing and lending standards, edicts, and incentive structures
—–government sponsorship of ratings agencies and the moral hazard of SEC

it’s amazing to me that people really think, oh the problem is that we just had too much freedom at the same time that the chains are still in plain sight

also read Thomas Woods’ book Meltdown

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

---

it’s been building for a long time. we were not on a true gold standard after WWII, which lead to the collapse of bretton woods in 1971. once we totally got off the gold standard, the economy really started getting screwed up because the US was able to print the world’s reserve currency. with all oil priced in dollars and a massive military that occupies most of the world… the US was able to prop up a phony economy and essentially enslave the rest of the world into producing and saving while the Americans got to borrow and consume.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

---

Whenever the government intervenes economically, whether it is by passing regulations, enacting taxes, or handing out subsidies, they change the economic landscape dramatically. Investments move away from sources the government penalizes and into the ones that the government subsidizes. This can and does cause poor investment decisions, because nobody (especially an entity that is politically motivated) is capable of examining an entire economy with such foresight as to know where and when investment capital should move. Left to a free market, production and investment increases where there is demand, and decreases where there is less demand. Under a centralized economic system directed by a government, production and investment increases where it is politically convenient for the politicians to increase it. This causes economic bubbles. As a result, production and investment occur in areas where demand does not necessarily warrant it, and you end up with an oversupply of something. When the oversupply is finally noticed by the public at large, the bubble bursts and a lot of people lose their money.

The Federal Reserve is the ultimate stimulator of bubbles, because it sits at the top of our financial structure, essentially dictating how easy it is for individuals and organizations to acquire debt. These are called inflationary bubbles, because new money and credit that previously didn’t exist starts to enter circulation. Bubbles are created en masse. During the rise of inflationary bubble everyone is quite happy, but when the debt collectors start to call the happiness ends.

Let’s examine the housing bubble:

When you combine the inflationary bubbles of the Federal Reserve with Federal Government subsidies of home construction, and then you create regulations that change lending practices on top of that, you end up with a massive housing bubble. People invest in a glut of houses, and they keep buying them, because houses keep going up in price, with the hopes to sell for a profit. When the last buyer enters the arena and realizes nobody else is going to buy a house, the shit hits the fan! Everyone starts selling houses, and housing prices collapse. People lose their life savings.

This is just one obvious example. The fact is that market distortions occur all over the economy over long periods of time, and ultimately the people are made poorer for the economic conditions and the boom/bust cycles.

Its really a mess.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

---

The government spent money it didn’t have creating budget deficits (and, cumulatively, national debt). Americans don’t save enough to absorb that debt so the Fed buys the debt (in its open market operations). The Fed creates that money out of thin air increasing the money supply. This is called monetizing the debt.

Simplified, “too many dollars chasing too few goods” is inflation (a rise in the general price level). Inflation is sometimes, but not always (or not immediately) accompanied by a rise in consumer prices (CPI).

In many cases, for a variety of reasons, this “extra money” creates bubbles in the real estate, art, financial or other sectors resulting in housing inflation, lower standards for lending (and the fraud we’re seeing come to light now), etc.

In a more macro sense, the monetized debt affects interest rates (the price of money) below the “natural” or market rate. This intervention causes false price signals so that everyone makes decisions based on bad information.

See Hazlitt’s Economics in One Lesson and Hayek’s Prices and Production.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Posted under Uncategorized