The Government Mess

People who are advocates of what is transpiring now are going to be really disappointed. When they realize how misled they really were, all hell is going to break loose. Obama (and others) stand up each day professing the virtues of government intervention. Sadly, this is a path to failure. Everywhere we look, government fails. Yet some still hold the notion that it is going to change.

Is there anyone with any common sense who believe the rhetoric we are served? Many of the programs instilled during the last great "economic crisis (the Great Depression) are now coming back to haunt us. Take Social Security as an example. It is completely broke. The CBO is now estimating that there is only a $3 billion surplus left in that program. This is a radical difference from the $80+ billion estimated a year ago. (Read article here)

Once again the political establishment screwed things up. For decades, the greedy politicians raided this program to fund their out of control spending. They took the dollars set aside for our elderly and use it for their own selfish ends. Now, we are at the point that this Ponzi scheme is blowing up. There is no more money to fund it.

The article makes a valid point about the changing in times since FDR created this program. With only a 3 to 1 worker to retiree ratio, there is not enough money coming in. It is that simple. Bernie Madoff understood this the last few years. Guaranteed returns become impossible to meet after enough time when you consistently have to raise money. This is what Social Security is now facing.

Our government is worthless. The people in it are not only inept, but mostly corrupt. Each of them deserves a cell next to good Ole Bernie. He screwed many out of their futures and the U.S. Government is doing the same thing. Everyone over the age of 50 is going to quickly realize they were lied to by all those talking heads in Washington. Right now, President Obama is the head liar in charge. Remember this article the next time you see him promising how government is going to fix the problem.

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Should the government even be doing bailouts?

This was the question that Dr. Robert Higgs of the California based Independent Institute wrote. In an article, he accurately portrayed how the Founding Fathers intended the federal government to be limited in scope. He challenged anyone to find where the Feds are authorized by the Constitution to fund "global warming research, urban mass transit, food stamps, unemployment insurance, Medicaid or countless other items". Obviously, there is nothing in the Constitution that remotely resembles this authority.

So where did it all come from? As you can guess, a lot of it transpired during the Great Depression. FDR is the greatest abuser of power in the history of the American Presidency. Like Obama is trying to do, he used a catastrophe to expand his power base. He even went so far as to try to intimidate the Supreme Court into siding with him. And, this is the person who's model we are now following.

Why do I bring all this up? Simply, because the decisions of the Obama administration are going to put us into another Great Depression. History is now showing that FDR's policies actually made things worse. Stimulus was something that he started and it prolonged the Great Depression. Every recession before it was quickly reversed because the government did not get involved. In 1893, there was a depression which was turned without stimulus. Also, 1920-21 had a major recession which quickly reversed itself. Again, there was no stimulus.

So, what do our fearless leaders in Washington do? Pass a spending bill that will eventually cause high inflation and will do little to fix the economic problem. The best course of action when it comes to government is no action.

(If you want to read this article it was found in the Feb. 10, 2009 edition of Investor's Business Daily)

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Trillions spent for what?

Obama and his cronies in Washington are going to spend trillions of dollars in "stimulus" in an effort to jump start the economy. Are they for real? These people have no idea what they are doing. The shortsighted outlook of our political leadership is what created this mess to begin with. Now, we are going to invent a bigger problem in the future by making stupid decisions today.

I decided to give you all a bit of a lesson since most seem to be educated by our ineffective school system. I am going to give you a website which I suggest you bookmark and return to frequently. It will allow you to converse about economic and financial matters somewhat intelligently. This will separate you from the masses since most get their economic ideas from the slobbering blowholes on television.

If you think that you are going to have a tough time making ends meet now, wait until we experience an inflation rate in the high teens. This is what we will see as a result of all these bailouts and stimulus packages. The government, in their infinite wisdom, is going to try to spend their way out of this mess. Unfortunately, it does not have the money to do so.

I want you to go to this link and read about inflation.

Notice what it says:

"If the money supply has been increased, this will usually manifest itself in higher price levels - it is simply a matter of time."

Where do you think the government is getting all this money? They are printing it. I imagine the money supply is increasing as quickly as they print it. That is what it means when they say "they are injecting the markets with capital". Simply, they are printing money.

We saw the effects of inflation on our pocketbooks when the gas prices shot up last year. While this was not due to inflationary pressures, the result was the same. People had less purchasing power because they had to spend more on a basic necessity. In effect, it cost people double to drive to work each day. They realized no more benefit for the extra money, only a higher cost.

I am preparing you for what is coming. The policies of those in Washington are going to create a similar situation. The rapidly growing money supply sets the standard for inflation to escalate when the economy does recover. Thus, any recovery will be sabotaged by inflation. This pushes the Fed to combat that animal by raising interest rates which stifles spending. And, we are in the cycle all over again.

People fail to learn from history. I am amazed that Obama is so naive for such an intelligent man. He claims to be a student of men like FDR yet he is following their same failed policies. Huge government investment has never worked in any country around the world. If it did, Russia (or other communist nations) would have economies that are roaring. Instead, their economies topple every couple of years. This is the model that Obama is following.

Now you have no excuse for being naive about these matters. The next time some meathead mentions how the government is going to spend our way out of this, ask him or her what they are going to do about the hyberinflation which will result.

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Land Speculation

Land speculation is a fabulous way to create wealth. In our nation's history, thousands, if not, millions used this technique to improve their family fortunes. Some of the richest men in our country made their money by purchasing land. Over the years, it is the one thing that seems to go up consistently.

Excessive investment is what creates the problems. We saw this with the dot com bubble in the early part of the 2000s. Everyone was putting money into a tech company in belief they would receive a huge return. For years, many people did. Alas, the day eventually came where the party ended. The crash hurt thousands of people who lost millions (or billions) of dollars. The easy money was over.

That brings me back to real estate. Land speculation led to the run up in prices. People were buying a property and mortgaging it to the max. They did this to buy more properties. Everything is fine as long as the values keep increasing. However, when they stop, people find themselves overexposed. Suddenly, millions of people find themselves unable to pay their mortgages. Banks are forced to foreclose which leads to a fast drop in the real estate prices. In short, everyone's property is worth less. This inevitably leads to a deep recession that affects the entire country.

Recent events might lead you to believe that I am referring to the time between 2003-2006. Actually, the situation I described occurred in the 1830s. At that time, the land was being sold by the government. In 1824, it raised $4.9 million. By the end of 1836, it rose to $24.9 million. This enabled the government to get out of debt and realize a $20 million surplus. Alas, the party had to end. The result was a crash in 1937 that led to an economic recession that lasted a number of years.

Many believe that President Andrew Jackson the cause since he issued the Specie Circular which made people buy land with gold or silver. Obviously, this cut out the speculators altogether. Without them, prices turned downward instantly since there were no buyers. However, the events the last few years show that Jackson only forced the inevitable. The boom could not continue at the same pace. Like this century, it had to burst at some point. Today, like in 1837, we are feeling the effects of this quick run up.

Remember this idea the next time you hear our leaders blaming each other for the situation. Also, you will now have the ammunition to laugh at any idea that the government is going to fix this problem. They were not able to fix the recession in 1837, nor were they able to get us out of the Great Depression. The only thing the government can do is pile up more debt to throw money at the problem. Building infrastructure might seem like a worthwhile venture, yet Roosevelt proved it does little for the economy.

The commonality between the land speculation of the 1830s and the real estate boom of the 2000s is that the government was asleep when it occurred. In the 1830s, the government was the one selling the land. It was their greed which caused them to allow things to continue. Increasing the supply would slow the process while avoiding a huge price run up. This time, the leaders at the Treasury, Fed, Congress, and White House mostly ignored the problem until it was too late. A lack of monitoring of the banks led to them making bad loans that were destined to go bad. The government only compounded this problem by passing legislation forcing the banks to make subprime loans. In reality, this is what started the entire mess to begin with.

So there it is. Two examples spread over hundreds of years where the government was a large reason for an economic recession. Did they learn from history? Of course not. The government is worse than any alcoholic or drug addict. Those people believe "this time will be different". Every new Congress or Administration believes it will be different with them at the helm. It is not. Therefore, since a massive investment in public works did not work for Roosevelt, why does Obama believe it will work for him. Have another drink Barack.

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