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Letters by a modern St. Ferdinand III about cults

Gab@StFerdinandIII -

Plenty of cults exist - every cult has its 'religious dogma', its idols, its 'prophets', its 'science', its 'proof' and its intolerant liturgy of demands.  Cults everywhere:  Corona, 'The Science' or Scientism, Islam, the State, the cult of Gender Fascism, Marxism, Darwin and Evolution, Globaloneywarming, Changing Climate, Abortion...

Tempus Fugit Memento Mori - Time Flies Remember Death 

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Tuesday, August 25, 2009

Governments caused this 'crisis'.

Politicians, regulators, corruption.....

by StFerdIII

One of the hoary myths about the current 'crisis', 'disaster', 'meltdown', or any of the apocalyptic media-political words used to describe a contraction in capital caused by government meddling; is that it is Wall Street, a lack of regulation and the 'market' which caused all of our troubles. Ridiculous and convenient. So let us unwashed knaves try to understand. Governments meddle in everything from housing finance, to banking regulations; control 30-50% of GDP in all developed states; and have record tax and spend numbers and regulatory powers, and yet somehow, it is the phantom 'market' and everything outside the control of the benign, loving mommy-state, along with a lack of oversight and governmental regulation, which has caused the government sponsored housing financial system to collapse. Fascinating logic. Government prompted what is really an over-leveraged or over-creditized crisis and now the brilliant minds of state are in the words of the ObaMessiah, 'gonna' save us. Government does not save, it enslaves - and it creates disasters.

Government created problem #1: land values
The current recession and contraction is based on the inevitable ending of over-leveraging or too much credit chasing too few equity dollars. For 70 years Governments have promoted programs which distort the land and housing markets - the key to capital formation and capital usage. The US economy took off in the late 19th century for example; once the concept of using land as collateral for capital embedded in the 'homestead Act' was widely adopted. Housing and land thus became not only savings vehicles, but a method to leverage and expand capital. With the advent of the socialisation of the US economy under FDR and the creation of such creatures as 'Freddie Mac' and 'Fannie Mae' the government came to view housing and land collateral as important parts of the capital production process to both control and expand. That is where the current trouble started - with the belief by government that the state could create housing supply and housing demand and artificially force up the values of land and property - and thereby increase governmental revenues and social wealth.

In every Western country over the past 70 years government's have tried to artificially create and boost land values. Especially in Europe and America, subsidies to home buyers; home builders; and state guaranteed loans, generated false supply and demand points. Prices, which are the most important feature of a competitive economy, were thus not natural but premised on distortions. Buyers who should not have bought a home did - at great leverage usually supported by state money or state guarantees - and builders who should not have been building homes did as well - supported by state subsidies, tax laws and other 'programs' based around housing supply. The state therefore created the climate of expectation around land value appreciation. As with any market the price points in land or housing should go down, as often as they go up. There is no reason why real estate, or land collateral needs only to appreciate - in a fair and competitive market.

Problem #2 and 3: money and monetary policy
Revenues based on land values and transactions became very important to most governments post World War II. It was in government's interest to keep prices appreciating and tax money flowing in from values and an increase in land based transactions. Money supply was seen by many as a key component to 'stimulate' demand.

The control of money is key in economic stability. For the past 20 or so years monetary policy in America and Europe has been rather poor. Both economic areas seem addicted to Keynesian demand management - a ridiculous set of bad assumptions taken as God's literal word because an effeminate, arrogant, English economist wearing tweed jackets and glasses told the world, that only managing consumer demand is relevant. Keynes was precisely wrong. Keynesian nonsense leads to inflation and a decline in living standards, but governments are not concerned about that. In fact for most governments wiping out their debts can be accomplished by cheapening the money supply and thus decreasing the debt principle. In any event Keynesian management means that governments should run huge deficits in trouble economic times and increase money output. Deficit financing is wrong - it leads to higher taxation, debt, corruption and of course excessive spending by businesses and consumers.

Governments not only run deficits in 'hard times' they also accelerate money supply. In Europe and the USA the money supply was accelerated starting in the 1990s in a bid to boost capital availability; loans made; and of course land transactions. This trend continued post 2000. The US Fed Reserve post 9-11 held real interest rates at a negative level for 3 years while expanding the US dollar supply by 10% p.a. or more than 2.5 times real GDP and population growth. In Europe rates were much higher - too high in fact - but the output of money matched US levels. Too much money chasing too few assets will lead to bubbles.

So not only does Keynesian economics bankrupt state budgets, it also accelerates booms and busts and artificially stimulates consumer buying - on credit.

Problem #4: credit
Starting in 1951, Bank of America [now a state supported entity], invented the credit card. The concept of buy now, pay later, spread throughout all of society. Even those with little income or means were given cards. The resulting credit boom and consumer spending spree directly benefited not only banks but of course governments. More business and transactions and more revenues, pleased governments. Unfortunately the pervasiveness of credit has consequences. Government's sponsored state institutions or state supported banks to lend at higher and higher levels, and used these financial houses to 'help', 'aid', or 'improve the life of' various interest groups, constituencies and classes of voters. Credit - backed by government guarantee - was seen as the savior of many of society's imbalances and differences. All it did was over time build up a large amount of debt which overshadowed too little net worth.

Problem #5: regulation
One of the most pathetic cries now heard is for more regulation. The banking industry is the most regulated business in the world after pharmaceuticals. Yet none of these all-knowing, all-seeing regulators, or their thousands of pages of statutes and decrees stopped the rather insane practices which spread credit and debt throughout all of society. Few politicians, and fewer still regulators cared about the socialist banks or government sponsored banks lending to those who had little income. In fact they cheered the practice. Few regulators spotted the problems at large banks as their bad debts grew and their net assets shrank. Few regulators highlighted the imbalanced nature of lending with no money or equity down. What then will more regulations give us ? More problems no doubt. Sarbanes Oaxley passed after the Enron accounting scandal did nothing to halt similar accounting madness at the world's biggest banks. All it did was cost firms 2% of their revenues in extra cost and personnel - costs which are passed on to consumers. Light, smart and enforceable regulation is needed. Not the current morass of unknowable and silly decrees which did nothing to stop the current financial 'crisis'.

Problem #6: corruption
It is a fact that the regulated pay off, bribe and fund the politicians and regulators. US leaders responsible for economic oversight ranging from Obama to Barney Frank, received massive amounts of capital from the banks for their political campaigns. Banks and finance houses live in an over-regulated world. They can only exist if they can buy the support of politicians who will either make rules to suit the finance industry, or ignore infractions by the industry. The more government, the more regulation, the more the regulators become corrupted by the regulated. The lack of real oversight in Europe and America is directly related to this corruption.

Problem #7: silly political targets
From Clinton to Bush, house ownership 'targets' were 'set'. Bush applauded and supported the rise in home ownership - as if that is a worthy political concern. Bush's 'target' was 75% of Americans owning a home. Why 75% of any nation's citizens need to own a home is of course never explained. It is just part of 'the American dream' or social 'cohesiveness' or some other such government-diktat nonsense and bafflegab. There are compelling reasons why people should rent. In fact in certain markets and for certain incomes renting is a far better financial investment than owning a home with all the attendant costs such an ownership entails. Politicians who politicise markets such as housing are encouraging irrational behavior and distorting price points. The 'market' becomes less a market than a political tool of convenience.

Problem #8: responsibility
Government activism is directly correlated to a decline in individual responsibility. Governments now subsidise irrational and anti-market practices. You can now do the following with no risk: build homes in natural disaster areas with no insurance; buy houses with no money down and get 'relief'; mis-manage a bank and defraud investors of billions; mis-manage a car company and pay yourself millions each year; or not pay your loan obligations and demand a new contract. Governments subsidise and pay for all of the above. It is thus a cultural shift - a shift in ethos - from those who believe that individuals are responsible for their own actions, to a world where every risk and every action is now communalised and socialised. No individual. No risk. Simple.

These 8 problems are just a partial list of why government is to blame in large measure, for the current set of problems. Like the 1930s, government incompetence has resulted in trillions of dollars of lost wealth, millions worldwide of lost jobs, and a decline in confidence in the ideas of markets and responsibility. Yet the cry is for more of what caused the crisis in the first place - more government, more spend, more regulations, more corruption, more communalising of responsibility, and more programs of national salvation. It is remarkable to see and witness what can only be described as a repeated case of historical insanity.

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