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
Utopians and fantasists usually use the turmoil of 'bourgeois' living and market upheavals to propose 'brave new world' solutions. These 'new' solutions are of course, the very old and tired ideas of conformity, equality, security and risk-less living. Even in turmoil, more dynamic and open markets are far better, than state-controlled, regulated and fettered systems. The facts, as John Adams once said, are stubborn things supporting this truism.
There are periods of rising markets and falling markets. Some sectors of the economy will expand, others will contract. Sometimes there will be excessive and speculative enthusiasm to buy tulip bulbs, South Sea company shares, real estate in Florida, gold and oil commodities; leading to inevitable and quite mad declines. Markets and the price mechanism are complex – far too complex for any government, bureaucrat or philosophical seer to understand or manage.
Markets in their delirious and uncaring way do work. The problems with markets – all markets – is that they require study, comprehension and effort. For many people due to time, skill or interest this is the issue. For many, the 'markets' in any product – consumer goods, equities, bonds, real estate or what have you – seem to be an opaque and quite unfathomable magic show. This line of thinking leads directly to concepts about managing or controlling markets in such a way, that risk is significantly reduced and security established. While tempting it is wrong.
Current conditions highlight the reasonable speed and efficiency of well functioning price-based markets. Even in an economic slow down the intersection of supply and demand in competitive markets makes a mockery of government and state control. Prices need to adjust and the more interference from the state the less opportunity there is for corrections and catharsis.
Consider the current environment of government distortion and expansion:
Land values:
Governments have spent 60 years distorting markets – and the result was an inevitable crash. A partial list of governmental interference:
-State protected firms such as Freddie and Fannie selling mortgages with political targets on market share and political targets on income levels and skin color
-Community Reinvestment Acts targeting minority home buyers
-Bank statutes forcing all mainstream banks to lend to minorities and lower income buyers – or be sued for non-compliance
-Poor interest rate management in the past 20 years which distorts asset pricing including real rates of zero from 2001 to 2006
-Regulation corruption in which regulators did not enforce existing rules to stop land speculation and bad mortgage and loan lending
-Corruption and kickbacks by banks and mortgage lenders to politicians such as the Prophet Obamed, Barney Frank and Chris Dodd – both of whom are supposed to be running the US banking system.
Future Inflation:
-Future inflation will be fueled by the Bush-Obama spending regime and the printing of US dollars by the US central bank. So far over an extra $2 Trillion has been spent in the past 6 months and a further $5 Trillion has been printed. This $7 Trillion in extra money circulation is 50% of US GDP. The results will be clear – inflation at some point in the future will be well over 6 % per annum. This will stimulate the next economic and financial crisis.
Commodity prices will rise:
-Thanks to future inflation and a lowered US dollar commodity prices are set to rise yet again. This will act as a tax on many consumers whose average income has fallen 10% in the past year, and will continue falling in real terms as future inflation levels accelerate. This is yet again another byproduct of governmental incompetence and power mongering to expand the state.
Interest rates:
-Zero interest rates over 5 years helped fuel the land speculation which resulted in a financial bubble and collapse. Rates are again at 0. To ward off future inflation and a future distortion of long term assets, interest rates need to be raised to at least 2 %.
Higher Taxes:
-The Prophet Obamed and his out of control Marxist administration will raise taxes – by well over $1 Trillion. The Prophet's socialisation of Health Care will alone cost $1.2 Trillion over the next few years. Taxes have to go up for his government to fund the various schemes of governmental power mongering now in train. Higher taxes on capital, incomes and business will lead to weak stock markets, weak business profits, a loss of jobs and a net loss in national income and wealth.
Credit markets:
-The Prophet's first and only domestic priority is to fix the banking system. Credit markets are still adjusting to the reality that bad loans on real estate, transformed through complex instruments into credit facilities for firms were irrational and speculative. Markets run on financial liquidity and capital availability. This in turns rests on land collateral and a sound banking system. When the base of the financial pedestal – land value – comes under attack, then capital liquidity must by definition retract. When capital flows are diminished, banks cannot lend and the markets will fall.
Yet the Prophet and his disciples seem intent on spending $2 Trillion to expand government, not restore bank confidence. The Prophet is doing the opposite of what should be done. A short list of rational programs would immediately restore bank and market confidence:
-Capital and dividend tax cuts to stimulate investment
-Payroll tax cuts of 20% for all income levels
-An increase in FDIC funding from bank premiums, to ensure that all deposits at US banks are safe
-Allow all the banks to value long term assets on a long term valuation model – not at current prices. Long term assets will have fluctuating values, surely they are some more intelligent ways to account for this, than marking all assets to current prices. This is yet again another government distortion.
-Do not socialise the banking sector. Some banks can function within a bankruptcy protection and FDIC insurance will guarantee all deposits. Giving banks public welfare will do nothing but impede the necessary changes and reforms which are needed with the entire financial system.
Markets however painful and brutal they may be, do work. There is only so much that government can do in the current situation for example. Central banks at the behest of the government, can lower interest rates; improve money supply; guarantee bad bank loans; or provide credit facilities. But the money under central bank and government control is paltry compared to the $50 Trillion of investment capital sloshing around the world's financial system. Simply put, while having an impact, governments have little real control over liquidity and market corrections. Governments and central banks can't by themselves, stop downward corrections, nor limit speculation upwards.
For many people this is appalling. Why should charming and hard working citizens watch their stock values evaporate due to falling markets or a repricing in real estate, gold or oil? Why shouldn't government guarantee all investments, offer a certain return, or ensure that all banks, finance houses, and even corporations never go bankrupt? Wouldn't that help the 'little guy'?
Of course not. Markets work best when the good win over the bad. If a big bank needs to go bankrupt – let it. Most deposits are insured and the market will come in, pick up the repriced assets, and use them in a productive way so that in the long term society will be better off. It will be painful for some [those who lose their equity value] but beneficial to others [the firm and its stockholders who benefit from the asset repricing and use them to generate more wealth].
In the current financial mess governments have a role to play but it should be rather limited. They can via their central bank proxies, make money more available and support or guarantee the private buying of troublesome debt. They can also lower interest rates stimulating more loan activity.
But the largest and most important role of government is rarely discussed – that of lowering taxes on capital; lowering marginal tax rates and reducing payroll taxes. Along with spending cuts these measures would increase economic growth; restore confidence and improve incomes. With inflation galloping along at 4-5% thanks to a devalued hegemonic currency and speculative commodity pricing, average real incomes are now falling. Real asset wealth is also declining.
From the bottoms come new hope. Falling markets and asset repricing are in fact opportunities. From the lows one has the chance to buy and sell higher. Thus are good profits made. The trick is to recognize trends, capital flows and understand how markets work. That takes effort, knowledge and vigilance and unfortunately many will lose money, just as many will make money.
Nothing is secure in life and nothing is sacred. Markets are not perfect. Governments do have a role in building laws, regulations and ensuring honest and contractually based exchanges. But there is no point in having massive state distortions in the setting of prices. That would just simply make us all a lot poorer and less free.
