Saturday, August 22, 2009

The Chairman's failure - Government 'Stimulus' never works.

Expanding government to pay off its supporters is immoral.

by StFerdIII



Chairman Barry O's Presidency,or Kingly rule, is officially a disaster. Hope and change is now dope-with-more-of-the-same. Stimulus ? Only 10% of the $1 Trillion in extra debt is targeted for real infrastructure projects, much of it in 2010 and beyond. 90% is for government expansion. With only 15% spent the signs of economic recovery already abound. The expansion of US debt by $2 trillion by Bush and the Black Jesus was totally unnecessary, and only serves to expand the role of the state.

Government's caused this crisis. The list which can be forwarded to support this fact is rather long – but the decrease in home prices which sparked a financial meltdown was caused in part by:

-Fannie and Freddie holding $1 Trillion in sub prime debt. These are government creatures used by politicians to give loans and mortgages to minorities. The total bailout of Freddie and Fannie's bankruptcies will be over $400 billion.

-Housing and Urban Development Agency which oversees Freddie and Fannie. This agency gave F and F preferential treatment, lax standards and greater accounting leeway than that offered to private lenders. This allowed F and F to expand their sub prime portfolio via banks and mortgage brokers, through bad lending practices, including no-money down schemes.

-Corruption and pay offs between the financial industry and politicians. The regulators were bought off by the regulated. Chairman Barry O received well over 40 millions in donations from the financial industry. Politicians set home ownership targets and forced banks to lend to minority and lower income markets.

-Community Reinvestment Acts. These statutes coerced banks into lending a certain percentage of their portfolios to politically sensitive groups and regions. Banks were sued by the Justice Department and the Fed Reserve for not having enough minority loans in their lending portfolios.

-Land supply restrictions. In almost every locale which experienced a land price bubble, there were massive restrictions on land usage, development and use of 'green space'. Restricting land supply means a corresponding increase and rise in prices. In fact the average burden per home of onerous land supply regulations is about $100.000.

-Cheap money, and too much liquidity. With negative interest rates and a flood of money supply into the economy, strange financial products were bound to follow allowing crass speculation and over-leveraging.

The collapse of the US housing market – much of it centered in 5 states – was a long process of some 40 years. Yet the political corruption and stupidity which caused the crisis is not blamed. Just the 'market'. Perhaps the media and the 'experts' and the chattering political class can also blame the celestial arrangements, aliens or Casper the ghost.

The root causes of the crisis are not addressed. Instead there is just the usual mantra, that government must do something. But doing nothing is usually more attractive than doing something which makes the situation worse. Spending money, incurring debt, enabling future inflation, and expanding government is the opposite of what is needed.

A great article in the Wall Street Journal makes the following factual representation:

“It's clear that U.S. history does not support the theory that Big Government means shorter and milder recessions. In reality, recessions always ended without government prodding, long before anyone heard of Keynes and long before the Fed existed. What's more, recessions ended more quickly before the New Deal's push for Big Government than they have in the past three decades. The economy's natural recuperative powers before the 1930s proved superior to recent tinkering by Big Government economists, politicians and central bankers.”

Government's always make things worse.

What needs to be done is the following: cut government spending; liberate markets like health care with market-oriented, price-competitive reforms which will create jobs and opportunities; cut income taxes and payroll taxes and reduce regulations. Jobs are not stimulated by government. They are destroyed.

Government caused this current economic disaster. We need less of what ails us, not more.