Thursday, February 12, 2009

Meltdown...

This is just a quick post to encourage anyone who reads this to read the book "Meltdown" by Thomas E. Woods. He is a historian and Free Market advocate. This book provides an excellent look (from a free market point-of-view of course!) about what is wrong with our economy, what the cause of it is, and what we're really in for. The good news is, it's written in easy-to-understand terms. The bad news is, our elected officials and the media will think it's a joke, if they even pay attention to it at all.

Capitalism is not the culprit of our economic woes, which, mark my words, will get much, much worse. We are clearly headed for total economic collapse, and I fear that this will be as bad, if not worse, than the Great Depression. The true culprit of our economic woes is the Federal Reserve.

Capitalism is not an evil system based solely on greed that ruins "the poor." The Federal Reserve system is and does, respectively.

There are several things we need to do to "save" our economy, and two important ones are abolishing the Federal Reserve, and using a commodity-based currency; one that is backed by gold or some other precious metal--something with intrensic value. As it stands now, the Fed artificially lowers the interest rate to "stimulate" the economy, but this has the disastrous effect of causing people to spend, rather than to save. But nothing can be lended and no credit can soundly be established unless someone first saves money. That person, in turn, would lend their saved money to the borrower, e.g., someone buying a house or something. However, the Fed can pump money into the economy at will, and since it is not backed by gold, then it is super-cheap to produce. But the Fed also supplies nothing to the economy. It does not perform a service or produce anything. It simply injects unbacked paper slips into the economy, thereby devaluing them. This money is even further devalued through fractional reserve banking. Since banks are only required to keep a small fraction of their money on reserve for day-to-day operations--currently 10%--they can in effect create money out of thin air to lend to consumers. If the fed gives them $1,000, for example, then the bank would keep that $1,000 in reserve, and then lend out $9,000 to consumers who are applying for credit. Artificially low interest rates entice people to apply for this credit and spend beyond their means, rather than save.

Conversely, Mr. Obama/Congress' idea of "stimulating" the economy by revamping our infrastructure and potentially giving a check back to taxpayers is absolutely not the way out of this mess. First of all, the $800-billion-plus is money that has to come from somewhere. There are only 3 ways the government can appropriate money:

1. print it at the Federal Reserve
2. borrow it from other nations
3. tax the people

NONE of these will stimulate the economy. Printing the money will further weaken our currency and cause inflation to rise. Borrowing it from other nations will widen our deficit spending, increasing our national debt. Taxing the people will not help the economy because the government does not provide any goods or services that create wealth. Only the private sector can create wealth. Any money taken out of one of the private sectors and put anywhere else not dictated by the market will put a drain on the economy. Revamping our infrastructure would mean allocating money towards projects that may not serve consumer demand. Money spent on these government-mandated projects could be money that might be spent building more fuel-efficient cars, or creating the next hottest mp3 player, etc. Something potentially more valuable to the economy. These temporary jobs supplied by Mr. Obama's plan are jobs that would be better served in other areas of the economy based on consumer demand.

Government does not create wealth, and it cannot create wealth. Is it any wonder that as the government grows in size, the economy would worsen?

I could go on, but I'm still not nearly as learned as I wish I were on this subject. Suffice to say, "Meltdown" is great, and you should definitely read it.

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