Tuesday, June 2, 2009

It's not that hard,really

Watching the economists and pundits on TV is painful as they still promote this false recovery.I wish the majority of Americans would understand the simple fundamentals of capitalism and they would easily discount the "green shoots" propaganda.

The Keynesians,which include the majority of prominent economists and all of the Obama supporters,stick to their flawed philosophy and sell it well I might add.

The GDP,the broadest measure of the economy,is like a teeter totter.The value of all goods and services produced equate to the currency amount used to measure it,in our case the dollar.Our current Gross Domestic Product is in the range of $13-$14 trillion.

Any increase in goods or services requires a corresponding dollar value increase.The Government is now attempting to flood the market with liquidity,or printing money.Whether they sell bonds to investors or simply buy them thru the Fed,the net result is the same.They have created money out of thin air because it is not backed by any corresponding increase in goods or services.This throws the teeter totter out of balance.

The Fed attempts to manipulate the market by it's only 2 tools.It can print money and it can regulate the cost of borrowing it.The artificial raising and lowering of interest rates not driven by true market forces is what creates our bubble boom and bust cycles.Printing money in massive quantities,or quantitative easing,causes the dollar to devalue.All of this artificial manipulation is to attempt to control inflation.

By messing with the money supply and the cost of borrowing,the Fed is CAUSING our economic problems,not solving them.Everything must be market driven for capitalism to function properly.Bankruptcy is vital to this process.Businesses that aren't run efficiently and turn a profit,such as the Big 3,must fail.When you prop them up thru Government bailouts,they are simply encouraged to continue their poor fiscal policies risk free.When they fail,the good parts of their business are sold to the competition,they don't just evaporate.

Politicians have money and power as their base.Their decisions and votes are all re-election driven,and money and power are their tools.The President,the Fed,the Treasury,they are all in bed together to manipulate the money supply for these same reasons.They can't simply allow the market to function unregulated because they have no control over where the money goes.So the battle will always continue to control the market and the money despite what they may say publicly.

Bear Stearns,Lehman Bros.,AIG,Citigroup,Wells Fargo,Bank of America,GM,Chrysler,Fannie Mae,Freddie Mac,etc.They should have all been allowed to fail.That's the purpose of bankruptcy court,to distribute the assets.We were warned that the world would have collapsed and our economy reduced to third world status if the Government hadn't stepped in.Hogwash.You've just been sold a huge bill of goods.

Investors in these companies would have lost money,absolutely.That's why there's risk in investing.But the companies good assets and the corresponding jobs would have simply migrated over to the new owners.The point is that no company is too big to fail regardless of what we're told.That's just political speak for more control.

Regulation is a key piece to this puzzle.Effective regulation.Regulation that is really designed to protect consumers and investors.Having a free market in no way means having no regulation.However,regulation shouldn't hinder productivity as it does today.It should simply be a safeguard to prevent things like the derivative markets from running wild.Oversight can be a good thing if implemented properly and with the correct intentions.Regulation overhaul would be maybe the most daunting task to clean up the politics and payoffs involved.

We have had at best capitalism light in this country.It's never been given a fair shake at success.It's simply not feasible with our current political state.The only way it ever changes if if the will of the people forces it.I don't think the average American is willing to go there today.It would require a major lifestyle adjustment for millions.Short term pain for long term gain.But the pain would be very difficult to endure for many.It's the only way if we really want to take our country back.More to come...

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