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The Financial Crisis – Part 2: The Rest of the Story

Posted on 10 April 2011 by Editor

Originally posted 2009-10-15 15:40:28. Republished by Blog Post Promoter

stockmarket460by Andrew Syrios
SwiftEconomics.com
June 2, 2009

In the first part of my series on the financial crisis, we discovered that by loosening regulations on the housing industry, while simultaneously continuing to federally back deposits and bailout banks in case anything went wrong, the government created an ample playground for massive speculation. In this second part, we will look at why that speculation was focused in real estate, and where the money to fund such speculation came from in the first place.

We’ll start with the question: “Why housing?” It starts with a redefinition of the American Dream. Whereas in years past, the American dream was best defined as prosperity can be found in liberty, it has become, in modern times, that home ownership is the key ingredient to achieving such a dream. As George Bush’s Secretary of Housing and Urban Development, Alphonso Jackson put bluntly, “The American dream is to own a home.”

This paradigm dates back to the New Deal. Before the New Deal, owning a home was not as important as it is today, because housing prices were relatively stable and even declined over the years. However, during the Great Depression, political radicalism became common place. In 1928, the Communist and Socialist parties garnered a combined 300,000 votes. In 1932, they received almost a million. (1) In an effort to stabilize the mortgage industry, and hedge off political radicalism, FDR and his brain trust decided to push for home ownership in the United States. They believed a property-owning citizenry would have a greater stake in the Republic and be less prone to revolutionary ideas. This culminated in the creation of Fannie Mae (and later Freddie Mac and Ginnie Mae). Fannie Mae works by buying mortgages directly from banks, thus freeing up capital for banks to make more home loans, thus creating more homeowners and fewer renters. And as a result, as economic historian Niall Ferguson puts it, the “property-owning democracy” was born.

However, as nice as owning your home sounds, it is a poor, long term investment financially speaking, unless one has other assets with which to compliment it. In general, buying real estate to use as rental properties is a good investment. On the other hand though, piling a large percentage of one’s income into a home that provides no return outside of appreciation, puts all of one’s proverbial eggs in one proverbial basket. If the local housing market depreciates, a major portion of one’s wealth is affected. Every finance professor stresses the importance of diversification. The idea is to hedge the risk of certain companies and industries against as many other companies and industries as possible. By spreading one’s nest egg so thinly, if one company fails or a particular industry has a rough year, the overall portfolio is relatively unaffected. This is why most unseasoned investors put their money in mutual funds, 401K’s and IRA’s. These instruments are designed specifically to hedge clients against risk by investing in a large number of stable companies across a vast array of industries.

fannie-mae

This concept was, unfortunately, completely forgotten with regards to housing. And as the trumpeters for home ownership grew louder and louder, Fannie Mae, Freddie Mac and Ginnie Mae jumped on every opportunity they could to increase the availability of credit to homeowners. Their primary method was a process called securitization. In short, these government supported entities (GSE’s) could slice and dice a whole array of mortgages into mortgage backed securities and sell them off in little chunks to other investors (these investors are all over the world, which is one of the main reasons this crisis, which originated in the United States, is being felt worldwide).

A few attempts were made to regulate Fannie Mae and Freddie Mac, but Congressional Democrats, lead by Barney Frank and Chris Dodd (who received more campaign funds from Fannie Mae than any other politician), would have none of it. As Democratic Congresswoman Maxine Waters, last seen on this blog trying to establish a Soviet Commissar to nationalize the entire oil industry, put it in a 2004 congressional hearing:

“[We’ve been] through nearly a dozen hearings, where frankly, we were trying to fix something that wasn’t broke. Mr. Chairman, we do not have a crisis at Freddie Mac, and particularly at Fannie Mae, under the outstanding leadership of Mr. Frank Raines.” (2)

Four years later the government had to nationalize both Freddie and Fannie. Good call Maxine. Regardless, as these GSE’s began slicing, dicing and selling mortgages off unimpeded, Wall Street decided to get their dirty hands in on the mess. With home prices rapidly increasing and an enormous influx of capital (to be discussed later), banks wanted to capitalize on this new financial instrument (the mortgage backed security). Fannie Mae and Freddie Mac started securitizing sub-prime and Alt-A mortgages in 1999, and major banks were particularly interested in going after this market as well. These borrowers usually had bad credit and little if anything to put down on a property. So Wall Street firms followed in Fannie Mae’s footsteps by piling large collections of these risky mortgages together and selling little pieces of them off to the general public. They thereby created a high yield investment vehicle that supposedly reduced risk by dividing the many mortgages up so thinly. Unfortunately, this only hedged against individual defaults or local downturns. It completely ignored the possibility that there was a systemic problem within the real estate market as a whole.

In the words of Peter Schiff, who saw the crisis coming as early as 2002: “By creating a conflict of interest between the real estate market and mortgage market, securitization has corrupted an industry in which the availability and cost of credit are of central economic importance.” (3) Furthermore, the incredible complexity of these instruments made them almost impossible to value properly. To paraphrase Niall Ferguson, “instead of risk being transferred to those best able to bare it, risk was transferred to those least able to understand it.”

Fannie, Freddie and Ginnie were not the only culprits, though. In the late 1990’s, the Clinton Administration put an extreme emphasis on increasing home ownership. Aside from giving the previously mentioned GSE’s more leeway, they also started vigorously enforcing everything they could find, or create, to increase home ownership. One of the most prominent was the Community Reinvestment Act, originally passed during the Carter Administration. The Community Reinvestment Act was originally passed with the intent to increase lending to minorities and end the discriminatory practice known as redlining (basically, banks wouldn’t lend to neighborhoods with large minority populations). Unfortunately, as these things often go, it went from one extreme to another, and the opposite of one crazy is still crazy. Instead of blacklisting minority applicants, in the 1990’s and 2000’s, banks were scared to death of lawsuits from declining mortgages to minorities or low-income folks, even if those particular people weren’t financially capable of meeting their mortgage obligations.

Far left groups like ACORN were particularly active in finding cases of alleged discrimination that they could turn into extraordinarily expensive lawsuits. In one particular case, a bank was forced to make $2.1 billion dollars available to low income borrowers who would not have otherwise qualified. Andrew Cuomo, Bill Clinton’s Secretary of Housing and Development, even admitted, “…[it] will be a higher risk. And I’m sure there will be a higher default rate on those mortgages than on the rest of the portfolio.” (4) Wow, how compassionate of Mr. Cuomo. To paraphrase, in my own, sarcastic words, “We’re going to set poor people, who should be trying to save, up to fail by forcing other people to lend them money.”

In the end, the common, “blame deregulation,” chants are rather ridiculous since just about every new policy enacted was to prop up housing, and almost explicitly NOT reign in the excesses throughout the industry. As economist, Tom Woods puts it:

“We are supposed to place our hopes in regulators who would have to be courageous enough to stand up to against the entire political, academic and media establishments? What regulator would have done anything differently, or dared to tell the regime something other than what it obviously wanted to hear?” (5)

So nearly every factor imaginable was pushing capital into the housing market. But where did all this money to put into real estate come from? Many haven’t even asked this question. The main reason, I believe, is that people do not properly understand real estate appreciation. Realtors and bankers often said during the run-up, “real estate prices always go up” and “think of your home as an investment.” In other words, think of a house like you would a stock. If the company becomes more profitable, the stock goes up in value. Real wealth has been created. No one will admit it, but the implied assumption was that when housing prices went up, wealth was being created. Somehow just about everyone, including myself, actually thought houses were becoming more “profitable” just by their mere existence.

Houses do not become more “profitable” just by sitting there, though. They may become more valuable because of factors relating to supply and demand, but as houses get older and more worn down, they should actually depreciate. Real estate appreciation is accurately defined as anything that increases the value of a house. This could be adding an addition, remodeling the bathroom, putting in a swimming pool, etc. These types of activities add real wealth. When housing prices started to dart up around the turn of the century, no new wealth was being created. No, what we saw was nothing more than plain, old inflation.

Inflation was thus misinterpreted as wealth, leading American consumers to borrow more and more, especially against their overvalued homes. Total mortgage debt in the United States is now around 12.5 trillion, up from $1.5 trillion in 1980! Total household debt was around 50% of GDP in 1980 and is over 100% today. (6) And the personal saving rate was around negative 1%, for most of the last decade. (7) Add this to the federal government’s enormous 10 trillion dollar debt and we discover that the United States was basically relying solely on debt to sustain its consumption; debt that could only be maintained through the equity American’s thought their homes had. U.S. citizens were literally refinancing their homes to buy consumer products. When those homes began to depreciate, the stage was set for a significant economic contraction.

consumerdebtoutstanding2 Source: PrudentBear.com 
householddebtgdp1 Source: PrudentBear.com 

 

So where did this inflation come from? Well, it came from the extremely foolish policy of Alan Greenspan and the Federal Reserve. Tom Woods explains their missteps as follows:

“The Fed… started the boom by increasing the money supply through the banking system with the aim and the effect of lowering interest rates in the wake of September 11, which came just over a year after the dot-com bust, then Fed chairman Alan Greenspan sought to re-ignitethe economy through a series of rate cuts, culminating in the extraordinary decision to lower the target federal funds rate (the rate at which banks lend to one another overnight, and which usually drives other interest rates) to 1 percent for a full year, from June 2003 until June 2004. In order to bring about this result, the supply of money was increased dramatically during those years, with more dollars being created between 2000 and 2007 than in the rest of the republic’s history.” (8)

The Fed does not directly control interest rates or the supply of money, but through what are called open market operations, the Fed can have a substantial effect on these things. The most common method it uses is to buy up bonds with money it simply create out of thin air. This adds money into the economy which, through a process called fractional reserve banking, the Fed’s initial capital injection will increase 10 fold.* The Fed can also lower the discount rate (rate at which they loan directly to banks), or decrease bank’s reserve requirements to increase the money supply.

Regardless of the methods the Fed used, what is clear is that the quantity of money rapidly increased throughout the ’90’s and into this decade. The Fed uses several indicators to track the total amount of money in the economy. One of these, known as M1, increased over 100% from 1990 to 2008. M3, a more accurate depiction of the money supply, which was discontinued in 2006 because of the difficulty measuring it, increased 150% from 1995 to 2005! (9)

M1_Max_630_378
Source: Federal Reserve Bank of St. Louis

 
M3_Max_630_378
Source: Federal Reserve Bank of St. Louis

 

The Federal Reserve went way overboard in an attempt to stave off a severe recession in 2001. We still had one, but it was brief and mild. In essence, they delayed much of the pain we should have faced then until now. It should also be noted, that the 2001 recession was the only recession on record in which housing starts did not decline. This should have been a sure fire sign that something was amiss in the housing market. As Peter Schiff so fittingly put it, “George Bush, in one of his speeches, said that Wall Street got drunk… But what he doesn’t point out is where did they get the alcohol? Obviously, Greenspan poured the alcohol…” (10)

To summarize, the Federal Reserve dramatically lowered interest rates, thereby increasing the quantity of money in the economy. That money had to go somewhere and due to a host of government policies and political pressure, this money primarily found its way into housing. The dangerous combination of loosened regulation and the moral hazard of deposit insurance, as well as an implicit bailout guarantee, made banks feel more and more comfortable making loans to less and less credit-worthy borrowers. With securitization, Fannie Mae, other GSE’s and banks were able to sell off their overvalued debt to unsuspecting investors, thereby infecting the entire economy. When adjustable rate mortgages began adjusting, the least credit-worthy borrowers began defaulting on their mortgages, causing home prices to fall. As home prices fell, homeowners lost their equity and could no longer refinance, thereby causing more foreclosures. As foreclosures spiked, investors and banks holding these mortgage backed securities, as well as insurance companies such as AIG who backed them, began taking massive losses. Massive losses on Wall Street meant firms had to lay-off workers. And without the ability to refinance, homeowners had less money to spend causing firms outside of finance to become less profitable and either go out of business or downsize. Thus, a mortgage meltdown turned into a financial crisis and culminated in a severe recession. Hopefully, we’ll learn the right lessons from the whole mess. Unfortunately, I kinda doubt it.

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*Fractional reserve banking is when a bank only has to keep a certain percentage of their deposits on hand and can loan out the rest. Typically, banks only have to keep 10% of deposits on hand and can lend out the other 90%. That 90% is then deposited in another bank, which loans out 90% of the original 90% and so on. Eventually, assuming a 10% reserve requirement, the initial deposit will increase by a multiple of 10. Mathematically it looks like this:

X = Initial Deposit
Y = Reserve Requirement

X/Y = Total Amount of money added to the economy

So for example, if you deposit $100 at a bank that has a 10% reserve requirement:
$100/0.1 = $1000 will be the total amount of money eventually created.
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(1) “United States presidential election 1928″ and “United States presidential elcction 1932,” Wikipeda.org, http://en.wikipedia.org/wiki/United_States_presidential_election,_1928 and http://en.wikipedia.org/wiki/United_States_presidential_election,_1932
(2) “Shocking Video Unearthed Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam that caused our Economic Crisis,” Retrieved May 31, 2008, http://www.youtube.com/watch?v=_MGT_cSi7Rs
(3) Peter Schiff, Crash Proof, Pg. 126, John Wiley & Sons, Inc., Copyright 2007
(4) “EVIDENCE FOUND!!! Clinton administration’s “BANK AFFIRMATIVE ACTION” They forced banks to make BAD LOANS and ACORN and OBama’s tie to all of it!!!,” Retrieved May 31, 2008, http://www.youtube.com/watch?v=ivmL-lXNy64
(5) Thomas Woods, Meltdown, Pg. 29, Regnery Publishing, Inc., Copyright 2009
(6) “Consumer Debt Outstanding” and “Household Debt% of GDP,” PrudentBear.com, both uploaded 2/28/2009, http://www.prudentbear.com/index.php/consumer-debt and http://www.prudentbear.com/index.php/household-sector-debt-of-gdp
(7) “Our Savings Rate Is (Still) Negative: Should We Worry,” My Money Blog, 2/4/07, http://www.mymoneyblog.com/archives/2007/02/our-savings-rate-is-negative-should-we-worry.html
(8) Thomas Woods, Meltdown, Pg. 26, Regnery Publishing, Inc., Copyright 2009
(9) “Series: M1, M1 Money Stock” and “Series: M3, M3 Money Stock (DISCONTINUED SERIES),” Federal Reserve Bank of St. Louis, http://research.stlouisfed.org/fred2/series/M1 and http://research.stlouisfed.org/fred2/series/M3
(10) Peter Schiff, “Why the Meltdown Should Have Surprised No One,” The 2009 Henry Hazlitt Memorial Lecture, Retrieved May 31, 2008, http://www.youtube.com/watch?v=EgMclXX5msc

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Andrew Syrios writes for SwiftEconomics.com

This is Part 2 of his two part series addressing the effect of regulation/de-regulation on the state of the current economy. While these articles were originally published in May and June, their relevance continues to be strong today.

Articles have been published with the author’s permission.

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If At First You Don’t Succeed, Fail, Fail Again!

Posted on 10 April 2011 by Editor

Originally posted 2009-07-26 19:18:49. Republished by Blog Post Promoter

Scott-Spiegelby Scott Spiegel
ScottSpiegel.com

Five months after the stimulus bill was passed, we can now say that we’ve witnessed the following under-stimulating results.

Payrolls are falling more than forecast, with employers having cut 467,000 jobs in June, following a 322,000-job decline in May. Factory jobs fell by 136,000 after dropping 156,000 in May.

Unemployment is at 9.5%, the highest level in 15 years, and is projected to exceed 10% by the end of 2009.  Some economists expect it to remain at historically high levels for years.

The average workweek is at 33 hours, the lowest in 45 years.

Average weekly earnings are down to $611.

The national debt is $11.5 trillion.  The Congressional Budget Office projects the deficit for 2009 to be almost $2 trillion and for 2010 to be more than $1.4 trillion.

The Treasury is increasing its sale of debt to pay for spending.  Treasury offered $1 trillion in notes and bonds in the first half of 2009 and plans to offer another $1 trillion by the end of 2009.

Colin Powell, of all people, is alarmed that Obama’s spending orgy may be swelling government and the national debt: “I’m concerned at the number of programs that are being presented, the bills associated with these programs and the additional government that will be needed to execute them…  [We have] a huge, huge national debt that, if we don’t pay for [it] in our lifetime, our kids and grandkids and great-grandchildren will have to pay for…”  Now he tells us!

Jared Bernstein, chief economic advisor to Joe Biden, whose office is managing the stimulus, says, “It’s working, it’s demonstrably working.”  According to Bernstein, $200 billion in stimulus money has already been obligated or spent.  Case closed!

Note to Bernstein: In order to demonstrate causality, you have to show that: (1) there was a cause, (2) there was an effect, and (3) the cause influenced the effect.  Defenders of the stimulus bill are still stuck on #1: as of June, only 10% of all stimulus funds had been distributed.  Bernstein’s $200 billion “obligated or spent” figure—eerily reminiscent of the administration’s “jobs saved or created” trope—is untrustworthy, because the administration has already been caught lying about money committed to spending projects.

Given the miserable failure of the stimulus bill, naturally Congressional Democrats want… another stimulus bill!  According to House Majority Leader Steny Hoyer, “We need to be open to… further action.”  Democratic Senator Sheldon Whitehouse said that another stimulus would “probably take place towards the end of the year.”  Second-ranking Senate Democrat Dick Durbin said he would leave any decisions on passing another stimulus bill to “the president’s evaluation”—and we all know how cautious Barack “Fiscal Restraint” Obama will be.  Stan Collender, former Congressional budget analyst, said that another stimulus bill may be possible if the economy gets worse: “Right now it doesn’t seem to be justified…  Come September, it might be.”

The first stimulus package was “a bit too small,” according to Laura Tyson, member of Obama’s Economic Recovery Advisory Board.  Paul Krugman writes in the New York Times, “O.K., Thursday’s jobs report settles it.  We’re going to need a bigger stimulus.”  Biden advisor Bernstein says, “There is no conceivable stimulus package on the face of this earth that would fully offset the deepest recession since the Great Depression.”

Let’s see: the stimulus bill committed a record $787 billion in spending.  Tyson says it should have been “a bit” bigger.  Congressional Democrats and Krugman wanted it much bigger.  Bernstein admits it would have to be infinitely big to work.  Can we give Bernstein the award for inadvertent honesty on this one?

The clincher that the stimulus bill was an abject failure—and that another stimulus bill would be a repeat failure—is the fact that Wall Street has just hit a 10-week low after talk of a second stimulus package recently began.  Amateur analysts suggest that chatter about another stimulus bill is making investors nervous, because—get this—it shows that the economy might not be recovering.  According to Hugh Johnson of Johnson Illington Advisors, “When there’s talk about another stimulus plan, that adds fuel to that fire, it intensifies the concerns about the timing and strength of the recovery.”

Is it possible, just possible, that investors are nervous, not because Congress’ hinting at a second stimulus package implies the economy is not recovering—which I think they can figure out on their own—but because Congress is hinting at a second stimulus package?

If Democrats aren’t persuaded by Republicans’ argument, backed up by ample historical data, that spending vast quantities of wealth not yet created does not stimulate the economy in the long term, could they at least admit their little experiment failed and try the Republican option for a change?

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Scott Spiegel is the editor of ScottSpiegel.com

Article has been published with permission


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The ‘Another Fine Mess’ That is California

Posted on 10 April 2011 by Editor

Originally posted 2009-06-21 23:59:11. Republished by Blog Post Promoter

As Featured On EzineArticlesIn the immortal words of Laurel and Hardy: “Here’s another fine mess you’ve got me into.”

And there’s probably no better way to describe the situation that California, this once prosperous state, which from the days of the gold rush has attracted millions to its Pacific shores has found itself in. Its golden image, once a magnet for the ambitious, talented or simply enchanted by the beauty of its land and people, is now tarnished by years of fiscal mismanagement and irresponsible government spending.

It is wondrous indeed to note how a state with such riches in natural resources and richness in the diversity of its people can find itself in such financial ruin. The state of California (which if it were a country would be the 8th largest economy in world) has found itself unable to fund its current fiscal deficit exceeding $24 billion and service its debt of over $72 billion to its bond holders. By any standard definition of insolubility, the state of California is bankrupt. And while teetering on the brink of being in default of its obligations, interestingly the state’s constitution explicitly does not allow it to declare bankruptcy – a curious dilemma.

The reasons which have brought California to this sad financial state are well known and documented. Summarized, it could be captured in the simple premise of having made too many promises without the wherewithal to deliver on them. These include promises made to government employees, such as in cases of retirees ending up with multiple pensions, some in the six figures. They include overly generous social programs, extending across citizens and non-citizens alike; lax enforcement of state entitlements; increasingly hostile tax burden on businesses including a state sales tax approaching double digits. Also most would target the ineffective state constitution which mandates a 60% majority in the state senate to enact major financial reform. By all practical terms such majority has been virtually impossible to achieve, resulting in stalemate on any attempts to curb the state’s insatiable spending appetite.

Whereas the causes of the states virtual collapse can (and will be) studied by many social economist and political analysts, the practical matter of how to address the dilemma and provide a sustainable solution to the California crisis remains. Prior attempts by its governor Schwartzenegger to seek a federal bailout have fallen on deaf ears of President Obama, and rightfully so as the precedent set by such action would be dangerous and ridden with consequences beyond our ability to predict. Furthermore, no constitutional authority has either originally or through any amendments been granted to the federal government to provide for such a bailout.

So what options exist for California? The ones most commonly discussed include:

1. Providing government credit guarantees of California’s debt have been floated (CBS News Story) but generally discounted as too temporary and not addressing the core of the state’s fiscal crisis. Furthermore, guarantees of such an amount could negatively impact on the credit rating of the US government, which itself is struggling with mounting debt and looming inflation. As traditional with the democratic liberal wing, its chief democratic rep. Barney Frank of Massachusetts, chairman of the House Committee on Financial Services is in support of such measures.

2. Allowing the state to default on its obligations has also been floated, but appears to have the support of only the most extreme faction of constitutionalists. Opponents argue that this would undoubtedly create a dangerous ripple effect throughout the US economy, the cost of which would potentially exceed any bailout which would be offered to the state.

3. Aggressive tax increases (primarily in the form of sales taxes) to compensate for the precipitous fall in tax revenues have the support of many of the liberal democrats in the state senate. However, under the terms of the state’s Proposition 13, their enactment has become a virtual impossibility due to the 60% majority provision. Furthermore, California residents have over the last years become increasingly more vocal against that state’s excessive tax rates, further diminishing the possibility of any such actions.

What is discouraging is that no significant momentum exists behind a movement to address what is the root cause of the state’s troubles – state government inaction and excessive tax burdens. In order, first the state needs to procedurally address the ineffective provisions of its state constitution, including Proposition 13. Armed with new powers to reduce the tax burden on its citizens and enterprises, a well targeted reduction in state business taxes, and either personal income taxes or sales taxes would restore vibrancy to the California economy and begin to again attract new investments and spur an influx of productive sectors of the population back to the state.

While in 2005 the US Census was projecting California as one of the states with highest growth rates, in the recent years of financial turmoil the opposite has begun to occur, with residence relocating to less tax onerous states, among them Florida, Nevada or Texas, each with no state income tax.

Tax incentives (instead of tax penalties) have time and again shown that the empowered individual and the entrepreneurial nature which he harnesses are the most effective tools to bring about economic growth and financial health. California would do well by heeding to one of its greatest son’s prolific advice:

“I don’t believe in a government that protects us from ourselves.”
“The best minds are not in government. If any were, business would hire them away.”

 Ronald Reagan (1911 – 2004)

 

It would be wise for the California governor and state senators to read their state motto (“Eureka”) and in it recognize that the solution to their state’s woes has already been found, tried and proven. All they need to do is act on it.

* * * * *

We welcome your comments and suggestions, either directly inline, or via email to editor@nakedliberty.com. If you would like to have your article published in Naked Liberty, please contact the editor at the above email address.

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How To Undermine the Economy

Posted on 10 April 2011 by Editor

Originally posted 2009-08-07 15:37:30. Republished by Blog Post Promoter

by NotYourDaddyno_trespassing
GovernmentIsNotYourDaddy

August 1, 2009

If you wanted to come up with a plan to undermine the economy of the most prosperous and successful nation on earth, how would you go about it?

The first thing you’d have to do would be to debase the underlying value system that provides the foundation for prosperity. That is, the value system to which the founders of this nation, and many generations of immigrants who came here seeking opportunity, subscribed. The core of that value system is the belief that you do not deserve anything you have not earned.

The first step would be to condition the populace to believe that prosperity is bad, that anybody who makes more than a modest income must be evil (or at least dishonest), and that nobody really deserves to be rich, no matter how much they contribute to the economy or how many opportunities they create for others. The rich, by definition, are always a minority, since the term itself implies someone who has substantially greater wealth than the average person. All that’s usually needed to turn the many against the few is a sense of grievance.

Fostering a sense of grievance can be accomplished by promoting the notion that everybody, by virtue of their very existence, is entitled to basic sustenance, such as health care, food, shelter, etc. This attitude can be cultivated by establishing a system of bureaucracies (paid for almost entirely by the rich) that provide free handouts to everybody else, while nurturing a sense of perpetual resentment among the people receiving the handouts toward those who provide the wherewithal to satisfy their ever-increasing expectations.

The many are not generally aware that nearly 90% of the income taxes that sustain our government, and all the services “it” provides, are collected from the top 20% of income earners. And, if the many were aware of that, do you think they’d feel like saying “Thank you”? Not likely. Because they’ve been conditioned to believe that the rich don’t deserve their wealth, and that they, the beneficiaries of all those taxes paid by the rich, deserve that money more than the people who earned it. What did the beneficiaries do to deserve it? Nothing. But they exist, and therefore they’re entitled to things they cannot afford, so the money should be taken from those who can afford it and redistributed to them.


Having undermined the cultural values that provide the basis for a prosperous economy, by fostering a culture of dependency on ever-expanding government services, you now have popular support for the next step, which is to penalize production. You do that by regulating industries to the point where the cost of doing business is too great to justify the returns, forcing businesses to either downsize, go bankrupt, or relocate offshore. That increases unemployment, creating an even greater dependency on government services. At the same time, it reduces production so there’s less wealth to tax, and less money coming into the system to support the ever-increasing demands.

At that point, you’ve got a self-perpetuating cycle, with ever-increasing demands on the system and ever-diminishing resources from which to draw to provide for them. To add fuel to the firestorm, you can use the increasing demands as an excuse to raise taxes on the remaining top producers even more, driving more employers out of business or offshore, creating an even larger non-productive class, and further accelerating the drain on the system…

But why stop there? At this point, the economy is so unstable, it can be toppled with ease. To finish it off in style, all that’s required is to spend like a drunken sailor. Get the nation so far in debt to hostile foreign powers that they won’t accept our IOUs any more. Print up fiat money and dilute our currency to the point that the whole world loses confidence in it and the G20 proposes a new international monetary standard. Then distract the citizens by holding contests in Congress to see who can spend money the fastest, and call it a “stimulus plan.”

At that point, the death spiral reaches critical mass. That’s where we are today. How did we get to this point? Well, it could just be a combination of entropy, ignorance, and well-intentioned idiots. Or it could be that there are those who actively seek to undermine our economy to bring our nation to its knees. For what purpose? That depends on who’s pulling the strings. I concede that this begins to sound a little paranoid from someone who usually dismisses conspiracy theories. On the other hand, it’s hard to imagine that anyone, especially the leaders of our nation, are stupid enough not to realize they’re doing the exact things required to accelerate the collapse of our already destabilized economy. And, if they’re not stupid, then they must have a reason for what they’re doing.

. . . . . . . . . . . . . . . . . . . .

NotYourDaddy is a conservative libertarian who believes in free will and the free market. NYD thinks the role of the government is to protect the rights and liberties of its citizens. Stop there.

NYD’s attitude toward ever-expanding government can best be summed up by snarling “Get your hand out of my pocket and leave me alone!” Visit NotYourDaddy’s blog at Government is Not Your Daddy.


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Uncle Obama’s Extortion Racket

Posted on 10 April 2011 by Editor

Originally posted 2009-12-17 17:47:46. Republished by Blog Post Promoter

Extortion_for_Dummies

by Nancy Morgan
RightBias.com
December 17, 2009

Uncle Obama has gotten ahold of your credit card. And he’s amassing charges on it that – you – not he – are liable for. You can call the fraud line, you can call the police, you can call any politician or government agency, and they will all tell you the same thing. Shut up and pay up.

Since misery loves company, you might feel better knowing that you’re not the only one being extorted. Uncle Obama and his buddies have the credit and debit cards of every man woman and child in America. And they’re charging up a bundle. So far, each of us has a $38,000 tab that we are personally liable for. And that’s just the tip of the iceberg, which by the way, isn’t melting.

Yesterday, Uncle Obama actually got the limit on your credit card increased. Yup. The House of Representatives voted to increase the overall debt limit, meaning the amount of money they can charge in your name has expanded. This, despite the fact that our national debt now exceeds the statutory debt limit that the Democrats approved last February as part of the cutely entitled Recovery Act. Which, by the way, didn’t work. But the intentions were good.

For the 7 million Americans without jobs, this is not good news. Not to worry. The media assures us folks that Uncle Obama is going to take care of everything.

Just look at all the things he’s doing for us. The House yesterday approved an additional $155 billion of our tax dollars for “shovel-ready” construction projects and money to avoid layoffs of teachers, police and other public employees. Of course the small print says that in order to get any of this money you better belong to a union or be employed by the federal government. If you’re Joe Blow or Suzy Homemaker you’re just plain out of luck.

Maybe you’ll sleep easier knowing that the one billion dollar charge on your credit card last Wednesday will go to preserving tropical forests overseas. Or that the $3 billion charge last month will help the Palestinians in their fight against Jewish ‘occupiers.’ Or that your hard earned money will soon be at work aborting babies in our nation’s capitol. After all, we must do our bit to save Mother Earth, and who are we to disagree with the experts who tell us that abortion is a kick ass way to do this?

Whatever you do, don’t worry your head about the charges that are in the works for your almost worthless credit card. The increased energy charges on all of our bills in the coming months will probably only amount to a few thousand dollars for each of us. And they are totally necessary to keep the earth from melting. There is a consensus on this, so just can your objections.

If you start to get overwhelmed, you can cheer yourself up by watching the excellent use Uncle Obama has made of your money. Tune in to GM’s latest edgy video of The Volt dancers as they whirl and cavort in some artists’ idea of how to promote automobiles that are environmentally friendly. And if you would rather eat than support politically connected fat cats at GM and a select group of sensitive artists, then you’re probably one of those flat earthers, totally unworthy of any of Obama’s largesse.

Still worrying? Just stop right now. Uncle Obama has provided a great opportunity for any hungry American with mouths to feed. All you have to do is snitch on your tax-cheating neighbor. New legislation stipulates that you’ll be able to appropriate a larger percentage of any taxes the government recovers based on your tip. But before you turn in your former boss or neighbor, check to make sure they aren’t one of the federal employees that owe a cool $3 billion in unpaid taxes. I think they’re exempt.

For all the diehards out there that still worry about running up bills you can’t pay, take heart. Uncle Obama has assured us that if we hurry up and agree to let the government take over health care, then we won’t go bankrupt. Just make sure you don’t get sick for 3 years till it kicks in.

For all the ‘deniers’ out there, just quit worrying about all the unauthorized charges Uncle Sam is making on your credit card. Sit back and relax. Take advantage of the 24/7 media coverage of how the great Tiger Woods has fallen. Schadenfreude is an excellent panacea. And if you’re in luck, the commercials will be louder than the network programming. Since Congress has just ruled this a no-no, you can call yourself a lawyer and make like the government. You can extort your way to unearned wealth.

. . . . . . . . . . . . . . . . . . .

Nancy Morgan is a columnist and news editor for http://rightbias.com
She lives in South Carolina.
Article posted with the author’s permission

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