At the heart of this error is the government, not the free market, which has never existed since the creation of the Federal Reserve.  A free-market organization would have gone bankrupt long before it could ever screw up on a scale this large.

The inane setup of our monetary system has led our problems, where government sets short-term interest rates, manipulates its currency, lets overleveraged banks borrow at below market rates via the Discount Window, engages in open-market transactions, and creates money out of thin air to fight wars for no clear reason, et cetera.

That, coupled with government initiatives like “making homes affordable” leads to such ideas like buying subprime mortgages (via Fannie and Freddie) and then having the taxpayer bail out the government entity when it inevitably fails.

The mindset that we will ease out of this crisis in a few years is delusional.  People’s expectations have been warped into believing the last six-seven years of growth have been genuine.  They haven’t.  The credit boom started after the dot-com crash and only when prices of assets (housing, equities) return to those levels will we see the start of a healthy correction.  Yes, house prices need to come down.  This happens by foreclosures and assets moving from those that cannot carry the debt burden to those that can.  Letting people who can’t afford to stay in their home stay there isn’t a solution.  Having the taxpayer buy the mortgage via Freddie Mac, then “renegotiate” the mortgage and take a loss should aggravate anyone with a sense of responsibility.  The hero-worship that President Obama is going to miraculously create compounding wealth by printing up cash and paving roads thereby returning us to the good old days is simply not going to happen.

Only a repudiation of our current banking and monetary system will solve this problem in the long-run.  A free market in money and currency is needed as well as the total separation of Economy and State.

To read more about our economic woes, read here.

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