Understand the Financial Crisis: The Lie of Recovery Will Devastate the Unprepared

By Julian Dunraven, J.D., M.P.A.

Honorable Friends:

At the People’s Press Collective Reeducation camp this past weekend, I was pleased to see so many people gathered to learn how to become more effective advocates for the cause of restraining government, promoting individual liberty, and restoring free markets. Truly, an army of Davids is indeed rising to oppose the Goliath of obscenely bloated government. Those who attended this camp hardly needed to be told that the U.S. government has become the biggest liar in the history of the world; they attended the camp to gain the tools needed to begin correcting that problem. They face an uphill battle, though. I was horrified to hear that at least a few of our government’s lies had penetrated even the PPC camp when one of the attendees claimed that, with the nation now in recovery, it is critical to elect Republicans so as to resist any further bailouts and allow the recovery trend to continue.

Make no mistake: whatever illusion of recovery we have entered into is just that—an illusion. Nothing has been altered in the fundamentals of our economic situation. In fact, we have done substantial damage to the soundness of our currency and the wealth of our people, leaving us in a much weaker position to face the problems quickly rushing toward us. Those who do not prepare themselves and their families now are likely to be ruined in the coming economic storms. The Obama Administration’s assurances that we are in recovery may be one of the most atrocious lies ever told in a long history of deceptions.

I wish I could agree with my honorable friend in thinking that merely electing Republicans will offer a solution to this problem. Yet, many in the Tea Party movement correctly understand that Republicans have been almost indistinguishable from Democrats in their profligate spending practices. Many of them voted in lock step with Democrats as Congress issued one bailout after another, assaulted our civil liberties, dismantled the free market, and shredded the Constitution.

While it is true that no Democrat will ever reform this obscenity, we can no longer afford the Good Old Boy mentality of deal making, back scratching, entitlement, and the politics of pull that has too long infected the GOP. We require men and women of true principle. Merely demanding principled politicians, however, will do nothing unless we understand the nature of the problem ourselves, and can hold our politicians accountable in how they address it. Otherwise, we are simply asking to be lied to once more.

At the PPC Camps, several attendees have asked me where they can obtain concise, reliable, and comprehensive explanations for our economic situations and what each of us can do to prepare ourselves and our families. In answer, I strongly recommend viewing the free "Crash Course" by Mr. Chris Martenson. Even if you have no background in economics, finance, or natural resources, you will find Mr. Martenson’s webinar easy to understand. His advice will leave you in a better position than many who graduate college with Economics majors. After that you may want to move on to "Smoke and Mirrors: The Story of Fiat Currency Abuse," a webinar presented by Richard Karn of Emerging Trends Report and hosted by the Bullion Management Group, Inc. While parts of this may be a bit dense, especially at the beginning, I advise you to stick with it. You will have a good grasp of our financial situation by the end.

These two webinars will give you the basic knowledge you need if you want to have any hope of holding our Republican candidates to anything resembling real principles. We cannot afford to get it wrong anymore. We cannot continue to watch our government pervert capitalism in favor of unequal patronage whereby favored insiders profit while all others struggle. We cannot allow our government to burn the savings of our people and spend away the wealth of this nation to leave our children, for the first time in U.S. history, a standard of living which is less than our own. We cannot let our government continue to weaken what should be the greatest nation on earth.

Obama’s Affordable Health Choices Act of 2009: What You Don’t Know May Kill You

By Julian Dunraven, J.D., M.P.A.

Honorable Friends:

Yesterday, the people of Denver demonstrated that they have far more sense than their Congresswoman does when 700 of them rallied on the State Capitol steps to voice their opposition to President Obama’s health care bill.

The President has been working hard in recent weeks to persuade us that such opposition is unfounded. In his recent prime time press conference, he soothingly told us that this legislation would help reduce the costs of health care. He went on to assure us that we would all be able to keep our current health care plans and would not be forced onto government programs. In conclusion, he promised that health policy would be free from congressional meddling, as it would be overseen by a nonpartisan committee of medical experts whose recommendations would have to be accepted or rejected in their entirety by Congress. He said all of this with a straight face. None of it is true.

As a former Constitutional Law instructor, Mr. Obama knows that Congress’s legislative authority cannot be limited in such a way. Had Mr. Obama actually read the text of the bill, he also would have known that it allows people to keep their own health care plans only so long as they stay with their current plans. If they try to change their plans, they are indeed forced onto the government’s program. He certainly knew, though, that the Director of the Congressional Budget Office, Douglas Elmendorf, estimated that the bill actually increases costs of health care and enlarges the federal deficit by billions of dollars.

Denver Representative Diana DeGette, apparently a very credulous person and far too busy to read the 1000+ pages of the bill for herself, has taken the President at his word and maintains that there is a need to pass the bill immediately. Unfortunately, the arguments she uses to support the urgent need for legislation are rooted almost entirely in myths about our health care system; myths Dr. Clifford S. Asness easily and entertainingly debunks in his essay, “Health Care Mythology.” Fortunately, the American people are not so easily duped.

Money Morning and Stephen Hyde both point out some of the most egregious financial problems with this bill. As Hyde asserts, “The bill requires virtually all employers to offer minimum health benefit plans that far exceed anything most of them offer today.” This will necessarily increase insurance costs. As Money Morning shows, it also has a more devastating aspect. Under the legislation, any business that cannot afford to provide the extensive coverage the bill requires will be taxed up to 8% of its payroll. This will almost immediately result in severe wage reductions and layoffs as businesses attempt to defray that cost. This hardly seems like the best idea as the nation struggles for economic recovery. Yet, this is not the worst the bill has to offer.

Peter Fleckstein (aka Fleckman), has diligently combed through the legislation and assembled a brief, line-by-line cheat sheet. His full analysis, “The HC Monstrosity-All 1,018 Pages,” can be found at his blog. While somewhat cursory, Mr. Fleckstein successfully highlights some alarming details in the legislation. To list just a few, the bill provides for:

• Nationwide government access to our private healthcare and financial records, as well as our bank accounts.
• Exemption from judicial review of the prices government sets on health care.
• Government wage controls over physicians, as well as limitations on physician ownership of hospitals and other health care providers.
• Mandates for end of life care and consultations without benefit of legal counsel.
• Government interference in marriage counseling and childcare.
• Government appointed standards and rationing for what treatments we may receive.
• No private option if you leave your current insurance carrier.

These are just a few of the many devilish details hidden within Mr. Obama’s Affordable Health Choices Act. It seems unlikely that any sane person, after reading this bill, could support its passage. That may be exactly why Mr. Obama and the Democratic leadership in the House and Senate wanted to push it through so quickly.

The American people need to know the horrors contained within this bill. Health care represents 20% of our economy. That economy is now suffering a soft depression. If we truly desire health care reform, we deserve much better than what Mr. Obama is offering. This bill’s financial aspects alone have the potential to drive us into an unbearably hard depression, to say nothing of the damage it does to personal liberties. We cannot afford to make such massive changes to such a large portion of our economy with so little knowledge or time to review. All concerned Americans should contact their congress people and demand an end to this abominable and irresponsible legislation.

How to Craft a Stimulus if You Absolutely Must & Why Obama’s Will Fail

By Julian Dunraven, J.D., M.P.A.

Honorable friends:

Last night, sounding quite defensive, President Obama gave a press conference to resentfully explain his stimulus package to the nation and insist that it be passed without further delays or questions—or we risk catastrophe. So much for the change we were promised. I have heard this tune before, from Mr. Bush. Pass the Patriot Act immediately for the safety of all Americans; yet we ended up mutilating the Constitution and the Supreme Court is still performing reconstructive surgery. We must invade Iraq or be destroyed by WMDs; but there were no WMDs. We must pass the TARP bailout now or the economy will collapse; and it is still collapsing with no sign of recovery on the horizon. Now our Dear Leader, singing the same song with a new voice, wants us to pass an even bigger ‘stimulus’ package lest the economy collapse . . . further. Whenever a politician asks to be trusted on faith alone and for action to be taken without delay or question, that is the time to settle comfortably into your chair, pull out your spectacles, and peruse the supposedly vital proposal most closely. So far, I have not found much to be pleased with—starting with the pork.

Mr. Obama’s claim that the stimulus bill does not contain pork is laughable. While it does not contain any earmarks inserted by individual lawmakers, it does fund a host of local projects that look identical to traditional earmarks. This might not be so objectionable if the projects stood a chance of building an economic infrastructure that generated more wealth than we are spending. It does not. According to the Congressional Budget Office, the cost of this bill alone will increase our annual budget deficits by $884 billion over the next ten years. It represents approximately one tenth of our GDP. Add to that the $9 trillion we have spent on prior bailouts and federal backstopping and we have devoted almost our entire GDP to deficit spending on bailouts. Thus, the stimulus will hurt us, not help us.

The money for this cannot even be financed with debt any longer. U.S. Treasury bonds are becoming increasingly difficult to sell as the world loses confidence in our ability to handle our massive debt. As such, the U.S. must either raise taxes or print the money. Even the Democrats seem to be leery of raising taxes during such hard times, which means the money must be printed. As Dick Army has stated in The Wall Street Journal, “If the government prints the money, it will increase inflation, which will decrease the value of the dollar. That would, in effect, rob Paul to pay Paul back with devalued currency.

“Taking money out of the private economy -- either through taxes or inflation -- and spending it in a way that doesn't offset the loss of money with real economic gains is worse than doing nothing.”

Doing nothing is exactly what some economists argue would be best right now, given the damage the current stimulus could do. Even those economists who want to see some sort of stimulus are not confident in Mr. Obama’s plan and certainly against taking any overly hasty action to pass it. On the right, Martin Feldstein argues that “The problem with the current stimulus plan is not that it is too big but that it delivers too little extra employment and income for such a large fiscal deficit. It is worth taking the time to get it right.” On the left, former CBO Director Alice Rivlin echoes the need to carefully consider the stimulus and its long and short term goals, warning that acting too quickly on one giant bill could ensure that “money will be wasted because the investment elements were not carefully crafted,” and, “that it will be harder to return to fiscal discipline as the economy recovers if the longer run spending is not offset by reductions or new revenues.”

These economists are correct. Too much is at stake to rush into this massive stimulus package just because Mr. Obama wants his first hundred days to be wildly productive. A good stimulus plan should include a large reduction in taxation so as to free up money for investment. Currently, the tax cuts in Mr. Obama’s package are too small and too brief to have any real effect. Second, a good stimulus should focus heavily on infrastructure and production. Currently, the stimulus bill devotes only about 5% of its spending to true infrastructure. The great bulk goes to social service spending such as unemployment, food stamps, et cetera. While such social service spending may be noble, as Jim Puplava has stated on the “Financial Sense Newshour,” it is like giving people fish instead of teaching them how to fish. Once they have eaten the fish, they will be hungry again.

When Japan experienced its terrible recession of the 90’s, its government quadrupled its debt in an attempt to spend its way to recovery through public works. The effort failed. Only when Japan reinvested in infrastructure, boosted productive capacity, and started selling their products to China did they begin to recover. In short, they had to create a “fishing industry,” rather than just distribute fish. America, too, must create a “fishing industry” if it wants to recover. The current stimulus contains nowhere near enough infrastructure spending and virtually nothing that could boost our productive capacity.

Even if these deficiencies were corrected though, the problem of financing any stimulus with our massive debt remains. The people supervising the process are still the same people who failed to see the problem coming, who failed to manage the first bailouts effectively, and who now fail to properly pay their own taxes. No one in Washington is even attempting to reform the banking and securities laws or the Federal Reserve’s meddling which brought us here. Trust has been lost. Moreover, the U.S. cannot possibly afford the trillions of dollars it would take to counter the contraction in consumer spending. We are entering a depression, characterized by massive deleveraging. The stimulus, as written, is doomed to failure and, at this point, can only add to our woes. Truly, it would be better to do nothing and allow the market to purge itself.

None of this, of course, will stop our government from passing the stimulus package. That will require a great deal of anger on the part of the people. Ben DeGrow of Mount Virtus has issued an appeal to speak out against it and I echo that call. We will not be able to stop it entirely, but we might convince Congress to take the advice of Ms. Rivlin and Mr. Feldstein to continue working on it for a while so that it is not a complete shambles.

Bush Blasted for Usurping Congress on Auto Bailout: Sen. Inhofe Defends the Republic as a Modern Cicero

By Julian Dunraven, J.D., M.P.A.

Honorable Friends:

Heeding the overwhelming will of the people-- and perhaps at last developing a bit of good sense-- the U.S. Senate has rejected the idea of a bailout for the Detroit automakers. If we were still following that dusty old parchment called the U.S. Constitution, the matter would have ended there, at least until the next president takes office. As we have been ignoring the Constitution for a while though, the story continues.

President Bush declared that the Senate, far from rejecting the bailout, simply failed to act. On that flimsy pretext, he will use $15 billion of the $700 billion bank bailout to aid Chrysler, GM, and Ford. Although Congress authorized that money only for the financial services industry, there has been no oversight, and the Bush administration has already altered the implementation of the bailout several times without consequence. Thus, despite the fact that such actions completely usurp the Legislative branch and represent a total betrayal of our Constitution, the Bush administration is proceeding without hesitation.

At least one of our senators, though, is refusing to retreat quietly into irrelevancy. Sen. James Inhofe (R-OK), one of the most staunchly conservative members of the Senate, is fighting back on behalf of our republic and the Constitution. Like a modern day Cicero, he issued a philippic against Treasury Secretary Henry Paulson and the Bush administration declaring:

"As the Bush administration changes course once again, it is becoming clear to me that Washington, D.C. might be completely out of control.

"How have we come to a point that Congress--the institution that represents the will of the American people--has handed over so much money and authority to the Treasury Secretary that, if the democratic process fails to achieve a certain desired outcome, the outcome is simply ignored? The stated purpose of $700 billion bank bailout was to rescue us from a catastrophic breakdown of the financial system. Now we're told that the money might be used to bailout the auto companies because legislating their multi-billion dollar gift from the U.S. taxpayer might come with conditions that were too inconvenient for interested parties. I've been a U.S. Senator for some time, and I have never seen anything like this.”

Sen. Inhofe is correct. Congress has been lax in its duties and handed over far too much authority to the executive branch, which is now running roughshod over our republic and tearing the Constitution to shreds, while claiming that it is all justified because we face an emergency situation. Yet, that sort of justification is precisely what our Constitution and its processes were created to guard against in the first place.

It has gone on too long. When we suffered a terrorist attack and faced two wars, Congress handed the President unprecedented powers, both domestically and militarily, which the Supreme Court is still trying to cut back to constitutional levels. Congress sat by while the President made use of torture, suspended the Writ of Habeas Corpus, spied on our own people without warrants, and otherwise made a mockery of our Bill of Rights—because it was an emergency. When the financial crisis hit, Congress again handed the president such sweeping power over our financial system that the U.S. government overnight gained more control over private industry than is exercised by the socialist government of Hugo Chavez's Venezuela. Our money printing has ballooned to a level not seen in the world since the French Revolution—increasing the money base almost 80%--over 40% in the last month alone. Now, the President even presumes to ignore express will of the first branch of government entirely—because it is an emergency.

Our republic is in grave danger. Though I may disagree with Sen. Inhofe occasionally on social issues, I cannot deny that he has both integrity and honor. Already, he has had my respect through the financial crisis because of his determined and reasoned opposition to the woefully irresponsible and ill planned bailouts. Now, though perhaps already too late, he is trying to defend the Constitutional process that defines this nation. For that he has my utmost admiration. I only hope he has more success than Cicero himself, and that his colleagues, and we the people, have enough courage and conviction to join and support him in his opposition to this madness which, as he states, “will not only be futile, but will also move this country further from those first principles that have made us the great nation we are today."

On Inalienable Rights

Lately there has been a disturbing trend in the way Americans think about their rights. By "rights", I mean our God-given, inalienable rights, some of which are enumerated in our Bill of Rights, and some of which are taken for granted.

It seems that whenever recent presidents espouse a certain policy, and perhaps are backed up by the Congress, a segment of the citizenry takes the view that their rights are being taken away. The Clinton assault weapons ban of 1994 is a fine example of this. Gun owners across the country were confounded by this unprecedented gun grab, which as we now know was useless against combating crime. Criminals still found ways to access whatever guns they chose, and law-abiding citizens found themselves subjected to arbitrary restrictions on magazine capacity, strange bans of cosmetic features, and complicated grandfathering rules. Gun owners' complaints ran the gamut from grumbling to shouting about this heavy-handedness, but most centered on the notion that Clinton, the focal point of their outrage, had taken away some of their gun rights.

Fast forward to the aftermath of 9/11. At first, the country was united out of confusion and fear. But gradually, the Patriot Act and its associated fallout caused many citizens, and not just left-wing Bush-haters, to rail against this intrusion into their civil rights. Once again, rights, civil and otherwise, were being taken away. Few people had concrete examples, except perhaps detainees who languished in prisons with their fellow presumed terrorists. However, ominous letters to the editor began to appear, talking in vague terms about how the Patriot Act, and later FISA and the Patriot Act II, were taking our rights away. We were told that we must fight to get our rights back; the general solution was to impeach the president.

I want to address this paradigm shift.

First, let us examine the meaning of "inalienable," a word used by our Founding Fathers to describe our rights. The Cambridge International Dictionary of English definition is "unable to be removed," a simple but powerful definition. So, therefore, our rights are unable to be removed. Contrast that with the cries of "Our rights will be taken away!" I say that our rights are not taken away! Rather, we are being prevented by force from exercising our rights. Our rights are given by our Creator, or exist in the natural order, depending on your belief system. Regardless, no government has the power to take away our rights, since they are inherent. Government can only use force and tyranny to prevent us from enjoying them.

Our eighteenth-century peers knew this. British troops were coming to the colonies to disarm the citizenry at the request of Governor Francis Bernard, who was having trouble controlling the population. The people had made a demand that the governor convene an assembly of the populace, which he had refused. A letter appeared in the Boston Gazette on September 26, 1768, after the colonists learned of the troops' impending arrival:

It is reported that the Governor has said, that he has Three Things in Command from the Ministry, more grievous to the People, than any Thing hitherto made known. It is conjectured 1st, that the Inhabitants of this province are to be disarmed. 2d. The Province to be governed by Martial Law. And 3d, that a Number of Gentlemen who have exerted themselves in the Cause of their Country, are to be seized and sent to Great-Britain.

Unhappy America! When thy Enemies are rewarded with Honours and Riches; but thy Friends punished and ruined only for asserting thy Rights, and pleading for thy Freedom.

This letter was signed anonymously "A.B.C.", but is widely suspected to be the writing of Samuel Adams. Note the absence of any language talking of the British "taking rights away," Rather, Adams spoke of asserting rights and being punished for it. The British troops' agenda is appalling even today: disarming law-abiding citizens, imposition of martial law and imprisonment back in Britain for participating in any kind of demonstration of resistance against the unjust British policies. However, the colonists never believed that their rights were being taken away. They only believed that the tyrannical Royal Government was coming to put down their fight to exercise their rights.

Talk is ramping up yet again of all the rights that a possible Obama administration would seek to take away. I entreat my fellow lovers of liberty not to think this way. Think of the rights as being yours, that no one can take away. When we think of rights as being ours, there is a reason to fight for them. If we already think of them as lost, then there is precious little catalyst to go out and reclaim them. Our Founders knew that when an oppressive government prevented the exercise of rights, then it was time to rise up to throw off the tyranny. This is what we must do, not just against a President Obama, but anywhere we think that our rights have been suppressed.

Guest post by Meg.

The Worst Is Yet To Come: Blame Congress--And Obama

By Julian Dunraven, J.D., M.P.A.

Honorable Friends,

I hope you did not get too excited by the rise in the market yesterday. Our system is nowhere near stable, and even further from recovery. We have not even begun to address the fundamental problems that have come together in this crisis. What we have heard about is a large number of bad mortgage backed securities which created a strain on credit in the banks and spurred Congress to pass the foolish $850 billion bailout. The problem has now bled into the financial paper market, though. Without the financial paper market, and the short term loans it provides institutionally, credit in this country dries up entirely. Thus, the Fed is injecting an additional $1 trillion directly into the commercial paper market to try to keep things flowing. What you have not heard, is how terrifyingly extensive the disease actually is. Just listen to Bud Burrell’s interview to get a good idea.

We now have banks that are hugely overleveraged, often at a rate of more than 40:1 debt to assets. Freddie Mac and Fannie Mae actually reached levels of almost 100:1. They also became hugely tied up with bad mortgage backed securities and other credit default swaps of derivatives, as did countless others. As we know, the consequences of this sort of behavior have been severe. However, the damage is much worse than the $850 billion bailout, or even the $1 trillion Fed remedy can handle. Over $58 trillion in derivatives liabilities has already been reported—and that covers only 10% of entities who engage in such trades. We have no idea how deep the poison really goes in the remaining 90%.

On top of this, we also have naked short selling (NSS) running through our ailing market like a fatal cancer. Short selling is where someone leases a security expecting its value to fall. He then sells the security to another. At the end of the lease, he repurchases the security, hopefully at a lesser price than it sold for originally, and returns it to the owner. NSS is similar, except that the seller sells the security before he is sure he can even lease it. As a result, people may pay for a security that cannot be delivered. This practice is illegal, but has not been enforced by the Securities and Exchange Commission.

This loathsome practice has contributed to the demise of Bear Stearns, Merrill Lynch, Washington Mutual, IndyMac, Lehman Brothers, and AIG. Its practitioners presume to sell stock in these companies without ever obtaining that stock. They then drive down the stock price, often without ever delivering a single stock certificate. The companies collapse -- not from any balance sheet problems -- but from these phantom trades of non-existent stock. It is even happening in commodities such as gold and precious metals, where people are selling ownership certificates without ever having the gold to back it, and the buyer is none the wiser unless he tries to claim the actual gold. As these problems converge now, they have the very real potential of utterly obliterating our economy and the value of the dollar itself.

Does it surprise you that this corruption has grown so large? It should not. Congress has done nothing but encourage it. Congress repealed of the Glass-Steagall Act in 1999, which allowed for the sale of mortgage backed securities and blurred the line between lenders and investors. They passed Sarbanes-Oxley in 2001, along with mark to market accounting. The hastily crafted Act required hugely expensive accounting processes that did little but drive small business out of public trading while doing nothing to curtail corruption in larger institutions. Mark to market accounting also forced assets to be valued at the last sale of similar type whether or not that sale was representative of the asset in hand, thus skewing valuation. Our government then lifted the leverage rules in 2004. Previously, banks were limited to a ratio of 12:1 debts to assets. With the lifted rules, they ballooned into 40:1 ratios or higher. Next, despite Regulation SHO prohibiting naked short selling the SEC has never enforced it, and even gone so far as to falsify reports playing down the dangers of the practice. Finally, let us not forget all the inflationary tinkering the Fed did to prevent any real adjustment in the market that could have purged these problems before they became behemoths.

The real root of the mortgage problem, though, began with the Community Reinvestment Act of the Carter administration in 1977 and amplified by Clinton in 1995. This encouraged loans to people with no money down, no assets, and no income. It also created the Community Development Financial Institutions Fund, which has been abused to support the activities of ACORN and its fraudulent voter registration drives. Incidentally, ACORN was also Obama’s first employer. Freddie and Fannie, operating under the goals of this Act, hid their losses through massive corruption. As they cooked the books, they funneled large donations into Congress to fend off oversight and reforms attempted by Bush in 2001 and 2003, and later by McCain in 2005. The second largest recipient of those corrupt donations was Barack Obama, and after only three years in office.

As Burrell notes, the legal system the Congress has created is one ideally designed for organized crime—not free markets. It has created a perfect economic storm that threatens to engulf the whole world. Those responsible for leading us here, especially Sen. Obama, who now presumes to lead us as president, should be held accountable for their reckless and irresponsible actions.

Getting the Government We Deserve: What The Government Should Do And Which Candidate Will Do It

By Julian Dunraven, J.D., M.P.A.

Honorable friends,

Yesterday, I was chatting about the state of our nation with a friend of mine serving as an Army Captain in Iraq. When I asked how he thought the elections would turn out, he made an ominous statement: "People generally get the government they deserve." Goodness help us if that is true. Just look at what our government is doing right now!

To perhaps no one's surprise save Congress and the Fed, the market sank still further yesterday and today. The Fed has begun to authorize up to $1 trillion to be used to help 'stabilize' the commercial paper markets and short term loans. Money Morning's Shah Gilani has a good explanation of this problem. He also has a bit to say on why the new rate cut won't be effective. Meanwhile, Speaker Nancy Pelosi is now trying to push another $150 billion dollar 'stimulus' spending package. This bailout, she says, would be sent to help individual taxpayers. Do not expect it to stop there, though. AIG has already spent its way through almost all of its bailout money, and as we have already pointed out, the latest $850 billion bailout was nowhere near enough to cover all the bad debt sitting on the market, so we can expect another massive bailout package, this time probably including a citizen's stimulus check, sometime shortly after the elections. Much as the Speaker, Congress, and the President seem to think this is helpful, though, nothing could be further from the truth.

After my last few posts deriding the bailout, I received several letters asking what I thought the government should be doing to help. After all, these problems are severe and the collapse of the commercial paper market sounds especially dangerous. Isn't it good that the government is propping it up as a last resort? No, and it won't work. As I have stated before, this massive spending, none of which we actually have, just drives up inflation and devalues the dollar. It also massively increases our debt. That debt is already so large, though, that it is becoming clear that the only way we can pay it off may be to inflate it away. That reality is weighing heavily on our lenders, and they are far less willing to lend to us at all. Of course, that means inflation (money printing) is the only alternative we have to pay for these expenditures.

We are already dangerously close to collapsing the value of the dollar through inflation. Lower interest rates much more and that is exactly what will happen. Raise interest rates, though, and we will cripple the financial markets as the costs of doing business climb. Yet, we have to do one of the two in order to continue making these bailouts and propping up failed institutions. Of course, that also continues to lock up our capital in poisonous systems. By pouring money into these institutions, we prolong their existence and prevent their assets from being sold off, allowing them, over time, to slowly try to remove the poisonous assets (derivatives and other bad mortgage backed securities) from their books. Naturally, that means we often have to wait years, and continue to spend trillions, to facilitate that unnatural process. We then have to spend more years recovering from the inflationary damage we have done. There is an alternative though.

The government could do nothing at all. Faced with the unpleasant choice above, the government could simply stand back and let the market play out. Would there be widespread financial hardship as the market contracted? Absolutely. The failing entities would be torn apart, their good assets would be sold off to other, more stable and better run institutions while their bad assets were purged from the market. I stated in a prior post that money would be pulled back into savings and increase domestic capital. After some initial shocks and job losses, the market would readjust and begin to function far more healthily than it was before such a jolt. Best of all, this process could take as little as a few months. Thus, our economic recession could actually be reduced in duration and severity simply by doing nothing at all. The process of these recession and depression cycles, and what we can learn from them, are analyzed in depth by Murray N. Rothbard at the Ludwig von Mises Institute of Austrian School (free market) economics. Having seen how government actions actually worsened the crises in the Great Depression and other times of financial hardship, one would think Congress might start heeding the warnings of the Austrian School Economists. So far, though, they do not seem to be paying attention.

Our presidential candidates are not much better. However, there is some hope with McCain. According to Austrian School economics, if government wants to do anything at these tough times, it should work to reduce inflation, cut spending, and lower taxes to increase economic incentives for investment. McCain's proposals match those recommendations fairly well. He has called for a freeze on all unessential government spending. Though it is unlikely he will be able to classify much as 'unessential,' any success he has will be helpful. He has also called for an end to earmark spending, and would lower taxes across the board. This would also be helpful.

Obama's plans stand in stark contrast. He has called for spending for several new or expanded social programs, not one of which he has been willing to cut or drop. He voted against a bill prohibiting earmark spending during this last term in the senate. As for his tax plan, while he would lower taxes for most individuals, his hugely increased taxes (50%) on any business taking in over $250,000 per year in revenue (not profit) would be extraordinarily harmful to the economy as it would include more than 70% of all business. Compare the plans yourself at the Tax Policy Center.

Despite problems on both sides that leave me with little faith that either candidate would do much to actually help the economy, it is fairly clear to see which candidate would do the most damage to it. Barack Obama's commitment to increased spending and higher taxes, not to mention his dangerous rhetoric attacking free trade, makes him an economic nightmare for the United States. John McCain, on the other hand, by cutting spending and lowering taxes, may succeed in sparing us from a prolonged depression.

I know there are many who disagree, who would like to believe in Barack Obama's fine rhetoric and who feel that he is as inspiring as my recommendations are austere and dismal. I was told just yesterday that for the government to do nothing would be heartless, and that the people need to feel that their government is involved to protect them. Thus, to conclude, I quote Ayn Rand once more on the dangers of ignoring economic reality for what feels good:

"[W]hen we'll see men dying of starvation around us, your heart won't be of any earthly use to save them. And I'm heartless enough to say that when you'll scream, 'but I didn't know it!' - you will not be forgiven." Atlas Shrugged (New York: Signet, 1985), 385.

As my friend said, "People generally get the government they deserve."

We Won the Bailout Battle—But the War Continues

We Won the Bailout Battle—But the War Continues

By Julian Dunraven, J.D., M.P.A.

Dear friends,

In my last column, “Stop the Bailout!” I said that we all needed to contact our Congress people and demand that they vote against the $700 billion bailout plan. Thanks to all of you, and millions of other people who did just that, we were successful in pushing Congress to kill that ghastly legislation. Congratulations! Nonetheless, we must remain vigilant.

The bailout bill was dreadful. My last column already referred to some of its problems, such as massively increasing our national debt, starting us on the road to hyperinflation, swiftly devaluing the dollar to the point of collapse, and entangling the Federal government in our economy to an extent never before seen. The final version Congress put out, though, also contained no meaningful restrictions on the spending or the price. It contained several arguably unconstitutional provisions, and fretted endlessly about executive compensation packages, which are almost irrelevant given the enormous scope of this bailout. In demanding that the companies involved repay the government in five years, it also failed to remove these bad debts from the market and created unrealistic expectations which serve to discourage outside investment and virtually guarantees that we will be saddled with these ailing companies for many years to come. Everyone agrees that it was a bad bill. Everyone also agrees that it was the only bill Secretary Paulson would approve. Fortunately, the secretary does not run this country. Nonetheless, though we won the battle, the war has only just begun.

Even now, the leadership in Congress is preparing to resubmit the bailout plan. House Speaker Nancy Pelosi seems to think she can get the votes she needs if the new package includes language that would ease bankruptcy laws to allow debtors to keep more of their assets, thus making it much easier to file for bankruptcy. Making it easier for people to default on their debts is not a cure for our economy. This would not make the bill better; it would make it far worse.

Unfortunately, our esteemed presidential candidates are not helping matters either. Those of you who watched the first presidential debate saw the deer-in-the-headlights looks they gave, and heard their obfuscating answers when they were asked about the economic issues we are facing. Neither of them has a good understanding of what is happening in our economy. The fact that they both supported the bailout is proof enough of that. They both have made the mistake of listening to Bernanke and Paulson, and maintain that Congress simply MUST do something or the consequences will be dire.

Not so. Though the market will undoubtedly go through some painful readjustments as it purges itself of these poisoned assets and failed companies, its recovery, if left alone, has the potential to provide good, strong investment opportunities. With low stock prices and increased savings, Money Morning predicts that U.S. domestic capital will actually increase, reducing outsourcing and improving our deficit of payments—a good thing. This will leave us in a much stronger economic position to face the real threats coming quickly at us, such as Peak Oil and the liquid fuels crisis. However, this may not be possible if Congress and our presidential candidates keep trying to drive us into a depression with their hasty and ill conceived plans. Thus, it remains incumbent upon us to show them what they need to be doing. Here is what you can do right now to help:

1. Educate yourself. If you have not done so already, find reliable people who have been predicting these problems for a long time (that rules out Benanke and Paulson). Listen to what they have to say about what caused the problems and what we have to do to solve them. For a start, I strongly recommend Financial Sense. It has many useful articles and the Financial Sense Newshour (3rd Hour with Jim Puplava and John Loeffler) is a wonderful weekly broadcast that will keep you abreast of everything you need to know in terms that are easily understood to laypeople.

2. Keep pressure on Congress. Keep writing and calling your Congress members—and maybe even the leadership. Tell them not to pass this bailout—in any form. If they never get any support from the people, they won’t act, and they won’t ruin our country. If we slack off, though, they are likely to pass some new horror that will be even worse than the last one. A dismantling of our bankruptcy laws would be just that.

3. If you want to tell Congress what it should be doing, you might suggest that they repeal some of the bad government programs that got us here in the first place such as the Community Reinvestment Act, which actually encouraged giving loans to high risk borrowers as a social engineering project. After that, they should think about reining in the Federal Reserve and its fast and loose monetary policy which has left us with terrible inflation, forced business into high risk investments just to get a decent rate of return given our piteously low interest rates, and left the dollar on the verge of collapse. After that, they need to think about eliminating certain corporate and capital gains taxes to encourage investment.

4. Protect yourself and your family. I am not a financial advisor, so I cannot tell you what would be best for you and your family. I can say, however, that there are plenty of opportunities to be had if you are paying attention. Gold, silver, and other precious metals are very good security again failure of the currency. In an economy where energy is increasingly becoming an issue, oil and other energy investments look good. Do not have too much faith in government, its programs, or its bonds, however. We are all seeing, right now, the dangerous actions our government has been willing to take with regard to our financial systems. We were able to stop the bailout, but there is no guarantee we will stop future idiocy. If the government’s foolishness manages to utterly debase the currency, you do not want to be depending on that same government for your financial security.

Stop The Bailout! It Is Time To Demand Inaction

By Julian Dunraven, J.D., M.P.A.

Dear friends,

We are facing economic calamity. We stand upon the very brink of destruction yet, even now, we have the capacity to save ourselves from utter ruin and escape to heal our wounds. We must act quickly though, for the U.S. Congress, in its unerring stupidity, is poised to push us into the gaping maw of doom in a matter of days. It is now incumbent upon every citizen to defend this country by contacting their congress people and begging them NOT to pass this ghastly bailout.

Our choice is simple. We can choose not to pass this bailout, in which case the market will stumble a bit before correcting itself. Some companies will fail, jobs will be lost, and times will be hard. Then the good companies, who have managed to run themselves well, will begin to fill in the gaps left by the failures. Other, dynamic businesses will also grow into the market space, and we will recover.

The other option is to pass this bailout. Thus, we spend more than $700 billion we do not have for a result that is not guaranteed. In doing so, we prop up failed enterprises and create an unending dependence on the government that may require many billions of dollars more to sustain. We have none of this money. To do this, we either need to borrow more money and virtually double our national debt or print more money. Either way, inflation will skyrocket and the value of the dollar will be obliterated. What was a bad economic situation will become full economic ruin. In this case, the whole of the world's economy will face depression and we will not recover for a very long time.

Thus, we can restrain ourselves now, suffer through our hardships and recover as quickly as we can, or congress can pass this bailout and we can suffer terribly for a very long time in full economic ruin.

That is our choice. Congress does not see it because they are too busy looking at elections and think they must be seen to do something--something they do not understand. They are more afraid of losing an election than losing the country. In this case, though, they must do nothing. Only if they refrain from acting will we be saved. We all must write to our congress people immediately, before it is too late, and demand that they do not do this thing--that they do not sacrifice this nation to their ambitions-- and that they do not pass this bailout! Time is running out.

P.S. Ron Paul has issued a similar call.