Common sense economics: Introducing the Peter Schiff blog

[Arne]

In this thread I will attempt to post the blog entries written by Peter Schiff. They're are always about current econmic events and government, as well as Fed activities that interfere with the free market. This time he talks about the man who gave us the housing bubble and everything that came with it:

August 1, 2008

The Maestro Won’t Face the Music


In an interview yesterday on CNBC, former Fed Chairman Alan Greenspan cast his eyes on the charred landscape of the national real estate market and offered high-minded criticisms of the obvious excesses and irrationalities that brought on the devastation. Greenspan’s attitude was akin to a retired drug dealer lamenting the urban blight caused by rampant addiction. He noted that housing prices were still too high, that too many homeowners were upside down on their mortgages, and that Fannie Mae and Freddie Mac were accidents waiting to happen. Methinks the serial bubble blower doth protest too much.

The housing bubble was Greenspan’s doing pure and simple. He gave birth to it, nurtured it, protected it, and guided it during every stage of its development. In fact, if there was a deck of playing cards featuring the key players in this debacle, Alan Greenspan would be the ace of spades. The fact that the media still holds this joker in such high esteem is a testament to just how clueless they are. Rather than fawning over his every word, journalists should be grilling him like a CIA interrogator.

In his new post-Fed incarnation, Greenspan does show an increased willingness to speak the truth … perhaps sharp candor generates higher speaking fees the murky academic jargon. However, conveniently missing from his belated admission that home prices are too high is that his irresponsible monetary policies propelled prices to those heights in the first place. In fact, even as the housing bubble was inflating, Greenspan repeatedly denied its existence. He took every opportunity to talk the real estate market up and went out of his way to justify irrationally high home prices.

His concerns about upside down mortgages are particularly offensive given his consistent praise, when he was Fed Chairman, of the ability of home equity extractions to fuel economic growth. In fact, during the final years of his tenure there was no greater proponent for cash out re-financing than Alan Greenspan. Not only did the Maestro routinely commend homeowners for their sophisticated approach to “managing their home equity”, but he applauded Wall Street and mortgage lenders for their creativity and ingenuity. Of course, home equity extractions are largely responsible for so many homeowners now owing more than their homes are worth!

His most brazen contention was that he had tried to warn us of the dangers that Fannie and Freddie could pose to the entire economy. Excuse me, but when exactly did he sound this alarm? His points that Fannie and Freddie should not exist, and that the moral hazard of private profits and socialized losses is an accident waiting to happen would have been right on point had he actually made them while still Fed Chairman. Too bad Maria Bartiromo did not remind Greenspan that the accident has already taken place. Fannie and Freddie’s flawed design may have rendered them destined to slip but it was Greenspan himself who supplied the banana peel.

http://www.europac.net/

[Arne]

Common sense by Ron Paul himself:

“Washington’s Intervention Addiction”
August 4th, 2008 by Matt Hawes
Congressman Paul’s latest Texas Straight Talk:

One problem with politicians is that when problems they create come to a head, they typically feel this irresistible urge to DO something, rather than to UN-do something, or to simply back off to avoid exacerbating the situation. Too often, that which they end up doing has very little connection to the cause of the crisis, but plays well in the press and superficially makes everyone feel better. Bills that are rushed through Congress under duress are never studied enough, providing too tempting an opportunity to quietly slip in unrelated provisions that erode freedoms in ways that would never pass as a stand-alone bill. We famously saw this with the PATRIOT Act, but Washington learned nothing from that.

The current housing crisis and the corresponding big government fix are another prime example. First of all, the so-called solution will actually make the problem worse. The problem stems from easy credit and a rush to flood the housing and mortgage markets with money. Relaxed or non-existent lending standards led many into mortgages and houses they could not afford. As more foreclosures hit, the lending institutions will continue collapsing like dominoes under the weight of all the bad paper they underwrote. Some are reacting and reintroducing lending standards. Thus the number of buyers in the market for homes is beginning to shrink back to its natural size, and hyper-inflated prices are falling back down to earth. In these ways, the market is trying to correct itself in the wake of the mistakes government intervention encouraged them to make through easy credit. However, this correction is causing pain, especially to Wall Street investors and those who bought homes at the top of the market bubble, never expecting it to crash, always assuming they would easily be able to refinance.

Some mistakenly identify the falling home prices as the disease instead of merely a symptom – which they plan to fix with more easy credit and more liquidity to push more unqualified buyers back into the market for homes they still cannot afford. This is akin to the drug addict identifying withdrawal symptoms as his problem and searching for another fix as his solution. The cycle continues and the problems compound themselves. The addiction deepens.

Addicts are told the first step to recovery is to admit their problem. To cure this addiction to intervention we have to honestly admit the problem and once and for all, kick the habit. That will involve some pain, without a doubt. There is no easy, painless solution to the mess the disastrous economic interventions of the past have wrought. The question is – do we allow some lending institutions to collapse, or do we allow the dollar to collapse? To extend the metaphor, do we endure the temporary discomfort of withdrawal, or do we continue on until there is a fatal overdose? We can delay the agony, but only for a little while, and then we will all end up paying the price for the mistakes of a few.

With the final passage of the Housing Bailout Bill quietly on a Saturday in the Senate, and the President’s signature, our government has unfortunately chosen the latter…

http://www.campaignforliberty.com

[Arne]

Common sense by John Browne partner in Euro Pacific Capital:

July 31, 2008

The Cost of Socialism


Over the past few decades, the United States has steadily evolved from a nation of ‘producers’ to one of ‘consumers’. The change has been celebrated by politicians and economists as proof of America’s arrival at the top of the global economic food chain. In reality, the development has depleted the nation of its hard-earned wealth, and has led us to the brink of ruin.

But rather than encouraging a return of America’s productive energy, our government is responding to the growing economic crisis by simply trying to boost consumerism at all costs. Their strategy involves socializing losses among all citizens so that the depletion can’t be easily discerned.

Now that the nation has chosen socialism as its economic salvation, it is worthwhile to examine some historic precedents. They are not encouraging. Europe, the former Soviet block and much of Africa and Asia, show vividly that socialism curbs individual freedom and enterprise, and leads inevitably toward economic decline.

America was blessed both with abundant natural resources and individual freedom, the backbone of enterprise. The combination rendered American productivity the envy of the world. Based on the strength of our industry and productivity, the American Treasury became the world’s largest.

Why would America swap a history of successful capitalism for a murky future of socialism? The Answer is politics.

When the vast majority of the country’s private sector working population is employed in the service sector, then votes tip in favor of consumerism. This is happening in America. Consumer spending now accounts for 72 percent of Gross Domestic Product (GDP), and is viewed as the engine of our continued prosperity.

Over the past decade, when recession threatened to curtail spending, the government pumped hundreds of billions of dollars into the economy. This led to two massive liquidity-driven booms; first in technology, then in housing. During these booms, greed knew few bounds and leverage became a way of life.

But when the merry-go-round stalled, politicians did not, and will not, allow the normally corrective mechanism of a recession to operate. It is trying to take the pain out of capitalism, while leaving only the pleasure. This is impossible.

In the current attempt at a market correction, the government has decided that our bloated financial companies are “too big to fail”. As a result, the government has lent billions of taxpayers’ dollars to bail out Wall Street and the mortgage industry. Some investment banks were given privileged access to the ‘Fed Window’ to borrow unlimited amounts of money, secured by ‘junk’ securities and at the lowest (negative) interest rates, well below the level of inflation. In addition, the shares of the larger financial companies were also given special ‘short-selling’ trading protections.

It is important to note that these protections were not given to other industries, and were not even extended to the entire financial industry. Those receiving the public largesse are precisely the large institutions most responsible for the mess. It was the financial and corporate fat cats who made the private profits gleaned from massive, irresponsible lending and borrowing. Yet, when it comes to rescue, the ordinary citizen pays.

Declining corporate earnings, increased government intervention and higher taxes are tell-tale symptoms of socialism. They can now be expected in America, bringing downward pressure on U.S. government paper and equities. Recession in America will likely reverberate around the world, bringing worldwide strain to economies and equities.

Let us hope that the rest of the world will not follow America’s example and head down the road toward socialism. Economies adopting a free market approach are likely to far outperform those embracing the discarded doctrines of financial failure.

Link: http://www.europac.net

[DirkFTW]

Not sure this is the place for this, but oh well. Interesting points.

How General Petraeus Saved the U.S. Economy
August 05, 2008 10:34 AM ET | James Pethokoukis

With oil prices continuing to plunge—and they may have a lot further to go—I've started wondering about this "what if" scenario: Where would oil prices be today had we abandoned Iraq to civil war and al Qaeda? What if President Bush had announced on Jan. 10, 2007, that instead of surging U.S. troops under the command of General Patraeus, he was ordering their withdrawal? Imagine if Iraq had descended in complete chaos and terror and genocide. Somalia or Rwanda on the Tigris and Euphrates, I guess.

Right now, Iraq is pumping out some 2.4 million barrels of petroleum a day. (That's about what the country was producing before the war and double the level of production at its post-liberation low point.) But given tight global oil markets, what would the price of oil be—and what would the state of the U.S. economy be—with perhaps all of those 2.4 million barrels off the market? Actually, we don't have to imagine very hard at all. Hurricane Katrina took about 2.4 million barrels off the market (because of refining shutdown and a halt to foreign oil deliveries), and oil prices spiked. And then layer on top of all that a possible regional war. Saudi Arabia and Iran might well have intervened on the side of the Sunni and Shiite. Wouldn't we all be screaming about $200-a-barrel oil—or maybe twice that?

Instead, to quote a recent and much-overlooked Associated Press analysis, terrorists and insurgents "no longer have the clout to threaten the viability of the central government." Perhaps now the energy-stressed global economy can look forward to more Iraq oil coming onto the market, perhaps six 6 million barrels a day or more in time as western capital pours in. And while we're at it, don't forget about the costs of not liberating Iraq to begin with. In today's Wall Street Journal, columnist Bret Stephens presents an interesting counterfactual that raises all sorts of interesting questions about opportunity costs:

Had [Saddam] remained in power, we would likely still believe he had WMD. He would have been sitting on an oil bonanza priced at $140 a barrel. He would almost certainly have broken free from an already crumbling sanctions regime. The U.S. would be faced with not one, but two, major adversaries in the Persian Gulf. Iraqis would be living under a regime that, in an average year, was at least as murderous as the sectarian violence that followed its collapse. And the U.S. would have seemed powerless to shape events.

US News link

[Arne]

Originally Posted by DirkFTW

Not sure this is the place for this, but oh well. Interesting points.
[/URL]

Do be honest, since the title of this thread included the words "Common sense", I don't think this is the place for your little election propaganda piece.

Common sense looks like this:

Congressman Ron Paul
U.S. House of Representatives
September 10, 2002

QUESTIONS THAT WON'T BE ASKED ABOUT IRAQ

Soon we hope to have hearings on the pending war with Iraq. I am concerned there are some questions that won’t be asked- and maybe will not even be allowed to be asked. Here are some questions I would like answered by those who are urging us to start this war.

1. Is it not true that the reason we did not bomb the Soviet Union at the height of the Cold War was because we knew they could retaliate?

2. Is it not also true that we are willing to bomb Iraq now because we know it cannot retaliate- which just confirms that there is no real threat?

3. Is it not true that those who argue that even with inspections we cannot be sure that Hussein might be hiding weapons, at the same time imply that we can be more sure that weapons exist in the absence of inspections?

4. Is it not true that the UN’s International Atomic Energy Agency was able to complete its yearly verification mission to Iraq just this year with Iraqi cooperation?

5. Is it not true that the intelligence community has been unable to develop a case tying Iraq to global terrorism at all, much less the attacks on the United States last year? Does anyone remember that 15 of the 19 hijackers came from Saudi Arabia and that none came from Iraq?

6. Was former CIA counter-terrorism chief Vincent Cannistraro wrong when he recently said there is no confirmed evidence of Iraq’s links to terrorism?

7. Is it not true that the CIA has concluded there is no evidence that a Prague meeting between 9/11 hijacker Atta and Iraqi intelligence took place?

8. Is it not true that northern Iraq, where the administration claimed al-Qaeda were hiding out, is in the control of our "allies," the Kurds?

9. Is it not true that the vast majority of al-Qaeda leaders who escaped appear to have safely made their way to Pakistan, another of our so-called allies?

10. Has anyone noticed that Afghanistan is rapidly sinking into total chaos, with bombings and assassinations becoming daily occurrences; and that according to a recent UN report the al-Qaeda "is, by all accounts, alive and well and poised to strike again, how, when, and where it chooses"?

11. Why are we taking precious military and intelligence resources away from tracking down those who did attack the United States- and who may again attack the United States- and using them to invade countries that have not attacked the United States?

12. Would an attack on Iraq not just confirm the Arab world's worst suspicions about the US, and isn't this what bin Laden wanted?

13. How can Hussein be compared to Hitler when he has no navy or air force, and now has an army 1/5 the size of twelve years ago, which even then proved totally inept at defending the country?

14. Is it not true that the constitutional power to declare war is exclusively that of the Congress? Should presidents, contrary to the Constitution, allow Congress to concur only when pressured by public opinion? Are presidents permitted to rely on the UN for permission to go to war?

15. Are you aware of a Pentagon report studying charges that thousands of Kurds in one village were gassed by the Iraqis, which found no conclusive evidence that Iraq was responsible, that Iran occupied the very city involved, and that evidence indicated the type of gas used was more likely controlled by Iran not Iraq?

16. Is it not true that anywhere between 100,000 and 300,000 US soldiers have suffered from Persian Gulf War syndrome from the first Gulf War, and that thousands may have died?

17. Are we prepared for possibly thousands of American casualties in a war against a country that does not have the capacity to attack the United States?

18. Are we willing to bear the economic burden of a 100 billion dollar war against Iraq, with oil prices expected to skyrocket and further rattle an already shaky American economy? How about an estimated 30 years occupation of Iraq that some have deemed necessary to "build democracy" there?

19. Iraq’s alleged violations of UN resolutions are given as reason to initiate an attack, yet is it not true that hundreds of UN Resolutions have been ignored by various countries without penalty?

20. Did former President Bush not cite the UN Resolution of 1990 as the reason he could not march into Baghdad, while supporters of a new attack assert that it is the very reason we can march into Baghdad?

21. Is it not true that, contrary to current claims, the no-fly zones were set up by Britain and the United States without specific approval from the United Nations?

22. If we claim membership in the international community and conform to its rules only when it pleases us, does this not serve to undermine our position, directing animosity toward us by both friend and foe?

23. How can our declared goal of bringing democracy to Iraq be believable when we prop up dictators throughout the Middle East and support military tyrants like Musharaf in Pakistan, who overthrew a democratically-elected president?

24. Are you familiar with the 1994 Senate Hearings that revealed the U.S. knowingly supplied chemical and biological materials to Iraq during the Iran-Iraq war and as late as 1992- including after the alleged Iraqi gas attack on a Kurdish village?

25. Did we not assist Saddam Hussein’s rise to power by supporting and encouraging his invasion of Iran? Is it honest to criticize Saddam now for his invasion of Iran, which at the time we actively supported?

26. Is it not true that preventive war is synonymous with an act of aggression, and has never been considered a moral or legitimate US policy?

27. Why do the oil company executives strongly support this war if oil is not the real reason we plan to take over Iraq?

28. Why is it that those who never wore a uniform and are confident that they won’t have to personally fight this war are more anxious for this war than our generals?

29. What is the moral argument for attacking a nation that has not initiated aggression against us, and could not if it wanted?

30. Where does the Constitution grant us permission to wage war for any reason other than self-defense?

31. Is it not true that a war against Iraq rejects the sentiments of the time-honored Treaty of Westphalia, nearly 400 years ago, that countries should never go into another for the purpose of regime change?

32. Is it not true that the more civilized a society is, the less likely disagreements will be settled by war?

33. Is it not true that since World War II Congress has not declared war and- not coincidentally- we have not since then had a clear-cut victory?

34. Is it not true that Pakistan, especially through its intelligence services, was an active supporter and key organizer of the Taliban?

35. Why don't those who want war bring a formal declaration of war resolution to the floor of Congress?

It's quite simple: Don't attack Iraq and you get a 100% production or even more for the last 6 years. Plus, the markets won't get scared about A possible Iran war. Plus, the government doesn't have to have the Fed print all this money thereby devaluating the dollar and causing all the inflation that results in ... HIGHER OIL PRICES.

Common sense again on Iran:

Republican congressman Ron Paul warns against military engagement in Iran, saying ‘bombing Iran’ will cause energy prices to skyrocket.

In a speech on the House floor, Congressman Paul suggested that the US is inching toward an ‘endless struggle’ similar to the Iraq war.

“In the last several weeks, if not for months we have heard a lot of talk about the potential of Israel and/or the United States bombing Iran. Energy prices are being bid up because of this fear. It has been predicted that if bombs start dropping, that we will see energy prices double or triple,” said the Republican.

“To me it is almost like deja vu all over again. We listened to the rhetoric for years and years before we went into Iraq. We did not go in the correct manner, we did not declare war, we are there and it is an endless struggle,” he told a nearly empty House chamber.

“I cannot believe it, that we may well be on the verge of initiating the bombing of Iran,” said the war veteran.

Video on oil price factors Iran, Iraq and money supply (Ron Paul speech):

Link: http://youtube.com/watch?v=7354M1QmGYQ

ALGERIA. OPEC President Chakib Khelil predicted that the price of oil will climb to US$170 a barrel before the end of the year, citing the dollar's decline and political conflicts.

In a Bloomberg telephone interview Khelil said: "Oil prices are expected to reach US$170 as demand for fuel is growing in the US during the summer period and the US Dollar continues to weaken against the Euro."

Political pressure on Iran and the depreciation of the US currency have caused a surge in oil prices, Khelil said.

New York traded crude has more than doubled in a year and touched a record US$142.99 a barrel Friday on the New York Mercantile Exchange as the dollar's protracted slump prompted investors to flock to oil as a hedge against inflation.

Prices were also lifted this week after Libya said it may cut oil production.

OPEC ministers generally say that oil output is sufficient, even as Saudi Arabia, the biggest producer, pledged to pump an extra 200,000 barrels a day next month to calm the market. OPEC has argued that speculation and the weak dollar are behind the record prices.

We believe that the market is in equilibrium. The price is disconnected from fundamentals. It is not a problem of supply," Khelil told a briefing as the Jeddah oil summit last week.

Western consumer nations want increased production to ease supply concerns which they say have forced prices up to almost US$143 a barrel.

Hedge funds, pension funds and other speculators have been blamed by many lawmakers and some energy experts for doubling the price for crude oil in the last year. The Bush administration disagrees, saying high prices are the result of world oil production not being able to keep up with growing global fuel demand.

The rising cost of crude is not linked to supply, Khelil told Bloomberg today. "There is more than enough oil in the market to meet the international demand," added the OPEC president, who will take part 30 June in an international energy forum in Madrid.

"The decisions made by the US Federal Reserve and the European Central Bank helped the devaluation of the dollar, which pushed up oil prices," Khelil said.

Oil may extend gains if the ECB boosts rates on 3 July, further weakening the US currency.

ECB President Jean-Claude Trichet has made it clear that rates could rise in July to combat inflation.

"It is not excluded that, after having carefully examined the situation, that we could decide to move our rates a small amount in our next meeting in order to secure the solid anchoring of inflation expectations," Trichet said at a news conference earlier this month.

"I don't say it's certain. I say it's possible," he said.

The US House of Representatives on Thursday overwhelmingly approved legislation that directs the Commodity Futures Trading Commission to use all its authority, including the agency's emergency powers, to "curb immediately" the role of excessive speculation in energy futures markets.

[dude1394]

How General Petraeus Saved the U.S. Economy
August 05, 2008 10:34 AM ET | James Pethokoukis

With oil prices continuing to plunge—and they may have a lot further to go—I've started wondering about this "what if" scenario: Where would oil prices be today had we abandoned Iraq to civil war and al Qaeda? What if President Bush had announced on Jan. 10, 2007, that instead of surging U.S. troops under the command of General Patraeus, he was ordering their withdrawal? Imagine if Iraq had descended in complete chaos and terror and genocide. Somalia or Rwanda on the Tigris and Euphrates, I guess.

Well per theOne we'd be rich, prosperous and loved throughout the world. Plus, Iraq would be a peaceful, self-suficient country.

[DirkFTW]

Whoa, I said it was "interesting," not "gospel." Feel free to bash the points, but I'm not trying to brain wash people with propaganda. It's a US News and World Report blog after all. Furthermore, what in today's world suggests to you that common sense is so common? I'd love to be shown an alternative narrative of the world because the story I see unfolding is going towards the nether regions of cow butt.

Iran today thumbed its nose at the UN and threatened to shut down a vital oil shipping lane if anyone messes with them. I don't want to see them with nukes. If everything else stays on its current path, I believe they will have nukes in the next couple years. We're playing chicken with someone who thinks he has nothing to lose right now. Economics be darned, we need to do something. Of course, if we weren't dependent on Middle East oil, maybe that would help deal with some of the backlash of trying to keep Iran from becoming nuclear.

[Arne]

August 6, 2008

The Fed’s Next Move is Down


Yesterday, the Fed surprised no one and left its key rates unchanged and gave no indication that the committee was preparing to raise or lower rates anytime in the foreseeable future. As always, the market reactions were much more interesting and unpredictable. In this case, bond markets barely changed, the U.S. stock market jumped, and Euro futures strengthened slightly against the U.S. dollar.

Although few monetary hawks felt that there was any reasonable chance for an inflation-fighting rate hike this week, there was hope that lone FOMC dissenter Richard Fisher would be joined by other committee members in voting against the current round of liquidity injections. No such luck there. For now at least, Mr. Fisher is still a one man band. The rest of the Committee still shows no stomach to really take on inflation (despite this week’s alarming CPI report) and plenty of willingness to push back on the gathering recession. As a result, my feeling is that the next rate move will be down.

Last summer I predicted on CNBC’s Kudlow Show, that the Fed would lower rates from 5.25 to near 1.00 percent and that the U.S. dollar would continue in relative decline. I was scoffed at and ridiculed. Well, I believe that today’s Fed Statement indicates that rates will soon head south, towards 1.00 percent or even lower.

[b]July 3rd, this summer, I predicted, again on Kudlow’s show, that oil would soon drop in price, due to demand destruction. Again, I was ridiculed. On the very next business day, oil began to fall. Two days later it reached the peak, from which it has since fallen dramatically as the recession of which I have long warned has become clearer.

I say these things not to boast, but to lend weight to my arguments and warning of impending hyper-stagflation. Facing the prospect of both inflation and recessionary forces, the Fed is boxed in.

As a student of the Great Depression, Fed Chairman Bernanke has correctly, in my view, sensed that whereas inflation does the greatest long-term economic damage, it is recession that his political masters most fear. He is also aware that it was the raising of interest rates that turned the 1930 recession into the Great Depression of 1933, which lasted until World War II.

Depression, especially in a highly leveraged world that is accustomed to prosperity, would likely result in serious civil strife. Politically, it must be avoided no matter what the economic or financial costs. Despite ‘spin-talk’ to the effect that the Fed is pursuing a dual mandate to both fight inflation and promote growth, in reality they are simply trying to promote growth pure and simple. This is the reality that few market analysts or journalists dare to mention.

With 5 million American homes vacant, the “Big 3” auto giants heading towards bankruptcy and some $4 trillion already wiped off of American home values, things look bad for American consumer demand. With consumer spending accounting for 72 percent of GDP, this should ensure recession. To try to change this outcome, the Fed stands ready to implement the most inflationary monetary policy in its history.

Looking ahead, Nouriel Roubini, the former Clinton White House economist, forecasts credit losses will amount to some $2 trillion. So, while the Fed has applied Band-Aids to the financial crisis, the evidence is that internally, financial institutions are still bleeding fast.

The latest fall in commodity prices has given Fed Chairman Bernanke the wiggle room that he has hoped for desperately these past months. The pullback in oil and other commodities will give him the golden opportunity to lower interest rates further to avoid the looming recession from morphing into depression.

Investors should expect falling worldwide interest rates. Short-term government bonds in inherently strong currencies, like Swiss Francs, remain attractive. As hyper-stagflation and acute financial stress becomes manifest, gold will likely rise significantly.

- John Browne

Link: http://www.europac.net

[Arne]

Ron Paul on the social effects of inflating a currency and living beyond your means:

http://www.youtube.com/watch?v=Qfyo7...eature=related

[Arne]

August 8, 2008

The American Dream is Just That


In holding overnight rates steady at 2% this week, the Fed once again put forth its belief that despite a cascade of horrific financial data, the economy was likely to continue to grow slowly and that inflation would moderate. Although wrong on both counts, this view is consistent with the relative optimism that prevails across the country. After nearly two decades of an uninterrupted consumption binge, most Americans simply refuse to believe that anything can seriously derail the American economy. It’s a pleasant dream, but the wakeup call can’t be too far off.

The benign outlook on inflation is rooted in the hope that a slowing economy will pop the commodities “bubble” and break the back of inflation. Despite these pronouncements, most rational observers understand that inflationary pressures are currently intensifying, not abating. Rising commodity prices are not the source of inflation, but merely the symptom of rampant monetary expansion from the Fed and other central bankers around the world. By all indications, the liquidity injections are about to shift into a higher gear. The recent housing bailout bill is the most inflationary legislation ever enacted and there is already talk of yet another economic “stimulus” bill. The new money creation needed to finance these schemes, together with exploding federal budget deficits, will not only reverse the recent declines in commodity prices, but send other consumer prices soaring as well.

It is also worth noting that a slowing economy does not, by itself, bring prices down. If it did prices in Zimbabwe would be falling. When combined with responsible monetary policy, a growing economy would tend to push prices lower (based on greater productivity and expanded supply).

As far as the economy avoiding a recession, the chances of that are fairly close to nil. In fact, if the government reported legitimate GDP numbers, the recession that is already being felt on a gut level would finally be officially recognized.

One reason for the apparent optimism on the economy is the belief that the housing market is nearing a bottom. Every step down the housing abyss seems to convince more and more people that the bottom is in. Last week’s Case/Shiller Home Price report, which showed that real estate prices have now returned to 2004 levels, is the latest piece of such “good” news. In fact in a new national survey by real estate website Zillow found that 62 percent of U.S. homeowners believe that their home is worth as much or more than it was a year ago. Three-quarters of those surveyed expected that the value of their homes would rise or at least stay the same between now and early 2009. Talk about a field of dreams!

However, given the horrific fundamentals of the market, I would expect that before the market finds a real bottom, another four years of price increases will be similarly erased; leaving prices at 2000 levels or lower. Although this prognosis may seem dire, it is nonetheless reasonable when you consider the current supply/demand dynamics.

Despite the sentimental hope that homes are worth what they cost to build, or what the last buyer paid, in reality they are determined simply by supply and demand. In this case the supply of homes on the market, and the number and motivation of potential home buyers.

First supply: In 2008 there are more vacant and “for sale” homes on the market than there have ever been. In the last few years, despite signs of a coming real estate bust, the nation’s largest home builders kept building. As a result, hundreds of thousands of unwanted homes were added to the market. These homes, combined with the existing homes that underwater mortgage holders are desperate to sell, add up to unprecedented supply. Inventory at the current sales pace is approaching one year.

The demand side is even worse. In real estate, a buyer’s expectations for future price gains and their ability to obtain a mortgage (with as little money down as possible) largely determines demand. It is telling that the price increase optimism of current home owners does not extend to current home buyers. Also, with lending standards finally being tightened, buyers do not have access to the cash to bid up prices. Many are taking advantage of a still attractive rental market to sit on the sidelines.

These dynamics are actually much worse than what were in place in the summer of 2000 when the home price boom was still in its opening innings. All of the factors that were in place to push home prices up to unsustainable levels (unlimited lending, massive speculation, widespread belief in the indestructibility of home prices) are all gone. Prices will continue to fall until all the gains sparked by these forces have been erased.

The reckless optimism displayed by the Fed and current homeowners has proven extremely resilient. But sooner or later reality must intrude. Once the wake up call sounds, the economic effects will be severe. Once homeowners realize that their equity is gone, and not likely to return, what incentive will many have to continue making burdensome mortgage payments? With a new wave of option ARMs about to reset, this Christmas it will be the mail, not the bells, that will be doing most of the jingling.

- Peter Schiff

Link: http://www.europac.net

[Arne]

Link: http://www.poorandstupid.com/chronicle.asp

Posted by Donald L. Luskin at 11:30 AM | link



ARE WE DEPRESSED YET? Our friend Jim Glass has been headline hunting...
A fast check at Google News a few minutes ago quickly found news reports of how we now are in the ....
"worst economic crisis since the Great Depression" "worst financial crisis since the Depression"
"worst housing downturn since the Depression"

"worst venture and investment environment since the Depression,"

"worst credit crunch since the Depression"

"worst year for the newspaper business since the Depression" (if the New York Times says so itself)

and ... wait for it ... "the worst financial crisis since the Great Depression, the biggest housing bust since the Great Depression, the coming biggest systemic banking crisis in the last 50 years, the worst U.S. recession since the stagflations of the 1970s, the biggest liquidity and credit crunch in decades...."

....among many others.
Meanwhile...

The Bureau of Economic Analysis reported today that U.S. real GDP grew at a 1.9% annual rate in the second quarter of 2008, less than many analysts had been predicting a week ago, but substantially better than the 6-month-ahead predictions for that number that we were hearing back in January.
Today's report contained some good news. The main reason that the final GDP number was weaker than predicted was the big drawdown in inventories. Without that negative contribution from inventories, real final sales grew at a robust 3.8% annual rate...

[Arne]

Short article on Fanny Mae and Freddy Mac:

Fannie sounds a warning after $2.3bn quarterly lossAndrew Clark in New York

The Guardian, Saturday August 9 2008

Fannie Mae slumped to a quarterly loss of $2.3bn (£1.2bn) after the housing market came down "fast and hard", prompting huge liabilities as borrowers defaulted on home loans.

Outlining the extent of its exposure to the downturn, the US's largest mortgage finance company revealed that it set aside $5.3bn to cover credit losses over the three months to June.

In figures released only weeks after the US government legislated for a possible support package, Fannie Mae admitted it could not be sure that it would satisfy statutory capital requirements next year.

"The housing market has returned to earth fast and hard," said its chief executive, Daniel Mudd. "In the markets, conditions which many of us had already described as the worst in a generation took a turn for the worse."

Fears rippling along Wall Street last month generated headlines about the stability of Fannie Mae and Freddie Mac, the two main guarantors of mortgages in the US.

The two companies were established with a mission to broaden American home ownership by making loans more affordable. The companies, which purchase loans from high-street lenders and package them for investors in the debt markets, stand behind more than $5tn of home loans.

Mudd said the week of July 7, when alarm bells began to ring, was "one of the worst Fannie Mae has experienced on the debt and equity markets" in the company's 70-year history.

"It's been three months since our last [earnings] filing," said Mudd. "It seems even longer."

To cope with the fallout, Fannie is cutting its operating costs by 10%, increasing its guaranty fees, slashing its dividend payout by 85% and changing its guidelines to filter out high-risk loans.

Economists worry that a collapse of Fannie or Freddie could cause turmoil throughout the financial system by in effect closing down a large chunk of the mortgage industry.

Fannie's capital balance of $47bn is $9.4bn above a minimum level stipulated by regulators. But the company said volatile conditions meant it had "less visibility" of its likely position in 2009 and it was preparing scenarios for conforming to requirements and breaching them.

Paul Miller, an analyst at Friedman, Billings, Ramsey Group, told Bloomberg that the figures indicated an increased probability that the government would have to intervene to bail out Fannie or Freddie.

"Neither of these companies have properly provisioned for what we're heading into," he said. "This thing is going to get worse and last longer and deeper than they originally thought."

Link: http://www.guardian.co.uk/business/2...isis.fanniemae

In congress once again only Ron Paul can come up with his usual "I told you so":

Hank, here’s Ron Paul predicting the crash of Fanny Mae five years ago
Fannie and Freddie

by Rep. Ron Paul, MD

Ron Paul in the House Financial Services Committee, September 10, 2003

Mr. Chairman, thank you for holding this hearing on the Treasury Department’s views regarding government sponsored enterprises (GSEs). I would also like to thank Secretaries Snow and Martinez for taking time out of their busy schedules to appear before the committee.

I hope this committee spends some time examining the special privileges provided to GSEs by the federal government. According to the Congressional Budget Office, the housing-related GSEs received $13.6 billion worth of indirect federal subsidies in fiscal year 2000 alone. Today, I will introduce the Free Housing Market Enhancement Act, which removes government subsidies from the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the National Home Loan Bank Board.

One of the major government privileges granted to GSEs is a line of credit with the United States Treasury. According to some estimates, the line of credit may be worth over $2 billion. This explicit promise by the Treasury to bail out GSEs in times of economic difficulty helps the GSEs attract investors who are willing to settle for lower yields than they would demand in the absence of the subsidy. Thus, the line of credit distorts the allocation of capital. More importantly, the line of credit is a promise on behalf of the government to engage in a huge unconstitutional and immoral income transfer from working Americans to holders of GSE debt.

The Free Housing Market Enhancement Act also repeals the explicit grant of legal authority given to the Federal Reserve to purchase GSE debt. GSEs are the only institutions besides the United States Treasury granted explicit statutory authority to monetize their debt through the Federal Reserve. This provision gives the GSEs a source of liquidity unavailable to their competitors.

The connection between the GSEs and the government helps isolate the GSE management from market discipline. This isolation from market discipline is the root cause of the recent reports of mismanagement occurring at Fannie and Freddie. After all, if Fannie and Freddie were not underwritten by the federal government, investors would demand Fannie and Freddie provide assurance that they follow accepted management and accounting practices.

[/b]Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.[/b]

Despite the long-term damage to the economy inflicted by the government’s interference in the housing market, the government’s policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.

Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary, but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts.

No less an authority than Federal Reserve Chairman Alan Greenspan has expressed concern that government subsidies provided to GSEs make investors underestimate the risk of investing in Fannie Mae and Freddie Mac.

Mr. Chairman, I would like to once again thank the Financial Services Committee for holding this hearing. I would also like to thank Secretaries Snow and Martinez for their presence here today. I hope today’s hearing sheds light on how special privileges granted to GSEs distort the housing market and endanger American taxpayers. Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market. I therefore hope this committee will soon stand up for American taxpayers and investors by acting on my Free Housing Market Enhancement Act.

Dr. Ron Paul is a Republican member of Congress from Texas.

Link: http://blog.freeny.org/?p=3548

Impressive, right?

[Arne]

Funny music video on Chef Chairman Bernanke:

http://www.youtube.com/watch?v=3u2qRXb4xCU

[Arne]

“What’s in a bill name?”
August 11th, 2008 by Matt Hawes
Congressman Paul’s latest Texas Straight Talk.

Recently, Congress passed the American Housing Rescue and Foreclosure Prevention Act, also known as the Housing Bill. Its passage was lauded by many who are legitimately concerned about foreclosures and the housing market in our country’s economy. I was asked how I could vote against a bill to help American homeowners, but I found this bill to have more to do with helping big banks than helping average Americans.

The answer is that there is more to any bill than its name or the headlines surrounding it. If one only paid attention to bill titles, one could happily vote for almost any bill put to a vote on the floor. Titles do not tell the complete story of a bill’s provisions, and many titles are downright deceptive and come close to emotional blackmail of legislators. But we cannot afford to be fooled by fancy titles. The housing bill could perhaps be more aptly named The Big Banking Bailout at Taxpayer Expense Act as large sections of it were written by big banking lobbyists according to “Evans and Novak” reporter Tim Carney’s Capitol Hill sources. At least that title would be honest.

Also, many of these magnanimous sounding foreign aid bills and so-called human rights resolutions have counterproductive and hypocritical language tucked into the fine print. The recent bill on China was a good example. This resolution calls on China to hold meetings with the Dalai Lama without preconditions, when that is something our own government will not do with Iran. How our government has the authority to tell China what to do is beyond me, especially when we demand something so hypocritical. On foreign aid bills and legislation that on the surface seem very charitable, upon closer examination we find strings attached and a lot of manipulation of the marketplace. Many times, these bills purport to help the destitute, but actually help multinational corporations or prop up dictators that might otherwise be deposed by their people.

The other point to take into consideration on legislation and House resolutions is that intentions are not enough. It is not enough to want to solve a problem with legislation, and name a bill to that effect. The crafters of the legislation need to demonstrate a clear and honest understanding of the problem, in order to put forward a realistic strategy to solving it. Too many times, I just don’t see that. Instead, I see more taxes, more restrictions, more violations of the Constitution, and more unintended consequences.

One shouldn’t judge legislation based on titles, good intentions, or what someone says the bill will do. Imagine if all the legislation in the history of this country actually did what the title of the bills proclaimed they would do. How very different this country would be! There would be no poverty, no drugs, no crime. In fact if it was that easy, Congress by now would have probably repealed the law of gravity, and supply and demand as well, and replaced them with unlimited wealth and given all Americans the power of flight. What a fanciful world our legislators live in at times!

Though I am at times accused of being mean-spirited regarding the many bills I vote against, I don’t so much think of my vote as against the legislation, as much as FOR the Constitution, according to my duties as a Congressman.

Hilarious...

[Arne]

Instead of stimulus, do nothing – seriously
Stimulus is unconstitutional. And history shows that the economy can recover strongly on its own, if politicians stay out of the way.
By Robert Higgs
from the February 9, 2009 edition
Oakland, Calif. - As we wait to see how the politicians in Washington will alter the stimulus package the Obama administration is pushing, many questions are being raised about the measure's contents and efficacy. Should it include money for the National Endowment for the Arts, Amtrak, and child care? Is it big enough to get the economy moving again? Does it spend money fast enough? Hardly anyone, however, is asking the most important question: Should the federal government be doing any of this?
In raising this question, one risks immediate dismissal as someone hopelessly out of touch with the modern realities of economics and government. Yet the United States managed to navigate the first century and a half of its past – a time of phenomenal growth – without any substantial federal intervention to moderate economic booms and busts. Indeed, when the government did intervene actively, under Herbert Hoover and Franklin D. Roosevelt, the result was the Great Depression.
Until the 1930s, the Constitution served as a major constraint on federal economic interventionism. The government's powers were understood to be just as the framers intended: few and explicitly enumerated in our founding document and its amendments. Search the Constitution as long as you like, and you will find no specific authority conveyed for the government to spend money on global-warming research, urban mass transit, food stamps, unemployment insurance, Medicaid, or countless other items in the stimulus package and, even without it, in the regular federal budget.
This Constitutional constraint still operated as late as the 1930s, when federal courts issued some 1,600 injunctions to restrain officials from carrying out acts of Congress, and the Supreme Court overturned the New Deal's centerpieces, the National Industrial Recovery Act and the Agricultural Adjustment Act, and other statutes. This judicial action outraged President Roosevelt, who fumed that "we have been relegated to the horse-and-buggy definition of interstate commerce." Early in 1937, he responded with his court-packing plan.
Although Roosevelt lost this battle, he soon won the war. As the older, more conservative justices retired, the president replaced them with ardent New Dealers such as Hugo Black, Stanley Reed, Felix Frankfurter, and William O. Douglas. The newly constituted court proceeded between 1937 and 1941 to overturn its anti-New Deal rulings, abandoning its traditional, narrow view of interstate commerce and giving the federal government carte blanche to spend, tax, and regulate virtually without limit.
After World War II, the government enacted the Employment Act of 1946, codifying the government's declared responsibility for managing the economy "to promote maximum employment, production, and purchasing power," and it has actively intervened ever since, purportedly to attain these declared ends. Its shots have often misfired, however, and we have endured booms and busts, a decade of stagflation, bouts of rapid inflation, and stock-market crashes. The present recession may become the worst since the passage of the Employment Act.
Federal intervention rests on the presumption that officials know how to manage the economy and will use this knowledge effectively. This presumption always had a shaky foundation, and we have recently witnessed even more compelling evidence that the government simply does not know what it's doing. The big bailout bill enacted last October; the Federal Reserve's massive, frantic lending for many different purposes; and now the huge stimulus package all look like wild flailing – doing something mainly for the sake of being seen to be doing something – and, of course, enriching politically connected interests in the process.
Our greatest need at present is for the government to go in the opposite direction, to do much less, rather than much more. As recently as the major recession of 1920-21, the government took a hands-off position, and the downturn, though sharp, quickly reversed itself into full recovery. In contrast, Hoover responded to the downturn of 1929 by raising tariffs, propping up wage rates, bailing out farmers, banks, and other businesses, and financing state relief efforts. Roosevelt moved even more vigorously in the same activist direction, and the outcome was a protracted period of depression (and wartime privation) from which complete recovery did not come until 1946.
The US government has shown repeatedly that as an economic manager it is not to be trusted. What we need most are authorities wise enough to follow the dictum, "First, do no harm." The stimulus package will do enormous harm. The huge debt burden it entails, by itself, ought to condemn the measure. America is already drowning in debt. But the measure will also wreak harm in countless other directions by effectively reallocating resources on a grand scale according to political priorities, rather than according to individual preferences and economic rationality. As our history shows, the economy can recover strongly on its own, if only the politicians will stay out of the way.
• Robert Higgs is senior fellow in political economy for The Independent Institute, editor of The Independent Review, and author of "Depression, War, and Cold War."

Find this article at:
http://www.csmonitor.com/2009/0209/p09s01-coop.html

[Arne]

Obama’s Opening Salvo


There is nearly universal agreement that the opening salvo of the Obama Administration’s campaign to restore health to the financial system, delivered this week by new Treasury Secretary Geithner, fell with a loud and ugly thud. The most common criticism is that the announcement was short on detail. What is abundantly clear, however, is that the new Administration intends to push spending back up to pre-crash levels and to fill the entire credit void that has disappeared into the black hole of the American financial system. Whether or not the prior levels of spending and lending were justified by market conditions then, or now, appears to be largely unexamined.

In the worldview of Geithner and like-minded economists, credit, rather than savings, is the central figure in the economic equation. Therefore, he sees anything that eases the process of lending to be an effective economic policy. With such a view in mind, the centerpiece of Geithner’s plan is the commitment of up to $1 trillion to revive the collapsed market for securitized debt. In the lead up to the Crash of 2008 securitization, more than anything else, permitted Americans to borrow more than they had ever borrowed before.

Developed primarily over the last 10 years, securitization permitted loans of all shapes and sizes to be packaged into investment-ready securities. The system worked, fueling unprecedented levels of lending in the home, auto, student, and credit card sectors. But in the last few years as the collateral underpinning these securities has collapsed in value, the trillions of dollars of securitized debt now in circulation has become the toxic sludge at the bottom of our financial pit. Geithner is making the false assumption that cleaning up and rebuilding the securitization market is a prerequisite for a healthy economy.

Our nation’s short history with wide securitization has simply shown that the process can lead to massive mispricing of assets and risk. By artificially rebuilding the securitization market, and committing taxpayer funds as collateral, the U.S. economy will be pushed farther and farther out on a leveraged limb, until no amount of market medicine can prevent a total economic collapse.

In truth, the only vital function provided by securitization was that it offered foreign savers a pathway to lend directly to American consumers, and Wall Street executives a new asset class to over-leverage for massive profits. Our economy must dispense with these gimmicks if it hopes to pursue a meaningful recovery.

After more than a decade of unsustainable borrowing and spending, the private sector is currently attempting to restore balance through reduced consumer and mortgage credit, greater savings, and lower asset prices. With its trillions of dollars of credit injections and stimulus programs, the government hopes to allay this process by force-feeding Americans a diet of more borrowing. They feel that a restored securitization market will help. It won’t. It will just grease the skids for a quicker collapse.

Credit, whether securitized or not, cannot be created out of thin air. It only comes into existence though savings, which must be preceded by under-consumption. Since savings are scarce, any government guarantees toward consumer credit merely crowd out credit that might otherwise have been available to business. During the previous decade too much credit was extended to consumers and not enough to producers (securitization focused almost exclusively on consumer debt). The market is trying to correct this misallocation, but government policy is standing in the way. When consumers borrow and spend, society gains nothing. When producers borrow and invest, our capital stock is improved, and we all benefit from the increased productivity.

Consumers default on credit much more frequently than businesses. This is because businesses typically use loans to expand, and then have greater cash flow to repay the debt. In contrast, consumers typically borrow to consume and in the process do not improve their ability to repay. As a result, one would expect consumer credit to be harder and more expensive to obtain. But that is currently not the case. Government guarantees have altered the playing field, so that now consumers are still being offered credit while businesses are being shown the door. By shifting credit away from producers, fewer goods and services will be produced for consumers to buy and fewer employment opportunities provided for them to earn money with which to buy the goods.

To restore prosperity, credit (derived from savings rather than a printing press) must flow to producers. Greater liquidity for business will lead to legitimate job creation, increased production, and rising living standards. By further encumbering the economy with burdensome regulation, and by transferring business decisions to vote-seeking politicians who will bail out the irresponsible, reward failure and punish success, the government will create a society destined for misery.

In an interview following his announcement, Geithner stated that government should replace the demand lost by the private sector. However, those with even a marginal grasp of economics know that demand is unlimited. It is the ability to spend that is not. While Americans still want all the things they wanted years ago, they have made the rational choice that they can no longer afford to buy at the same levels they once did. Using a printing press to replace this lost ‘demand’ will simply cause consumer prices to rise. Printed money does not create new purchasing power, but merely redistributes it from savers to borrowers. And since the plan will severely undermine the real productive capacity of our economy, there will not be much purchasing power left to redistribute!

Mr. Schiff is president of Euro Pacific Capital and author of "The Little Book of Bull Moves in Bear Markets" (Wiley, 2008).

http://www.europac.net

[Arne]

The 'forgotten people' are already doing something for economic recovery

By Steven Horwitz, OpEd Contributor
- 2/13/09

As I sat watching President Obama explain the so-called stimulus package Monday night, I felt several times that he was speaking directly to me. He kept saying that doing nothing is not an option, which is precisely what I would propose the government do.
Like many of the forgotten people in America, I have strongly recommended that the government do nothing to bring us out of this deep recession. But I know we're going to lose the argument. The debate now is really all about what politicians should do, not what the American public should do.

To my way of thinking, economic recovery requires the creation of wealth,something Congress is not even remotely capable of achieving. By contrast,the American people are already doing something to create wealth and hasten the recovery, even if we are the ones forgotten in the battle over what Washington should do.

Americans are going to work every day and providing for their families, they are increasing their savings rates, making much needed capital available to the private sector, and they are imagining new and more efficient ways to use valuable resources.

As wrapped-up as politicians are about solving this problem, they forget that it is individuals, families and companies that have the local knowledge and strong incentives to fix economic problems.

Rather than helping, when politicians attempt to "do something," they actually interrupt the delicate processes by which millions of Americans do business.

It is analogous to what we tried to do in Iraq militarily. Even with the best of intentions, we stumbled blindly into what were very complex challenges. Improving an economy in a recession is a challenge of the same sort.

Those of us critical of the stimulus package are very much in favor of action, we just differ on who knows best what action to take. Every day in the market, millions of products get made, shipped and sold, from the simplest pencil to the most complicated computer.

Individuals, households, and companies use exchange, contracts, prices and the other institutions of the marketplace to coordinate their behavior without central direction. All of those people are "doing something" to create wealth, but because they do it without a plan or package or program from Washington, they are often overlooked when the politicians take center stage.

When Obama asserts that only government has enough resources to get us out of the current situation, he conveniently overlooks the fact that the resources government makes use of are created by those same forgotten people.

And the trillion or so he says Uncle Sam needs to spend is money the government has to acquire by taxing guess who or borrowing from you know who.

The more that government taxes and borrows, the more costly it is for small entrepreneurs to expand and for families to pay for college. And the interest on government borrowing will be paid for by yet another group among the forgotten people-- generations to come.

The president was certainly confident and articulate in his first news conference. I was, however, struck by the irony that the stimulus package would be impossible were not for the forgotten "doing something" already to generate wealth, yet the package when enacted will make it harder for them to do so.

The sound bite of the moment, that our government must act quickly, carried the day. The media in attendance seemed to forget the fact that it was government programs to address low home ownership rates and stingy credit that caused the downturn in the first place.

Politicians may try to take the credit when we finally climb out of this hole, but in reality it will be the forgotten people who will have solved this crisis. They do not need to be stimulated by a wheelbarrow full of Washington pork.

They just need to be remembered as the ultimate source of wealth and left alone to do what they can do to create it. Forgetting that wealth ultimately comes from everywhere but Washington is what got us into this recession in the first place and continuing to forget it is not the path to recovery.

Prof. Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University, Canton, N.Y., and author of “Micro-foundations and Macroeconomics: An Austrian Perspective and Monetary Evolution, Free Banking, and Economic Order.”

http://www.dcexaminer.com/opinion/Th...-39548892.html

[Dirkadirkastan]

F*** Obama.