United Liberty
From the Desk of Ron Paul: My Answer to the President
Thu, 09/25/2008 - 2:16pm | posted by United Liberty Staff
Dear Friends:
The financial meltdown the economists of the Austrian School predicted has arrived.
We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy - all the capital misallocation, all the malinvestment - and prevent the market’s attempt to re-establish rational pricing of houses and other assets.
Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I’d only be repeating what I’ve been saying over and over - not just for the past several days, but for years and even decades.
Still, at least a few observations are necessary.
The president assures us that his administration “is working with Congress to address the root cause behind much of the instability in our markets.” Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?
We are told that “low interest rates” led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments - investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.
Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or “wildcat capitalism” (as if we actually have a pure free market!).
Speaking about Fannie Mae and Freddie Mac, the president said: “Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.”
Doesn’t that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn’t that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn’t the federal government shown that the “many” who “believed they were guaranteed by the federal government” were in fact correct?
Then come the scare tactics. If we don’t give dictatorial powers to the Treasury Secretary “the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet.” Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.
It’s the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.
The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.
F.A. Hayek won the Nobel Prize for showing how central banks’ manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day - and which are being proposed, just as destructively, in our own:
Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.
To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end… It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.
The only thing we learn from history, I am afraid, is that we do not learn from history.
The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?
Oh, and did you notice that the bailout is now being called a “rescue plan”? I guess “bailout” wasn’t sitting too well with the American people.
The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you’re supposed to have a voice in all this actually seems to annoy them.
I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects - the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.
H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.
In liberty,
Thank you Dr Paul for your unwavering support of the constitution and your wise leadership in the economic field.
The sudden concern by the President about “saving” the economy, without acknowledging his
administration’s role in this debacle,raises
questions about who exactly will benefit from
this current bailout.Will it be the American
taxpayer? Most likely not.
Dear Mr. Paul,
While I appreciate your comments, I can’t stop remembering the Enron-Worldcom fiascos. Eberts and ????, few months before their crash, were saying in shareholder’s meetings that their business were strong and balance sheet in good order.
The justice department sent them to jail for lying and defrauding the companies they were paid to administer.
Bush and everybody applauded. Now it’s Bush time to pay, along with all of his top aides in these scandals.
They were in fact the artisans of these so-called Enron artificial
accounting formulas, creating illusions of growth through cosmetic reports and false hopes. Again they got their monies from the shareholders (the people), to fund their bogus schemes.
History repeats itself, this time the wrongdoers are the victims. They come on TV, in our home, asking for every body’s heads but their own. They don’t show any sign of repent. Instead they ask for more trust so that the game continues.
Look how Secretary Paul, Bernanke and Bush have the same languages and programs. They had already sat down to prepare these mediatic shows, and save their own heads.
” I’m mad as you are. It’s time now to decide whether we should be scared or be panicky. I propose that we forget about beeing mad and that we concentrate in stopping this fire. You have 7 days to decide or else face the consequence of Panic”
Mr. Paul, you critisized good, but didn’t offer much solution, apart than let the system rid of the excess, just as in 1921. That’s too simple of a try, there should be more to that.
Congratulations anyway for these first steps,
Philip
I’ve heard from several Republican Congressmen that a new proposal is being presented that:
1. suspends the mark-to-market accounting rule and using a 3-year rolling avg. to price these “toxic stocks.”
2. that the treasury (via the Federal Reserve) could give the companies that own the stock in the first place a loan +2% to buy back their toxic stocks and pay them off before investors get any revenue and before CEO’s can walk away with big bonuses.
I believe Ron Paul eluded to this as well as said that the free market should be allowed to work itself out. This is is certainly a way to do it. The results:
a. No $700B bailout to the American Taxpayer
b. No Federal Reserve intervention into the lives of mainstreet America.
c. Wallstreet would have to take responsibility for it’s own actions, not the people.
d. CEO’s would duly be beholden to their investors.
This worked in Chile as reported by a Wall Street Journal analyst yesterday on the Fox Business News.
WHY IS PRESIDENT BUSH SO ADAMANT ABOUT A $700 BILLION TAXPAYER BAILOUT INSTEAD OF THE ALTERNATIVES? Hmmm…
Mr. Paulson’s assets alone, his five or six houses, boat, plane, etc, come to 200 million dollars. We should find a few more high-level officials, pool their assets and put them up to secure this loan. If their pockets are backing this loan, they will take more responsibility for it. As it is, it’s just another load on the average working guy, only this one is thousands of dollars. I don’t know about you, but I don’t have it. I’m living hand-to-mouth now and I don’t even have a home to lose. Irresponsibility created this situation, we shouldn’t let irresponsibility try to solve it. I say No Bailout unless Paulson and others of his ilk back it with their personal wealth.
There are some parallels here to 9/11, aren’t there? The government helps create a problem, blowback occurs and that the government tries to bamboozle the people into giving it power in order to protect them. I hope we don’t fall for it.
An interesting e-mail I received…sounds better to me than bailing out the corrupt morons who got us in this mess…
I’m against the $85,000,000,000.00 bailout of AIG.
Instead, I’m in favor of giving $85,000,000,000 to America in a We Deserve It Dividend.
To make the math simple, let’s assume there are 200,000,000 bonafide U.S. Citi zens 18+.
Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up..
So divide 200 million adults 18+ into $85 billion that equals $425,000.00.
My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.
Of course, it would NOT be tax free.
So let’s assume a tax rate of 30%.
Every individual 18+ has to pay $127,500.00 in taxes.
That sends $25,500,000,000 right back to Uncle Sam.
But it means that every adult 18+ has $297,500.00 in their pocket.
A husband and wife has $595,000.00.
What would you do with $297,500.00 to $595,000.00 in your family?
Pay off your mortgage - housing crisis solved.
Repay college loans - what a great boost to new grads
Put away money for college - it’ll be there
Save in a bank - create money to loan to entrepreneurs.
Buy a new car - create jobs
Invest in t he market - capital drives growth
Pay for your parent’s medical insurance - health care improves
Enable Deadbeat Dads to come clean - or else
Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.
If we’re going to re-distribute wealth let’s really do it…instead of trickling out a puny $1000.00 ( “vote buy” ) economic incentive that is being proposed
by one of our candidates for President.
If we’re going to do an $85 billion bailout, let’s bail out every adult U S Citizen 18+!
As for AIG - liquidate it.
Sell off its parts.
Let American General go back to being American General.
Sell off the real estate.
Let the private sector bargain hunters cut it up and clean it up.
Here’s my rationale. We deserve it and AIG doesn’t.
Sure it’s a cra zy idea that can “never work.”
But can you imagine the Coast-To-Coast Block Party!
How do you spell Economic Boom?
I trust my fellow adult Americans to know how to use the $85 Billion
We Deserve It Dividend more than I do the geniuses at AIG or in Washington DC .
And remember, The Birk plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.
your math is wrong, TKTT. $85 billion divided by 200 million is $425 per person. Not gonna go far with that.
It isn’t my math..lol I received that in an e-mail, guess I should have done the math.
Nevermind the math … I like the way whoever wrote it thinks!
Let Bush eat his own words:
In 2001, California was faced with an electrical energy crisis caused by the greed of energy producers lying about plant capacity and availability. Megawatts were handed over from company to company, each making a killing on the higher price each would charge for the power before it finally was force-purchased by P.G. & E. Governor Grey Davis asked, (begged) Bush to force FERC to do their job to stop the foolishness and gouging that was going on. The public was led to believe insufficient generating capacity was the reason for the rolling blackouts, but this was not true. The supply was being manipulated by producers, PG&E went bankrupt. George Bush in answering the California Governor’s plea for help said that controlling prices and supply “was not a ‘long-term solution’ to California’s energy problems” (request denied). Grey Davis asked for a federal agency to simply do their job and was shot down by Bush.
Now George Bush, hear your words come back to haunt you: THE BAILOUT OF YOUR RICH FRIENDS IS ‘NOT A LONG-TERM SOLUTION’ TO THE ECONOMIC STABILITY OF THE UNITED STATES, SO REQUEST DENIED.
George Bush: Let your friends rot in financial hell (bankruptcy) where they belong. I don’t like seeing your New World Order agenda “to do list before leaving office” include setting the United States up for international monetary default. You once said that America cannot be allowed to falter. Why? Because to falter implies the ability to recover. Your motive there was that America cannot be allowed to falter (because you want it to fall, period, (no recovery possible). Look at the history of this country Mr. Bush during the tormenting years you have been president. The president of Venezuela, Hugo Chavez, refers to you as the devil. I suppose I have to agree. Enjoy your retirement at your new house down in Paraguay (a country with no extradition treaty with U.S.), and when the whole 911 thing finally comes unraveled, you’ll be untouchable there.
A GREAT President “For The People?” Let’s have Ron Paul be President, and Cynthia McKinney (former congresswoman) as Vice-President. The power-drunk party of the rich would be over in one day, inauguration day.
I also received the foolish $85 billion dollar bailout should become a “We Deserve It” dividend email.
How did the author of that email think the 85 billion was going to be raised. That is of course the heart of the issue. What? Are we all going to pay $425 in taxes so that we can get a $425 check from the government.
But using this sort of logic has raised some questions in my mind. For instance, who would be the innocent victims if AIG were allowed to fall, and can we not spend less than 85 billion to help them out rather than trying to save the corporate entity known as AIG?
This really is not my field of expertise, but for those of us who like to consider good solutions perhaps it’s something to consider. I mean if I have life insurance and my life insurance company goes bankrupt, wouldn’t I just switch companies?
I guess I don’t understand why we need this company so badly. If people have invested in their insurance policies, then instead of giving $85 billion to AIG we could just give some money to the people who were robbed of their investments, and they could invest this money into another insurance policy.
The company that screwed them gets what is coming to it, the other insurance companies who have continued to operate successfully can compete for all of AIG’s ex-clients, and the rest of us pitch in a little to help the people who need a little help and who didn’t do anything wrong.
I hope that makes sense to y’all.
I write from UK, where we have similar problem now, caused by same State policy. National debt was almost paid off by 1990. Then, Conservative, followed by Labour governments began a spending spree on state sector (ie most swing voters), financed by tax rises and vast increase in govt borrowing (some of it concealed). Huge fiscal and monetary stimulus to economy during a time of natural economic growth, leading to business over-leverage and mortgage boom. And now, today’s bust.
‘Greedy capitalists’ are now being blamed for our current woes. But I say that blaming bankers for lending, or workers for borrowing when credit is cheap, is as silly as blaming a drunk for taking a free drink; who offered it? In Britain’s case, our Chancellor and Prime minister, Gordon Brown.
Maladjustment and malinvestment contributes largely to the global financial crisis. Worst if your investment becomes the target of scam artists that are very common nowadays. Can you still remember the scam artist Bernie Madoff and those people who ran Enron? Many employees were not compensated when these people manipulated the numbers of the company. You must take care to guard your investment portfolio, and keep it safe from some scam artist who is trying to get you to fall for a rip-off.