Ponderstorm My Brainstorm on Life & Politics

American Solutions, in partnership with the Nationwide Tea Party Coalition, is sponsoring nationwide Tax Day Tea Parties for April 15, 2009. The purpose is to “communicate our anger and opposition to the irresponsible policies of politicians in Washington who have failed to solve problems.” American Solutions continues: “More importantly however, this is our opportunity to clearly define a bold, new agenda and to tell our elected officials that they can either work with us, or find new jobs.”

I’m very concerned about our incredible national borrowing and spending. I’ve been concerned for decades about the size of the national debt; however, the almost exponential rate of increase seen over the past few weeks is staggering and unsustainable. We cannot spend our way out of debt but we can spend our way into slavery.  We’re rapidly approaching the point of national bankruptcy with debt accumulation patterns that resemble a third world dictatorship. This simply must stop.

I’m also very concerned about the erosion of our rights. Companies are being nationalized. Private corporate leaders replaced. Banks have been forced to take federal money and then not allowed to pay it back (which allows the federal government to exercise direct control).

As for my reaction, I’m slow to anger and don’t want to knee-jerk into protest mode. However, I’m not sure what else will get our leaders attention in Washington. I smell a rat when they pass legislation without allowing anyone to read it first. When they ignore minority party input and play hardball even with dissenting members of their own party, I know something is wrong. When our tax cheating Treasury Secretary and bowing to the king of Saudi Arabia President force businesses to remove their own leaders and nationalize banks, I know we’re losing our freedoms quickly.

The bottom line is something needs to be done while we still have the resources and freedom to do something. After studying the successes of the Civil Rights Movement, I feel that non-violent protests are in order. In any protest, though, I feel it is wise to offer a clear and reasonable alternative to the situation being protested.

So, with that in mind, I offer some solutions for the American Economy in 2009.  I first share the 12 American Solutions for Jobs & Prosperity offered by American Solutions as a start and then add 8 more of my own (which in a few cases somewhat overlap with the first 12). Read More…

Posted under Economy

In my opinion, after the recent massive financial bailouts and other interventionist federal actions (and in some cases nationalizations) within our economy (i.e. the private sector), several pressing questions remain unanswered. I have been pondering on five of them for some time now. These are listed below in no apparent order.

1. If bad loans got us into this situation, then why is there so much effort to get banks to loan even more money?

If there is a dollar to be made and people are free to act in rational ways, then somebody creative will find a way to earn that dollar. My thinking is that in spite of the negative news regarding financial markets right now, there remains a market for loaning money to people with good credit. If this is the case, then there must be people willing to make a profit in such a market and so they will loan money to those with the means to pay them back. No crisis there.

On the other hand, the market for people with bad credit (i.e. people who you shouldn’t loan money to) has dried up and rightfully so. That should be a good thing. It made no sense to make risky loans but such actions were encouraged by foolish government policy that distorted reality and created an artificial market for bad loans. No loans to people who should not get loans means no crisis there either.

So let’s fast forward to now. I want to know why there is all the fuss about banks not loaning money then? It’s good banks are not making more bad loans. To push them to loan on a large scale again seems to me to further push us into the mud. We’re supposed to be getting ourselves “unstuck” but loaning more would seem to do just the opposite and compound our already bad situation. That doesn’t make a bit of sense.

2. Bailouts rewards bad performance.

Corporate leaders are paid to lead. Part of leading means avoiding problems. It seems to me that we have a bunch of bad leaders at many financial institutions (and in government) since they led their companies (and federal policy) on a path of suicide. Why should the government reward these guys with a bailout? Seems to me that such actions simply reward their poor judgment and punish those who kept their companies out of trouble.

As for the auto industry in particular, I have some specific thoughts along these lines. They were on an Read More…

Posted under Business, Government, Politics

Let me clearly state that I don’t like or approve of the recent federal intervention in the United States economy. Government policy over the past three decades, pushed to extremes by left-leaning and radical groups like ACORN and using the Community Reinvestment Act, created the corrupt lending environment that was exploited by Fannie Mae and Freddie Mac to produce the toxic mortgage situation in which we find ourselves. So, since government is primarily responsible for this crisis, why should we then trust government to fix the problem they created?

This unfavorable economic environment is not a shortcoming of capitalism. It is a direct result of government manipulation within our economy for the benefit of a few people. Sometimes manipulation gives an unfair advantage to the rich and sometimes the poor. In this current environment, those who should not get a loan it were encouraged to borrow beyond their means.  While historically no bank would loan money under such terms, Fannie and Freddie created an unnatural market for banks to offload risky mortgages. The result was the poisoning of our entire financial system.

Unfortunately, as is often the case, the federal government stepped in and removed even more of our individual freedoms and made our economic system less of a capitalistic one and more like a planned economy under socialism. To give you an idea of the extent of the change, we’re now talking about the government owning or nationalizing large portions of our banking system. We’re also talking about government confiscating taxpayer money to buy up and refinance failing mortgages. We’re also talking about government, not shareholders, owners or investors, telling companies how much they can pay their employees and how to run their businesses. Sounds more like the old Soviet Union than what the Founding Fathers set up, doesn’t it?

This is an extremely dangerous precedent that will severely damage our economy in the long run. It makes the American taxpayer the ultimate holder of risks that the market should allocate to willing investors. It also gives government enormous control over our economy, our money and our everyday lives. In effect, a government bureaucrat will soon be deciding who can borrow, how much they can borrow and under what terms. In the name of fairness and environmentalism, other factors will probably be imposed later like how large our house can be and whether we really need what we can afford.

Instead of the massive bailout that was adopted, I wish government had essentially stepped out of the picture and removed Read More…

Posted under Economy, Government

We’ve been told for months now by politicians, especially Democrats, that the U.S. economy is in shambles.  Over the past few days we’ve been told that government must act now in a huge way to bail it out before the woes of Wall Street hit Main Street. We’re told that this is the worst economy since (insert year of choice here). There is so much doom and gloom.

But let’s step back and think for a minute. Yesterday we saw a huge drop in the stock market. Today we saw it recover about half that drop. While wild swings are not ideal, the fact that things calmed down and recovered so much today after the hailed bailout plan was voted down yesterday speaks volumes about consumer confidence (which today was reported for September to be up from August’s numbers and higher than analysts expected).

Also, the value of the U.S. Dollar surged in relation to many foreign currencies today, especially major tracking ones like the Euro, Yen and the British Pound. How could that be if our economy is on the verge of collapse and a second Great Depression? Would foreigners want to hold dollars if they were soon to be devalued or made worthless? I think not.

A couple weeks ago John McCain was ridiculed for expressing that while there are problems in our economy it is fundamentally strong. I agree with McCain and applaud him for speaking the truth and not trying to “talk down” the economy for political gain. Think about it: The American worker remains the most productive in the world. We have an incredible infrastructure to facilitate business transactions, labor exchanges and economic development. We have a strong legal foundation that protects innovation, entrepreneurship, private property — including intellectual property — and individual freedom. Where else in the world can you find all these components required for a strong economy?

Yes, there are problems in our economy today (largely the result of bad government policy) but the American economy remains fundamentally strong because Americans are fundamentally strong and innovative. The sooner government realizes that it needs to get out of the way of free and private markets the better it will be for everyone — from Wall Street to Main Street. I think the positive economic response we say today to yesterday’s no vote on the bailout bill should serve as a lesson that government intervention in the economy ought to be limited and restrained.

Posted under Government

Jeffrey A. Miron is a senior lecturer in economics at Harvard University. He is a Libertarian and was one of 166 academic economists who signed a letter to congressional leaders last week opposing the government bailout plan. His commentary, entitled Bankruptcy, Not Bailout, is the Right Answer, was published today at CNN.com and the American Future Fund, an organization that advocates conservative, free market ideals.

The latest bailout plan that was voted down yesterday would have authorized $700 billion for the U.S. Treasury to purchase “troubled assets” from Wall Street financial institutions. Miron argues that this bailout proposal was a “terrible idea” and explains why. First, however, he explains how we got ourselves into this mess.

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.

After pinning the blame squarely on failed government policy, Miron correctly reasons that it is unwise to let government do more of the same in the name of recovery.

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

Miron then builds a case for allowing financial institutions to declare Read More…

Posted under Taxes