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If you have been watching the news and listening to the “experts” you probably think that the House vote that effectively killed the economic “rescue package” (for now) was bad for the economy. You have probably heard that it was a bad bill, that it shifted the responsibility for bad investments to the tax payers, that it wouldn’t “work” and wouldn’t actually solve the problem. But I’d bet that you haven’t heard that the bailout failure was GOOD for the ECONOMY.
The problem with most of the talking heads and 99.9% of the politicians is that they don’t understand economics, except that when the economy goes into recession the talking heads have more to talk about and the politicians have to cover their butts. They have to appear to be “solving” the problem. But their posturing is just that, it doesn’t solve the problem. In fact, more often than not, it exacerbates the problem… but it makes them look like they are working for the people. Apparently, this time around, some of them actually were working for, or at least listening to, the people.
But back to my premise… this bailout cure would have been worse than the illness. The reason this economy is starting to falter is because prices for goods have risen to untenable levels. We can no longer afford to pay the prices caused by false demand and inflationary monetary policy and borrowing the money is now too risky for the banks to allow. We can’t afford THIS economy. Prices must come down for things to get better.
In free markets in which there is a monopoly on the monetary supply (and untied to any particular standard, ie. fiat money), boom periods (and in this case, bad legislation) cause mal-investment as a result of false growth indicators. Recession is the vehicle by which markets correct themselves of mal-investment and lead to lower prices and the next growth cycle. Recession, though sometimes hard to endure, is ultimately a good thing. In the case of THIS economy its a REALLY good thing.
This economy is predicated too heavily on the proliferation of debt and even worse, cheap debt. We’ve been told by President Bush, Henry Paulson, Barney Frank, and every other politician in favor of the bailout that if the credit markets freeze businesses will not be able to borrow money to do business and that will cause a “massive collapse”. I venture to say that businesses so heavily predicated on debt were running risky in the first place and probably SHOULD suffer as a result of poor business practices. Any small businessman will tell you that you use your profits to run your business on a zero-sum budget, which lowers your risk and ensures that you remain in business. Anything else is a house of cards… which is the current state of our economy.
So what happens if this unstable house of cards collapses? Well, we have only two options. Socialism or Depression. The former, like what we got during the Great Depression, will ultimately cause more problems than the latter. If we allow the free markets to work, any depression we are likely to endure should be relatively short, provided the government gets out of the way, reduces spending, lowers taxes, doesn’t inflate our currency and withdraws from any unnecessary foreign conflicts (I know, fat chance).
So how can we avoid this economic disaster without the ridiculous bailout bill passing? Quite simply, actually.
1) Immediately cut the capital gains tax to next to nothing or eliminate it entirely (that’d be my favorite) and
2) Cut the corporate tax rate to under 12 percent.
3) Immediately standardize our currency on gold, silver, or some other finite commodity which is readily available (at one point, tobacco was a form of currency).
4) Eliminate the CRA (Community Reinvestment Act of 1995) which forces banks to give sub-prime mortgages to those who can’t afford traditional mortgages (under the auspices of fair lending to the poor and minorities) and allow banks to determine who they should loan money to based on their own standards.
The steps lined out above would immediately bolster Wall Street with an influx of capital much greater than $700 billion and would help banks overcome their losses in the sub-prime mortgage fiasco. Not only that, it would be a boon to economic freedom and spur growth here in the U.S. Most importantly, it would protect our children from ever increasing government debt and push back the encroachment of socialism in America.
Frankly today, I’m more proud of the American people and Congress than I have been in a while. Yesterday proved that there are still a majority of people that understand that free markets, no matter how much of a rollercoaster, are still better than socialism. And that no matter how dire the circumstances, government is never the answer. The free markets didn’t cause this problem. Deregulation didn’t cause this problem. Capitalism didn’t cause the problem. Congress did. I’m glad they finally stepped up decided not to exacerbate the problem (at least for now) by passing this ridiculous bill.