[Peace-discuss] [Fwd: My Answer to the President ]

[E. Wayne Johnson]

My Answer to the President
Ron Paul - 25 September 08

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.

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