There are many economists,politicians, and journalists that think they have a miraculous way to makebailouts work. Thus far, our government and Federal Reserve Bank have limitedthe bailout debate to who should get what money and how much. Yet,all this argument over how to best manipulate our economy is totally irrelevantif we don't recognize the fundamental problems our monetary policy creates inthe first place. You can have a house made of gold, but it will surelysink if your foundation rests on quicksand.
To stabilize our markets, Congress should enforce strictly enforce basicprinciples. With strict adherence to the principle that one should not commit fraud, our government would notallow the FederalReserve and other banking institutions to lend and printmoney it doesn't have. For example, for the Federal Reserve stimulatedthe housing market by droving down the interest rate. When interest ratesfall, money becomes relatively cheap. So, people borrow more money andmore houses are bought. Now there are all kinds of economic theories thatadvocate monetary expansion as a means to spur growth, and thus pose a netbenefit to society, so they are necessary for the greater good. But, can we really support the greater good usingfraudulent practices?
And how does the Federal Reserve lowerthe interest rate in the first place? Where does the Federal Reserveget the authority to print our money? It can only continue suchlending practices with the cooperationof our congress. It is important to also note that the FederalReserve is a private bank to emphasize the absurdity of its specialprivileges. Some congressmen have requested anaudit of the Federal Reserve year after year, only to be denied eachtime.
To acquire new money to lend, theFederal Reserve must either 1) borrow, or 2) print the money. Either way,the loser is the taxpayer. In the event the Federal Reserve borrows the money,using the American taxpayer's labor as collateral, the interest on the debtis paid for by raising taxes. So, some people might get a sweet loan on ahome, but everybody gets stuck with higher taxes. If the Federal Reserveprints the money, we can expect the same natural consequencesbecause, whenever the money supply is increased, the value of moneypeople already own (such as the money in their savings account) goesdown. For example, if you own the only Babe Ruth rookiebaseball card that exists in the world, it will probably be worth alot. Imagine now that our government gave the Federal Reserve the specialprivilege to print "authentic" Babe Ruth rookie cards, identical to yours; thevalue of yours would naturally go down. This principle is no differentwith money. But when the Federal Reserve does it, it results inan indirect tax on everybody, called an inflation tax. Becausethe dollar is worth less, the cost of the things you buy goes up(just go to the grocery store to verify). Although conventional economistswould have you believe inflation is the rise in prices, inflation is traditionally considered to be the increase in the money supply, which causes higher prices. Whenprices rise, real income drops, demand for goods drop, and our entire economysuffers.
So whose fault is it when high pricesand real interest rates cause people to fail on their loans and ourbooming economy to bust? The people who got loans they couldn'tafford? The lenders? The Federal Reserve? I would say all ofthem are responsible. But, the supreme responsibility is that of ourcongress. Had they not allowed the Federal Reserve to lend artificiallycheap money, an act of fraud,there would have been no bubble to blow up.
So, who do our representatives makepay the bill? Thetaxpayer. Even the ones that were responsible and lived within theirmeans. Even the banking institutions that only lent to qualified lenders. So first you pay an inflation tax blow up the housing bubble. Then,you are asked to bailout the financial industry when they pop it! Why?Because the rule of law is not strictly enforced. Our leaders claim thatallowing a big bank to fail will hurt you more than losing your right to keepthe fruits of your labor and be rewarded for your responsibility. Therefore, the "right to property" is reduced to, the "right toyour property so long as banks don't get too big andirresponsible that their demise might cause a disruption inthe normal financial markets, even if those financial markets perpetuatedthe problem."
Yet, aside from HR 2755,introduced to address concerns about the Federal Reserve and the inability of acentral bank to stabilize markets and protect the value of our dollar, noanswers from congress or our conventional economists deal with the fundamentalproblems in our monetary policy. The central bank and bailoutadvocates can try all they want, but when you have a system that isfundamentally built on fraud, central bank or not, it will surely fail.
