Saturday, January 31, 2009

Winning Economies Don't Do Drugs

First!!!!


Has anyone noticed that the only difference between the majority and minority political agendas before and after the announcement of recession is any conception of fiscal constraint?

That the government can somehow "stimulate" the economy in the short term with legislation has become the conventional wisdom. Democrats and Republicans now argue about which "stimulus" is better, coke or speed, without stopping to realize maybe it's ok if the economy takes a nap in the middle of the day every one in a while.

The government has a chance to realign the financial infrastructure of the national economy, a chance not seen since Hoover, but instead they have somehow convinced themselves that spending and taxcuts can magically solve the problem.

The US economy produces over $13 trillion in goods and services each year. Even if the government could do something, why does the political establishment believe that spending less than 3% of that amount can somehow make everything better?(Http://www.cbo.gov/ftpdocs/99xx/doc9968/hr1.pdf)

Instead they should:
1. Eliminate Fractional Reserve Banking
2. Rationalize Taxation of Capital
3. Provide unemployment benefits, job training, education subsidies, and national health insurance


The problem is and always has been fractional reserve banking. It caused the stock market crash in 1929 to become the Great Depression and it as been an accelerant in every recession ever since.

Fractional Reserve Banking is the idea that a bank can take a deposit from you and lend it to someone else while telling you that they still have it and it's safe. (http://en.wikipedia.org/wiki/Fractional_reserve_banking)

When that someone else can't pay back, whether due to a stock market crash or a housing bubble pop, the bank can't pay you back. If you try to get your money out early before the crash, then you cause a bank run since the bank doesn't have enough money for everyone.

FDR and company tried to fix this with various measures to increase confidence in banks, including the FDIC. (http://en.wikipedia.org/wiki/Fdic) While these measures "worked" in that that the public (including me) was fooled into believing that banks were now safe, all they did was perpetuate the fraud, now with the backing of the United States government.

With the mortgage "crisis" the fraud is laid bare. Will our leaders fix the problem or punt it to the next generation?

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