Tuesday, September 16, 2008

Sarah Palin Called it Right!

Regardless of what you may think of the propriety of Sarah Palin serving at a high level of government with a young infant - take a look at how she uncannily predicted the current housing bubble and the subsequent Freddie Mac/Fannie Mae crisis and bail-out - five years ago! We need people who truly understand the economy in high office. Look at how prescient she was in this appearance before Congress in 2003, while she was still only the chairman of the Alaska Oil and Gas Conservation Commission. I would encourage you to read all of this, and ask yourself if this woman sounds like the "wack job" the mainstream media has made her out to be? Does this woman have the qualifications to be President? Does she understand economics, or what?

Mr. Chairman, thank you for holding this hearing on the Treasury Department's views regarding government sponsored enterprises (GSEs). I would also like to thank Secretaries Snow and Martinez for taking time out of their busy schedules to appear before the committee.

I hope this committee spends some time examining the special privileges provided to GSEs by the federal government. According to the Congressional Budget Office, the housing-related GSEs received $13.6 billion worth of indirect federal subsidies in fiscal year 2000 alone. Today, I will introduce the Free Housing Market Enhancement Act, which removes government subsidies from the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the National Home Loan Bank Board.

One of the major government privileges granted to GSEs is a line of credit with the United States Treasury. According to some estimates, the line of credit may be worth over $2 billion. This explicit promise by the Treasury to bail out GSEs in times of economic difficulty helps the GSEs attract investors who are willing to settle for lower yields than they would demand in the absence of the subsidy. Thus, the line of credit distorts the allocation of capital. More importantly, the line of credit is a promise on behalf of the government to engage in a huge unconstitutional and immoral income transfer from working Americans to holders of GSE debt.

The Free Housing Market Enhancement Act also repeals the explicit grant of legal authority given to the Federal Reserve to purchase GSE debt. GSEs are the only institutions besides the United States Treasury granted explicit statutory authority to monetize their debt through the Federal Reserve. This provision gives the GSEs a source of liquidity unavailable to their competitors.

The connection between the GSEs and the government helps isolate the GSE management from market discipline. This isolation from market discipline is the root cause of the recent reports of mismanagement occurring at Fannie and Freddie. After all, if Fannie and Freddie were not underwritten by the federal government, investors would demand Fannie and Freddie provide assurance that they follow accepted management and accounting practices.

Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.

Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary, but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts.

No less an authority than Federal Reserve Chairman Alan Greenspan has expressed concern that government subsidies provided to GSEs make investors underestimate the risk of investing in Fannie Mae and Freddie Mac.

Mr. Chairman, I would like to once again thank the Financial Services Committee for holding this hearing. I would also like to thank Secretaries Snow and Martinez for their presence here today. I hope today's hearing sheds light on how special privileges granted to GSEs distort the housing market and endanger American taxpayers. Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market. I therefore hope this committee will soon stand up for American taxpayers and investors by acting on my Free Housing Market Enhancement Act.

Wasn't that unbelievable? Of course it was. But Sarah Palin didn't say this. If you want to know who did, click here.

I thought I'd try the little experiment that Pizza Hut and Folgers have done by a little swap-out, seeing what people really think when they don't know the actual source. Unfortunately, politics has become a cult of personality, and ideas are judged by who said them rather than on their merits alone - and these days, unless something political has the name "Sarah Palin" on it, it's hard to get most conservatives to read anything longer than a fortune cookie.

The current presidential candidates seem to be clueless about the housing bubble and the bailouts. Think about this: right now, more than half of the extant mortgages in the United States are held by the federal government. This amounts to the largest nationalization in history. AIG has also gotten its bailout as well - and more are on the way. Meanwhile, the politicians are talking about "economic stimulus" (i.e. bread and circuses) - as though more consumer spending can fix the problem. We are the largest debtor nation in the world - and we are floating our current debt (held largely by China) by printing currency out of thin air. If (and when) China and other foreign nations who don't especially like us stop floating us loans, we will have no choice but to submit to hyperinflation.

McCain blames "greed" and promises "hearings" to "clean up Wall Street" (whatever that means). Obama blames Bush (yawn). The RNC Chair blames the "Pelosi-Obama Congress" (the what?). The Democrats say there aren't enough regulations. The Republicans say there are too many regulations. Rush blames the "drive-bys" and the "liberals" and Air America blames, oh, are they even still around? Of course, left-wing leaders blame the free market. Meanwhile, the real issue is not even being discussed.

Are the politicians really that stupid, or do they just think we all are?

Here is an analogy: America is like a young guy that has a pretty good job. He has good credit, and so has lots of luxuries. But he is financially overextended. He has to have some help paying his Visa. In order to cover the minimum payment, he borrows a lot of money from Dad every month. The shortfall is made up by using MasterCard to pay Visa. This seems to be working, so no worries. He has a Plasma TV, a sweet ride, and plenty of beer. He's also popular, because he has a lot of powerful "friends" who come to him to borrow money - and he is able to help them out not only with cash, but by co-signing their loans. But he has a problem that is largely unseen - as he is getting further and further into debt. And when the dreaded day comes that Dad says: "No more!" - he will then have to pay his entire Visa bill with his MasterCard. Both Visa and MasterCard will then be racking up even more debt. Furthermore, the friends he has been floating with low-interest loans all this time will have turned out to be deadbeats themselves, and now their creditors will be calling about those co-signed loans. Eventually, his income will only be able to pay the interest on all of his commitments, and the principal will continue to soar. He takes a look at that brand new color laser printer (which he bought on credit, of course), and realizes that the only way out of the mess is to print trillions of dollars of bogus money...

This can't go on forever, can it?

Meanwhile, the GOP is virtually promising wars in Iran and Russia (which requires a lot of expensive purchases of things that, as my dad who worked in the defense industry used to say: "puts a lot of bread on the table"). The Republicans are also advocating more foreign bases and an even larger military budget (referred to in an Orwellian way as "national security"). Not to be outdone, the Democrats are promising universal health care and cradle to grave security, free educations for all, and any other thing that people can be talked into wanting for nothing. The Baby Boomers are beginning to retire, and there are not enough workers (thanks partially to the Baby Boomer culture of contraception) to prop up the Social Security and Medicare pyramid (since there is no Social Security "trust fund" - the money has all been spent already on luxuries we can't afford). Both parties are proposing a vastly expanded federal government - all paid for by "somebody else" (the Democrats say "The Rich" and the Republicans say "Growth in the Economy").

The reality is we will all pay through the inflation of a bloated cash supply, through a massive Wall Street and Real Estate crash, and through bankruptcy.

I honestly respect that Sarah Palin can hunt a moose and field dress it. I could never do such a thing. I honestly respect John McCain's years of service to his country that included being a POW. But none of these things an economist makes. I'm sure Joe Biden and Barack Obama have done impressive things in their lives - serving in the U.S. Senate is no small accomplishment - and they are probably really bright individuals. But nobody is addressing the heart of our economic problem: bloating debt being covered up by kited fiat currency.

Five years ago (when he was in his 7th term in Congress, as Palin was beginning to serve as the chairman of an obscure political committee), Congressman Paul predicted exactly what is happening today. He has been consistently warning us (by warning our public representatives) for his entire tenure in Congress. But the mainstream media and their cohorts in the mainstream political parties wanted us all to believe he was some kind of a nutjob.

Well, it sure doesn't sound like that's the case now, does it?

The electorate got what they wanted. Ron Paul is not a presidential candidate. We now get to choose between McCain and Obama. But at least Congress has one person who understands how we got where we are, and what we must do to get out of it. If you were impressed with the above quotation when you thought it was Sarah Palin who said it, you might want to read the real author's new book The Revolution: A Manifesto (available at Amazon in hardcover for $12.60, or as an audio book on CD for $16.49). Formerly number one on the bestseller list (this past May), it's currently number ten on the NY Times bestseller list - just one notch behind John McCain's book. Not a bad place to be for a guy who was clobbered in the elections and portrayed as some kind of a loony fringe candidate.

Now, if we can just get McCain, Palin, Obama, Biden and Paul's colleagues in the United States Congress to read it - maybe we'd be getting somewhere. Meanwhile, I recommend that every American read it, pay down his own debts, be as self-sufficient as possible, and start saving money in a truly conservative way. Quit giving your politicians carte blanche to bail out their friends with taxpayer money. Start demanding real conservative fiscal accountability by a return to sound money and an end to the mischief of paper currency and a central bank - whether or not "our" party or "our" guy or gal is in power.


William Weedon said...

echoes of Joseph buying up Egypt for Pharaoh. :(

Jeremy Clifton said...

"They have healed the brokenness of My people superficially, Saying, 'Profit, profit,' But there is no profit."

Or something like that ...

In an economic sense, Ron Paul is truly a modern-day Jeremiah. Unfortunately, as with Jeremiah, nobody wants to hear the truth that the wild party is over and the hangover is about to begin.

I'm amazed that we're (collectively) so blinded by greed that we can't see that what the Federal Reserve (and associates) are doing is the equivalent of me trying to drink coffee and energy drinks so I don't need to sleep. Sooner or later no amount of coffee will stave off the ugly crash.

Dan @ Necessary Roughness said...

Fr. Hollywood, on the mark.

I may write-in Ron Paul for President, just so that it gets measured. Sen. McCain is heavily interested in amnesty, rather than a real path to citizenship, for those who are here illegally. That pushes me against him more than Gov. Palin's story pushes me for him.

There has been a lot of conventional "wisdom" that people in my generation (I'm 34) have been told and believed, and we are living the results of that deception.

Rev. Eric J Brown said...

I knew that wasn't Palin and was Ron Paul a paragraph in.

:sigh: He did well. . . maybe it's a start.

Anastasia Theodoridis said...

Yeah, you're exactly right, but in concrete, practical terms, HOW do we go about "demanding real conservative fiscal accountability by a return to sound money and an end to the mischief of paper currency and a central bank"???

I'm very grateful that our mortgage was paid off a few years ago, and we have very, very little debt right now. And nothing at all in the stock market. Except, of course, that the Commonwealth of Virginia has our RETIREMENT FUND there...

Father Hollywood said...

Dear Anastasia:

Dr. Paul suggests a practical gradual approach to stabilize the economy by transitioning the dollar back to gold: 1) reintroduce metals as a legal competing currency alongside federal reserve notes 2) repeal sales and capital gains taxes on gold, 3) restore the enforceability of gold in contracts (this was previously repealed).

These could all be done very quickkly.

In reintroducing gold and silver as legal tender alongside federal reserve notes, people would have a choice as to what currency to trade in, and there would be competition. It would not take long before people would opt for the stability of gold (and silver) over the federal reserve notes.

As with most government schemes, monopoly is the problem. As soon as competition is introduced, we would start to see incentive to stop printing notes out of thin air and once again start trading in a currency of real value.

If we had a true gold dollar again, what would prevent it from becoming the de facto currency of choice around the world (as the dollar used to be when it was hard currency)? People would cash in their coveted euros for them.

If the scales at grocery stores were permitted to be tampered with, and we wanted to fix it, the first concrete step towards fiscal responsibility would be to insure that a pound at Winn Dixie is the same as a pound at Walmart, and that a pound in January is the same as a pound in July. Tying the dollar to gold (again) prevents inflation and government manipulation of the money supply.

And maybe there are other ideas we can try - there are a slew of expert economists who are advocating hard currency. Why aren't we (and our politicians) listening?

But printing more currency and giving everyone a "stimulus check" is (to borrow the term from the elder Pres. Bush) "voodoo economics." There is no free lunch. Even the old hippy bumper sticker that said: "[expletivie], gas, or grass, nobody rides for free" was based on a more sound economic principle than what we've got going now.

We simply can't keep the ponzi scheme going. We need to trade in a currency of real value - and that can be introduced gently and as an additional option to what we're using for "dollars" now.

Peter said...

Nice. Reminds me of the banquet speech given at a symposium a few years back, where the speaker spoke of lovingly of Pieper lovingly, only to let us uninformed rubes know he was speaking of moral philospher/theologian Josef Pieper.

Peter said...

Not to say, for the record, that the sainted Dr. Paul is wrong. But, it's also been the standard analysis of others, including the editorial page of National Review, the Wall Street journal, and many, many good conservative Republicans.

Father Hollywood said...

Dear Peter:

Sainted? Goodness, I didn't even know he was sick. R.I.P. and all that.

Good. If he is "not wrong" than that means he is right. And indeed, there are many other "good conservative" Republicans saying the same thing (they're called the Austrian School of Economics, see the Ludwig von Mises Institute and www.lewrockwell.com)- and I think we agree that sound money is a very conservative idea (even Scripture advocates "honest measures").

So, what are we going to *do* about it? I guess we can soon expect the GOP to come to its senses and once again support sound money, promise to abolish the fed, and come up with a concrete plan to back the dollar in gold once more.

"Standard analysis" needs to translate into actions. Will any other "good conservative Republicans" join Ron Paul in calling for the abolition of the fed's paper money house of cards?

I'm just not as optimistic as you are, Peter. I expect the GOP to completely screw this up. I hope I'm dead wrong on this. I want McCain, Palin, Obama, and Biden all talking about hard currency. I would love nothing more than for this to become a plank in the GOP platform (what a great day that would be!), but I expect it will only be business as usual - Ron Paul saying these things on FOX News programs while the reporter looks at him like a cow staring at a barn, meanwhile there will be lots of finger pointing, bailouts, and the printing press running overtime.