Monday, September 22, 2008

Understanding the Crisis

Chart of the value of the dollar 1800-2000 courtesy of Seeking Alpha.

I believe a lot of people are terribly frustrated by the current economic crisis because they don't have a clue as to what is going on. All they know is that a lot of extremely wealthy corporations and banks are asking for handouts and welfare - lots of it. Billions and billions of dollars. Maybe a trillion, but who's counting? And they (the taxpayers) understand that they (the banks) will get it (the handouts). And who will pay? Who will do the "bailing out"? The taxpayers. One way or another, this is a direct wealth transfer from us to them. We know it is going to happen, and we know that we are getting the short end of the stick again.

No wonder the taxpayers, who are also voters, are balking.

Part of the problem is that the vast majority of voters have no clue what the Federal Reserve does, how it works, where money comes from, and why these kinds of credit meltdowns happen. There is almost a "shadow government" operating behind the scenes, an unelected cadre of wealthy men turning wheels and spinning gears. None of us are supposed to look behind the curtain. In fact, the Federal Reserve is not even permitted to be audited!

We would like to think our elected officials (as well as those seeking higher office) understand what's happening. But it becomes apparent that many of them are as clueless as the rest of us. Instead of sober explanations we get hysterical finger pointing. Instead of intelligent analysis we get glib one-liners. Instead of frank talk, we get focus-group approved talking points.

Sen. Barack Obama says: "This plan can't just be a plan for Wall Street, it has to be a plan for Main Street." This is a three-second jingle that means absolutely nothing. It's just a clever way to rhetorically link "Wall Street" to "Main Street" for the sake of a soundbyte. This is the best we can get from a man who covets the presidency. I think Sen. Obama would have a better career on Madison Avenue than Pennsylvania Avenue, if I may play with the "street" analogy a little myself.

I saw a headline for an article regarding Sen. John McCain's analysis that was more hopeful: "McCain says Fed should stop government bailouts." Hey, maybe this guy gets it. Of course, before I got my hopes too high, I read the article: "Addressing a business group in Wisconsin, the Republican presidential hopeful said the Fed should get back to what he called 'its core business of responsibly managing our money supply and inflation.'"


That's like condemning the mafia for lawlessness and thuggery and saying that it needs to get back to its "core business of protection schemes, running numbers rackets, and prostitution." So, Sen. McCain believes the Fed's job is to "manage our money supply and inflation." Managing inflation? Inflation is the devaluation of our currency. Their job is to "manage" the theft of everyone who trades in dollars by systematically lowering the value of that dollar in your pocket? Is there any such power delegated to anyone in the Constitution? Would we tolerate the deliberate reduction of the gallon or the pound by some unelected unseen bureaucracy every time we bought gasoline or produce? Obviously, someone benefits from this arrangement (the modern-day equivalent of the ancient crime of shaving a bit off of the gold coins). And now, those who have benefited for so long, those who have enriched themselves at our expense, those who have now killed the goose that laid the golden egg, want a welfare check. "Don't you people realize how expensive Beemers and private jets are? I mean, billionaire bankers have to make a living too! Do you think it's easy?" Let's take up a collection...

Anyway, I'm afraid Sen. McCain doesn't get it any better than Sen. Obama. They are indeed two sides of the same coin that has been demetalized and stripped of its value. It's a two-headed trinket that you can't even redeem for a cup of coffee.

And then there was the news report of Gov. Palin's speech before 60,000 enthusiastic supporters in Florida (which, if it had been Obama, we would have heard mockery from talk radio comparing him to a messianic figure): "[John McCain] will fix the nation's economy if voters give the GOP four more years in the White House." Now, that is not a direct quote from Gov. Palin, but rather a paraphrase from the reporter - who was in no way hostile in his reporting. If she actually did either say or imply such a thing, think about the implications. If the president of the United States can indeed "fix the economy," then who should be fixing it now? Aren't people who support McCain-Palin also supporters of President Bush? And if President Bush is responsible, than how can this be Congress's fault, or the Democrats' fault, or Obama's fault - as a lot of GOP members are positing.

If the future possible President McCain can fix it, that means the incumbent President Bush broke it. On the other hand, if Congress broke it, that means President McCain can't fix it either. So, which is it? Does the buck stop with the president or with Congress? But then again, Senator McCain thinks it is the Fed's job to "regulate" our "inflation" anyway.

Has the entire Federal government gone mad?

The only way to make sense of any of this is to learn what caused the crisis in the first place, and that means we Americans - especially those of you who are so passionate about the "right" to vote - need to know what the Fed does, why we got into this mess, and what is the proper way to get out of it. Unfortunately, we will not learn any of this is school, nor listening to Rush, nor reading the latest Ann Coulter book. But fortunately, you can educate yourself.

For example, conservative economist F.A. Hayek was swimming upstream in the boom-bust-depression 1920s and 30s as the mainstream study of economics went in the completely opposite (socialist) direction. His was walking the "lonely way" of market economics, and was only recognized for his genius internationally by the 1974 Nobel Prize committee. Hayek predicted the mess we are in today, as did other economists who likewise were the minority voice against socialism and the welfare state. If you'd like to learn more, check this out! As a voter and a taxpayer, you owe it to your fellow Americans, as well as to your grandchildren and great-grandchildren who will still be "bailing out" the current crop of corporate welfare recipients.

Don't think for a minute that the other side isn't plotting and scheming to lay the blame for this on conservatism and free market economics. They are already at work.

Maybe we conservative-minded Americans need to spend less time in front of the TV (even if it is FOX News), less time listening to talk radio (even if it is Rush and Sean), and less time looking for a really cool t-shirt making fun of liberalism - and start actually walking the conservative walk by reading, learning, thinking, teaching, and demanding that our legislators and politicians do more than mouth platitudes and continue to protect their friends while saddling all of us with the burdens.


chaplain7904 said...

Fr. H asks:

Has the entire Federal government gone mad?

Fr. K. the amateur economist answers: Yes.

Rush and the others may be good at politics (they're too liberal for me), but they're nothing but cheer leaders for Bush and the economy. They don't understand economics. They're down on the bailouts, I think, because they're socialistic. That's not the right reason. The right reason is because bailouts are bad economics.

I've never been more serious in my life as when I say: those in charge of the economy have no earthly idea what they're doing. (If they do then they must be tried for economic-crimes, as are war criminals.)

By the way, I resent being called a "taxpayer" by the media and the gov. We are "the people" or "citizens." (But truth be told, "taxpayers" is all we are.)

(Matthew 17:25-26 "...when he came into the house, Jesus spoke to him first, saying, "What do you think, Simon? From whom do kings of the earth take toll or tax? From their sons or from others?" 26 And when he said, "From others," Jesus said to him, "Then the sons are free. )

Anyone who wants to know what's what should read Economics in One Lesson by Von Hayek. Read it three times for good measure.

I'm sad to say that I didn't know the first thing about economics until I was 56 years old. Since then I've acquired an autodidact degree in the same. In my opinion, after theology it's the most important subject on earth.

Economics is especially congruent with Lutheran theology. Supply and demand is like Law and Gospel, inviolable. Sinful nature is never seen so clearly as in the economic schemes of men.

P.S. Buy gold.

Pastor D said...

Pr. Beane,

Long time reader first time poster.

The residuals of IKE were felt in Northeast Indiana last Sunday. Southern Indiana had sustained winds of close to 60 mph and Northwest Indiana had some flooding. Cincinnati, OH had power out for over a week! There was some damage to corn so harvest might be slow going this harvest season. But all in all we’re hanging in there! We are thankful.

The latest economic woes will be felt in the American heartland I fear. What will be hurting local farmers are the "inputs" for next spring. A typical 500 acre field of corn in 2009 will require $250,000 in fertilizer alone! Add in fuel, chemicals, seed, and it gets downright expensive to bring food to the American table.

While fewer are farming full time those that do farm "on the side" used the extra income (if they have any after the bills are paid and the tax man takes his shares) to purchase necessities like medical insurance, pay their children's education and help fund the mission of our churches and schools.

If commodity prices take a tumble or crash there might be a lot of people in a world of hurt. And the whole "food for fuel" concept has added an entirely new paradigm to American agriculture. Kyrie Eleison!

D. Dahling
Decatur, IN

Pastor said...

Great post, spot on once again. Wanted to point out to you a cheaper place to find those great Hayek and von Mises books recommended on Lew Rockwell's site:
Liberty Fund Books,

wmc said...

Amen and Amen!

As a graduate of the Univ. of Chicago who had the privilege of hearing the likes of Friedman. Becker, et al, I couldn't agree more.