More Stupid Government Tricks

Mike Shedlock hits it on the head - again. The latest call from FDIC chair Sheila Bair to prevent more foreclosures from occuring is just more of the same government intervention that got us into this mess.

If the Fed and Alan Greenspan hadn't lowered interest rates to rock-bottom lows, juiced the money supply, and encouraged everyone with a job and a pulse to get a mortgage and buy a house, we wouldn't have this gross misallocation of resources, and this mess in the first place.

Ron Paul took Bernanke to school (again) about the dangers of government intervention in the financial markets, and loss of civil liberties during the Fed Chair's latest testimony to Congress. This unholy association of business and government isn't just the wrong prescription for America's economic woes, but is an increase of the Fed's power - which is virtually unchecked by our Constitution.

The Declaration of Independence says Americans have the right to 'life, liberty and the pursuit of happiness,' not a guarantee for 'price stability and maximum employment,' which is what the Federal Reserve is supposed to do. But that's not the role of government as defined by our Founders. Government can't (and shouldn't) try to promote an 'Ownership Society' or any other guarantee of financial or other security. Whatever the government can give, the government can also take away - too many Americans have forgotten this important point.

When you listen to what Congressman Paul says about our economy, monetary policy and the role of government today, he makes more sense than any other politician in Washington today. It's an absolute travesty that the so-called 'conservative' Republican party tried to ignore, mock and railroad his candidacy for President. The GOP is like a headless chicken running around in circles, and the Democratic party isn't much better.

As John Loeffler from Steel on Steel says, it's Socialist Party (D) and Socialist Party (R), with very little difference between them. Ronald Reagan said it best: "Government is the problem, not the solution." Americans need to remember that the government that caused our financial and economic mess isn't the best entity to try and solve it.

Only time, the free market, and getting government out of the mix are the best solutions for our economic and financial woes.

Paulson Didn't Listen...

Just as I ended yesterday's blog post asking Ben, Hank and the boys to get heck out of the way, they just couldn't leave well enough alone. I should have known better... it is an election year, and they have to throw some bread to lower and middle-class Americans, while the circuses of reality TV and pop culture entertain them.

My suspicion is that it'll help financial firms like Merrill Lynch and Bear Stearns with the valuation of these bundled and sold mortgage 'investments' (and I use that term very loosely), and improve how they look on their books - maybe for another quarter or so. But it's only a short-term Band-Aid that may prop up the public's confidence in the mortgage market.

And confidence is the only real 'collateral' that investors have with financial paper assets. History shows that once the public loses confidence in a paper asset, it takes a long time to get that confidence back. One example is the Dow Jones Index, which basically broke even in nominal terms from 1929 to 1954, and actually lost ground against inflation.

Other paper assets, such as Enron stock, will have a loss of confidence and never get it back again. That's why I'm very bullish on precious metals and commodities over the next few years to a decade. Gold is a good buy, but silver is still a GREAT buy - even at $17/ounce. Gold and silver-mining shares (and the physical metals) are the best places for your money. Metals markets can be very volatile, but don't let that scare you.

All markets - whether they're stocks, bonds, or commodities - will be pretty volatile in the next few years. Tangible assets will NEVER go down to zero, like a share of a dot.com stock can. And the Fed will keep increasing the money supply, with a larger number of dollars chasing the same number of commodities. That's the biggest reason I'm bullish about investing in these markets, and you should be too.

Is the Credit Crunch Growing?

We've all known for several months about the sub-prime/ARM mortgage debacle, and how it's forced lenders to tighten their standards. Better late than never, I guess.

Now we're seeing a reduction in lending with credit cards. Exhibit A is the British Internet bank, Egg, withdrawing credit to 161,000 customers it believes pose an 'unacceptably high risk.' Peter Schiff, head of EuroPacific Capital, also sees credit-card lenders in the US ratcheting up their standards after seeing their profits go down, and their stocks downgraded.

As I've said before on this blog, excess credit and speculation have been the two main drivers of the dot.com and real estate manias - and ultimately, the US Economy. Once the credit begins to contract, the overall economy will follow suit. If you understand the fundamentals of Austrian Economics, it's pretty easy to predict. If you don't know these fundamentals, get up to speed on them as soon as you can.

Go to: 321Gold.com, Financial Sense Online, Prudent Bear, Daily Reckoning.com, and Kitco for starters. If you just want entertainment, eye candy, and escapism from the real business and economic world, go to Fox Business News or CNBC. Liz Clayman and Erin Burnett are definite hotties.

Where was I at? Oh yeah, credit and the economy. It was inevitable that we'd come into a recession because of low interest rates, easy credit, and the increase in money supply. The yin and yang of business cycles, if you will - whatever goes up must come down. It should be common sense... you can't just borrow and spend your way into prosperity.

If we're not in recession already, it's not very far away. The skyrocketing foreclosure rates around the country, and the emptier bars and restaurants I see in the Denver-metro area indicate the economy is slowing down. Last week's ISM non-manufacturing index number confirmed this suspicion as well.

It doesn't matter what kind of stimulus package Congress or the President passes, or how low the Fed pushes interest rates. The only cure for this credit-induced party, is an extended recession that will probably last several years. My hope is that Americans eventually realize that government intervention in the economy (and any other part of society) isn't the answer to our problems, but the cause of them.

Get Paulson, Bernanke, Bush, and the whole crew out of the way, and let the financial hangover begin.

The Mother of All Bad Ideas

Peter Schiff hits it on the head with his latest column. President Bush and Secretary Paulson are putting the best possible spin on this proposal, and how it will alleviate problems in the sub-prime and overall housing market. But the only thing that will "solve" this problem is time, sanity and better lending practices.

Whenever government gets involved to 'help' free markets, bad things happen. As Schiff eloquently says, this is a stay of execution for the real estate market instead of a pardon. A majority of Americans are over-leveraged with bad debt (credit cards, auto loans and home mortgages on their residences) that doesn't put any cashflow into their pocket.

While a growing number people are focused on rapidly-declining (or negative) equity in their homes, they're ignoring the most important part of personal or business finance - cash flow. The flow of cash is to a business or household what blood is to the human body. These high levels of debt Americans have incurred to finance their rock-and-roll lifestyle, are clogging their financial arteries (and reducing the net positive flow of cash) like a baked potato loaded with sour cream and butter constricting human blood vessels.

The only way to solve cardiovascular and financial problems is to make healthier financial choices - cut back on bad debt... learn to sell and market... start your own (or a more profitable business). I'd recommend reading authors such as Peter Schiff, Robert Kiyosaki, and Dave Ramsey. All three are healthy oases of common sense in an increasingly insane world.