And Now Here are a Few Words About Prices

In my opinion the entire "financial crisis" (which led the bankers and other power elites to come begging for a "bailout") is the result of too many people borrowing too much money for houses for which they overpaid. In other words, the prices people paid for houses in 2005 are higher than the prices people are willing to pay for houses in 2008 (and probably 2009 through some time a few more years from now).

And speaking of prices, Lew Rockwell, a smart guy and an expert on Austrian economics, including the business cycle as explained by Ludwig von Mises and Frederic von Hayek (work for which Hayek was awarded the Nobel Prize in Economics in 1974, by the way) offered up the following paragraphs about prices in this recent article. It really helps me to understand this stuff when writers put it in to a sort of everyday context. I like when folks do this.

* * * * * * * * * * * * * * * * * * * * * *

But does it mean that the economy is going to tank and we will all suffer? On the contrary, it could mean that we can begin an economic recovery from the Fed-generated bubble that should have and would have burst years ago but for artificial props by the Fed. If the stock prices of these troubled institutions can fall to where they need to be, they can be taken over, and their assets used productively and traded by the market. Once this deleveraging takes place, we will be ready for a new round of economic growth.

You have to understand how ridiculous this whole debate looks to anyone who understands the price system. Let's change the example from houses to apples to see how silly it is to suggest that falling prices can be made to rise. Let's say that the Fed created an apple hysteria that drove the price from $3 per pound to $10. Stores loaded up and even used them as collateral for expansion. Suddenly the price collapsed to $5 and finally to $2.

Now government takes notice. What can government do to deal with the problem? It can try to boost the price of apples by forcing stores to raise their prices. But what about consumers? They won't buy at $10. So the apples sit and rot. Maybe government should buy them all or force consumers to buy them. Also perhaps stores will just not buy any more at all. Government could force them to. But it can't force them to stay in business. People can always walk away. So perhaps government can just buy the stores, all in the interest of keeping the price of apples up. But it will have to buy the apple-leveraged stores at a much higher price than the market would offer, so this is a bad economic deal on the face of it.

The tangles can get ever more complicated and billions and trillions can be spent. You can put everyone in a prison camp and force people at the point of a gun to buy and sell apples at $10. But in the end, the problem is still the same: the price of apples wants to fall. Nothing government does changes that one fact. To attempt to change it is like trying to change gravity. Of course, the government’s central bank can raise all prices through inflation to the point that apples do in fact cost $10, but this is purely cosmetic. In fact, in real terms, the price of apples is still $2. It is a pointless and destructive activity to try changing this. You only cause massive damage in the attempt.

* * * * * * * * * * * * * * * * * * * *

And the principles are the same if you're talking about houses (as we are in 2008) as apples. If people are no longer willing to pay the high prices of 2005 that's just how it is.

By the way, please keep in mind, the true fly in this financial crisis ointment is the Federal Reserve Bank and the true poison those folks have been passing around is overly cheap credit/money.

And finally, stay alert. Because I'm sure the bankers who are so desperately in need of our money will be back. They'll figure out some way. I saw earlier this morning on intrade.com that folks were trading at an approximately 80% chance that the U.S. government would do some sort of bailout of these financial institutions by the end of October 2008. I hope they're wrong.

RON PAUL "BAILOUT" VOTE VIDEO + HOUSING CRISIS PREDICTION (FROM 2003)

ON THE BAILOUT:

Video below of Ron Paul's comments outside Capitol Hill shortly after the "NO" vote on the bailout ...




MY KEY TAKEAWAY #1 ... the Federal Reserve and the government will continue to inflate towards the destruction of the U.S. dollar (this is the principal threat to the standard of living of ordinary Americans). Note, for example, that even while the $700 billion bailout bill was getting voted down in Congress, the Federal Reserve was busy pumping another US$630 billion of "liquidity" (new "money" freshly created out of thin air by the feds) into the "global financial system." For a report on Bloomberg about this item, click here.

MY KEY TAKEAWAY #2 ... do not believe the reports you will hear from Establishment politicians and journalists that the "free market" failed Americans. Our capital markets are not free (see, e.g., the Federal Reserve) and the amount of government intervention into commerce is staggering (see, e.g., the rest of this note below about Ron Paul predicting the Housing Crisis because of some prior legislation he understood) ...



ON THE HOUSING CRISIS ...

The next time you hear Bernanke or Paulson or some other government or finance big wig say that the financial crisis came out of nowhere and is such a huge surprise, know this:

Ron Paul knew the federal government was creating a bubble in the housing market because of monetary inflation and because of its support for Fannie Mae and Freddie Mac.

And, because he understands Austrian economics, Ron Paul also knew that the bubble would eventually pop, and that when it popped, it would result in losses of home equity to people who bought houses during the (artificial) boom and losses to companies that extended mortgage debt to to those people during the (artificial) boom.



It is important - I think - to keep this in mind when today high-ranking members of the executive and legislative branches are busily running around saying surprised they are at the occurrence of the financial crisis for which the Bush administration says it now needs $700 billion (in addition to the other hundreds of billions already devoured).

The Austrians are not surprised. Only the Keynesians/Friedmanites (monetarists) are surprised. Ron Paul has been sounding the alarm on this issue for most of this decade (and probably longer).

How do I know this? How can I say those things with such certainty?

Because in 2002, Ron Paul introduced a bill to the U.S. House of Representatives called the Free Market Housing Enhancement Act. And when he introduced this bill ... all the way back in 2002, he gave a speech explaining exactly what was going to happen (artificial housing boom, inevitable housing crash, financial losses/crisis).

Here's the transcript of his remarks to the U.S. House of Representatives:

Government Mortgage Schemes Distort the Housing Market

On Cellistical Exertions - Part 1

So tonight I am listening to Bach's Cello Suite #1 in G major, performed by a very famous cellist named Mstislav Rostropovich (yes, that's how it's spelled on my CD).

I wish I could say I am listening to this because of my vast cultural sophistication, but I can not. There are two reasons why I am listening to this, and I will share those reasons with you now.

In the first place, my wife is right now watching the season premiere of Desperate Housewives and I am trying to read and this music works pretty well to block out the television noise (headphones). And in the second place, there was a car commercial or a movie preview that used the first movement of this suite as background music and ever since then I always wondered what it was until a friend of mine who plays the cello told me and I bought these discs.

But none of that is the reason I'm writing this note. The reason I'm writing this note is because, to my interest (and amusement), I am pretty sure you can quite clearly hear Mstislav breathing during short breaks in the music during the second and third movements on this recording.



The notes do move along at a pretty good clip, and the act of extracting music from a cello does involve more than a little bit of physical exertion (what with all the sawing back and forth of the bow across the strings), so I guess it's only natural that the demanding parts would leave the performer breathless (or at least needing to breathe vigorously enough for the microphone to pick up the sound of the inhalation).

I approve of the sound of the breathing on this CD.

MY "BAILOUT" LETTER TO SENATOR JOHN CORNYN

I sent the following to Senator John Cornyn a few minute ago. That's him on the left in the photo below.



I'm sure this letter will make all the difference (especially given my recommendation that he and his staff speak to Ron Paul if they don't already know the truth about what's afoot (and given I think President Bush considers him a pretty reliable legislator)).

+++++++++++++++++++++++

Senator Cornyn:

I am sending you a note to let you know that I am strongly opposed to the "bailout" proposed by President Bush's administration.

The most important reason that I am opposed to it -- and the best reason for you to be opposed to it as well -- is that it simply will not work. The "bailout" will not improve the economic condition of Americans (except bankers, etc. who are guilty of the malfeasance and errors that created the problem in the first place). More monetary gimmicks (inflation) will not cure the ills wrought by the monetary gimmicks (inflation). If you are unsure about this, please ask (or ask your staff to ask) Congressman Ron Paul for help (he knows the truth about these issues backwards and forwards).

The "bailout" is also immoral -- a direct theft of wealth from one group of people (people who save money and pay their bills and otherwise aren't involved in the "financial crisis" beyond being at risk of the federal government plundering them: people like me) to another group of people (people who took full advantage of the Federal Reserve system on the way up and who are looking to be protected from the folly of their decisions on the way down: the bankers and financiers).

I hope you will vote against any proposed bailout.

I am a registered Republican living in the state of Texas.

This is a "make or break" issue for me.

Thanks for your time and service.

Garrett

Some Reading and Some Watching on the Bailout

Ron Paul continues to deliver the goods (truth) re: the bailout.

Ron Paul on the Bailout

Jon Stewart continues to deliver the goods (irony) re: the bailout as well, though I wish Stewart was publicly out there clamoring about the Federal Reserve (which he is not).

I thought the name of their new segment ("Clusterf#@k to the Poorhouse") said a lot.

Click below to enjoy.

RON PAUL ON FINANCIAL CRISIS

Here's an informative, helpful video of Ron Paul speaking to some folks from Fox Business News. Interestingly, the panel interviewing Dr. Paul seem to me to be sincerely trying to understand what is going on. So they must be actually scared.

(Which they should be.)



People -- if we're not careful, the Keynesians among us (including Bernanke and Paulson) will destroy our standard of living.

Ron Paul's Rally For The Republic

Ron Paul is having a Rally For The Republic in the Twin Cities today. According to Dr. Paul's website, CSPAN-2 will cover all the proceedings.

Go here for the details of who is speaking when.



Hurrah!!