Capitol Hill Blue Forums Political Issues Finance, the economy & Economics How will the financial crisis develop?

Sometimes it helps to realize how we got to where we are in order to figure out where we are apt to go. I know it is all the rage to do the party partisan thingie and blame it on "the other party" in the hope of scoring voter points, or to pretend that a free market was in operation and somehow "ran amok", but both are borne of willful ignorance or intentional attempts to deceive the populus -- again for political gain.

It is not difficult to see what steps were taken to transfer power from the people to the government (that is to say those who control government and those who government serves) and how that resulted in the culmination of the current economic situation.

In 1913 the government passed income tax legislation that put its hand into the pocket of almost every worker in America. Government now had access to a reliable source of funds that could not be easily denied to it by the populus.

Also in 1913 the government created the Federal Reserve and a fractional banking system. It now had the power to create money without relying on an increase in worker's taxes. It now had a magical money machine.

In 1933 President Roosevelt and the hagfish of the New Deal made it illegal for Americans to own over 100 dollars in gold coin or bullion, confiscating any amount over that limit. This of course, completely stripped the people of the power to control government-created paper by demanding redemption of the paper currency in gold. The great slide toward today had begun in ernest.

The culminating achievment in this monumental transfer of power from the people to a centralized and colossal federal government happened in 1971 when the government went off of the gold standard that was still in place relative to foreign governments. The transition to a completely fiat, credit-based money was completed.

The ability to access funds in conjunction with Keynesian economic policy (vs actual economics) meant that throughout much of the 20th century the people were subjected to a hidden tax in the form of inflation, increased government distortion of various markets (especially housing and other forms of real estate) through subsidies, selectively directed tax advantages, and industry-specific favorable regulations. The resultant distortions that resulted were then countered by the government through the implimentation of Keynesian theory, preventing market forces from quickly correcting for years of government created imbalances.

A really, really bad thing about government pumping money into the system to counteract these periodic corrections is that the corrections were never allowed to complete their work, meaning that each attempted market correction simply accumulated, thus ensuring that one big recession would be eventually followed by an even bigger recession resulting in even bigger countermeasures taken by the government. The formula with a fiat money system is simple -- flood the market with money, the few who can afford to get in at the front end and make a killing prior to the onset of the next round of inflation which is absorbed by the majority on the back end of the ride.

The latest cumulative mess has as its source a government that pumped out massive amounts of fiat money, artificially reduced interest rates, and made huge somes of money easily available. Add to this the "too big to fail" collectivist crap that was a tacit acknowledgement to those so designated as such, that they could get away with stupidities and risks that they would never have attempted under a system in which market forces were allowed to operate without hinderance, and you have the inevitable bubble-based market we have enjoyed repeatedly over the decades. People will follow their human nature -- especially when induced to do so by government action.

Believe it or not, things really are that simple.It only gets complicated when folks try to rationalize their positions or actions or when they inject political bllhst.;-)
Yours,
Issodhos