Article 43

 

Monday, November 02, 2009

The Next Depression Part 38 - The Worst Is Yet to Come Part 3

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Many people today dont want honest answers insofar as honest means unpleasant or disturbing, They want a soft answer that turneth away anxiety.
- Louis Kronenberger

Be Prepared for the Worst

By Ron Paul
Forbes
November 16, 2009

Any number of pundits claim that we have now passed the worst of the recession. Green shoots of recovery are supposedly popping up all around the country, and the economy is expected to resume growing soon at an annual rate of 3% to 4%. Many of these are the same people who insisted that the economy would continue growing last year, even while it was clear that we were already in the beginning stages of a recession.

A I FEAR that our stimulus and bailout programs have already done too much to prevent the economy from recovering in a natural manner and will result in yet another asset bubble.

Anytime the central bank intervenes to pump trillions of dollars into the financial system, a bubble is created that must eventually deflate. We have seen the results of Alan Greenspan’s excessively low interest rates: the housing bubble, the explosion of subprime loans and the subsequent collapse of the bubble, which took down numerous financial institutions. Rather than allow the market to correct itself and clear away the worst excesses of the boom period, the Federal Reserve and the U.S. Treasury colluded to put taxpayers on the hook for trillions of dollars. Those banks and financial institutions that took on the largest risks and performed worst were rewarded with billions in taxpayer dollars, allowing them to survive and compete with their better-managed peers.

This is nothing less than the creation of another bubble. By attempting to cushion the economy from the worst shocks of the housing bubble’s collapse, the Federal Reserve has ensured that the ultimate correction of its flawed economic policies will be more severe than it otherwise would have been. Even with the massive interventions, unemployment is near 10% and likely to increase, foreigners are cutting back on purchases of Treasury debt and the Federal Reserve’s balance sheet remains bloated at an unprecedented $2 trillion. Can anyone realistically argue that a few small upticks in a handful of economic indicators are a sign that the recession is over?

What is more likely happening is a repeat of the Great Depression. We might have up to a year or so of an economy growing just slightly above stagnation, followed by a drop in growth worse than anything we have seen in the past two years. As the housing market fails to return to any sense of normalcy, commercial real estate begins to collapse and manufacturers produce goods that cannot be purchased by debt-strapped consumers, the economy will falter. That will go on until we come to our senses and end this wasteful government spending.

Government intervention cannot lead to economic growth. Where does the money come from for Tarp (Treasury’s program to buy bad bank paper), the stimulus handouts and the cash for clunkers? It can come only from taxpayers, from sales of Treasury debt or through the printing of new money. Paying for these programs out of tax revenues is pure redistribution; it takes money out of one person’s pocket and gives it to someone else without creating any new wealth. Besides, tax revenues have fallen drastically as unemployment has risen, yet government spending continues to increase. As for Treasury debt, the Chinese and other foreign investors are more and more reluctant to buy it, denominated as it is in depreciating dollars.

The only remaining option is to have the Fed create new money out of thin air. This is inflation. Higher prices lead to a devalued dollar and a lower standard of living for Americans. The Fed has already overseen a 95% loss in the dollar’s purchasing power since 1913. If we do not stop this profligate spending soon, we risk hyperinflation and seeing a 95% devaluation every year.

Ron Paul is a Republican congressman from Texas.

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Posted by Elvis on 11/02/09 •
Section Dying America • Section Next Recession, Next Depression
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Has the Government Broken the Social Contract with the American People?

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It is only when the people become ignorant and corrupt, when they degenerate into a populace, that they are incapable of exercising their sovereignty. Usurpation is then an easy attainment, and an usurper soon found. The people themselves become the willing instruments of their own debasement and ruin.
- James Monroe, First Inaugural Address, 1817

By George Washington
Washington’s Blog
November 1, 2009

In a provocative comment to an essay I wrote, Kevin de Bruxelles ARGUES that the government has broken the social contract with the American people, and discusses the ultimate meaning of such a breach of contract:

One only needs to consult Hobbes to see where the answer lies.

In Leviathan, Hobbes contrasts two states for human society. The first being a state of nature which is described as perpetual war between individuals. The moral logic of the state of nature is that there is no right or wrong: To this war of every man against every man, this is also consequent, that nothing can be unjust. The notion of right or wrong, justice and injustice have no place. Where there is no common power, there is no law: where there is no law, no injustices. Force and fraud, are in war the two cardinal virtues.Ӕ (13.13) And then Hobbes goes on to describe the moral logic of the state of nature: And because the condition of man is a condition of war of every one against every one; in which case every one is governed by his own reason; and there is nothing he can make use of, that may not be a help unto him, in preserving his life against his enemies, it followeth, that in such a condition, every man has a right to every thing, even to anotherӒs body. (14.4)

In order to transcend the state of nature, men accede to a social contract with each other to submit to a sovereign and in the process establish a civil society. To Hobbes (later diminished by Locke) the sovereign is almost all powerful. His job is to keep the peace, to install laws and justice, and to coerce the population to live within the limits he sets. But the one of the few limiting factors on his subject’s duty to submit to the sovereign is The obligation of subjects to the sovereign, is understood to last as long, and no longer, that the power lasteth, by which he is able to protect them. For the right men have by nature to protect themselves, when none else can protect them, can by no covenant be relinquished.Ӕ (21.21)

What is clear is that in the United States, where the sovereign is the elected government, an elite segment of society, namely bankers and other extremely wealthy individuals, are playing by the old rules, the rules of the state of nature, and they are grabbing as much of THE PIE as they can. All this while the sovereign has at best lost the ability to resist this crime, or at worst, is actively complicit. But the vast majority of citizens are sitting by idly still thinking they live in a commonwealth with laws and justice.

There are two ways out of this mess. Either the sovereign must start playing his role and start enforcing the law and justice for all, or alternatively the citizens must stop submitting to this sovereign, overthrow this system government, and start all over again to find a sovereign since living in a STATE OF NATURE is not an option.

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Posted by Elvis on 11/02/09 •
Section Dying America
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