Left-wing Think Tank Acknowledges Failures of TARP, But Advocates Wrong Ammendments

The Center for Economic and Policy Research, a “progressive” (liberal) economic advocacy group’s director, Dean Baker, criticizes TARP, but for the wrong reasons[1]. Instead of criticizing the practice of malinvesting taxpayer money in failing companies, the testimony focuses on advocating restrictions on the few aspects of the banking industry not controlled by government. However, such restrictions would only cripple the financial market further.

The CEPR suggests a rule that would force banks to allow people to live in foreclosed homes as “renters”. Presumably, the way this would work is that the homeowners would have their houses foreclosed but they would have a right to continue living in the same house, and so the banks would not be able to auction off the real estate. Besides the fact that this would drive up home values due to a decreased supply of cheap foreclosed housing, such a regulation would limit a bank’s ability to pursue profit, and banks would experience more losses. And bank losses began the financial crisis.

Another suggested regulation on the financial industry was a cap on executive pay. Because such a cap would only apply to our country and because executives can afford to move, it is likely that this would cause the best of the executives to seek working in foreign markets. Because this regulation, as currently proposed, would only affect the financial sector, the best executives would leave the financial sector in search for higher pay elsewhere. The CEPR does not understand that there is a competitive market for effective executives, in the interest of company profit.

The CEPR also mistakenly asserts that bank executives decide their own pay. This is absurd. If the bank is a corporation, then a board of trustees decides executive pay. If the bank is owned by the executive, then executive pay is determined entirely by the profit of the bank. Else, the executive is an employee whose way is determined by his/her employer. The wages of an executive are not a drain on the company, but a necessary investment. to ensure the efficiency of a company.

The CEPR also mistakenly asserts that regulations are not interference with the market. Any regultion is an interference with the market if it has any effect at all.

The CEPR is correct in asserting that banks are not forced or pressured into making loans it would otherwise make, because such loans would constitute a loss. However, when we cross apply this premise to some of the policies they advocate, such as expansionary monetary policy, the contradiciton is certain. Expansionary monetary policy necessarily encourages banks to give out loans because the Federal Reserve interest rate decreases and more loans become profitable. The bubble is then formed which the CEPR next criticises as the cause of the recession. If this bubble was most certainly the cause of recession, and it was, and this bubble was caused by expansionary monetary policy, and it was, shouldn’t the CEPR change their advocacies?

The CEPR will not change their advocacies because they are dedicated neokeynesians who believe that individuals are incapable of effectively and efficiently controlling their own actions in the pursuit of their own welfare. This is absurd, for the only thing that keeps individuals from doing this is the hand of government.

This article refers to http://www.cepr.net/index.php/publications/testimony/the-failures-of-tarp/.

On the Utility of Economic Liberty

Economic liberty means the ability of the individual to choose the use of his property, whether this means production, consumption, modification, or exchange. The motivation for this use is to improve one’s welfare, physical, mental, or emotional, either in the present or in the future. The result of this liberty is a society in which property is manipulated in a way that most benefits each user.

Movivation is not necessarily outcome, but this motivation can be demonstrated significant in this manner. In the process of making decisions, the individual can, and often does, obtain information necessary to reach a desired result. This itself reduces the tendency for random error in the market; however, even more truths confirm the market’s efficiency in maintaining utility, as will be shown below.

An exchange occurs because multiple individuals find it in their best interest to trade property. Again, the motivation for making an exchange does not necessarily mean that both parties will benefit; however, in the interest of benefitting, both parties of the exchange will release information significant ot guarantee confidence to ensure that the other party will agree to the exchange.

Production occurs in a market because individuals wish to implement their person and property in a manner that will allow a return (through exchange of the produced goods and services). This return is necessarily greater when the goods exchanged meet the most urgent and significant wants of the consumer; therefore, the individual will seek to produce goods and services that the potential purchasers will desire most.

As with exchange, the intents of satisfying the population with production are not necessarily the results; however, the burden of absense of individual demand is significant enough to reallocate goods and services other percieved demands of the consumer. Production is always tending towards meeting the demands of the consumer.

The result of this individualist liberty is naturally a greater utility for society, a general welfare out of chaos. Violence, or coercion, on the other hand, necessarily forces a change in the above criteria and necessarily lower the utility and welfare of society. This economic violence must cease to the highest degree possible if true prosperity is to be witnessed.

Predicting the Effects of Expansionary Monetary Policy on an Economy in Recession

The Obama Administration has enacted both of Keyne’s creeds: Expansionary Monetary Policy and Deficit Spending. This article will focus on the former.

Expansionary monetary policy is enacted to lower interest rates in times of deflation. This encourages investment, and ideally improves the economy and brings it out of recession. However, this Keynesian analysis is limited. After the economy recovers due to a particularly large session of EMP, hyperinflation occurs. Hyperinflaiton is inflation to the point where interest rates rise as if deflation were occuring. This is due to the fact that interest rates must necessarily be above that of the inflation rate, or banks face immediate deficits.

This increased interest rate necessarily passes the inflationary burden onto businesses. This pushes them into deficits of their own, and many businesses have to lay off workers in order to restore their profits. This is the harmful effect of hyperinflation, which can occur if enough EMP is enacted at once.

Though hyperinflation is destined to occur to this recession, there are other harmful effects of EMP that happen every time expansionary monetary policy is implemented. Any time interest rates are artificially lowered, more loans are taken out and less money is saved. This often leads to a “boom”, like the one of 2002 to 2006. However, when the market over invests poorly as a result of this policy, the result is always the same: the economy lurches into recession. Savings have been consumed and most people have spent and invested themselves into large loans. The recession then ensues.

What then, occurs when, as we are now, we implement EMP during a recession? Such an event causes a double-dip recession. The economy spends itself even more up to a point, and then the economy collapses in debt again. This has happened more than once since it happened in the Great Depression.

Expansionary monetary policy is necessarily a harmful policy to implement on society in mass quantities at any time. The proper solution is to let the market painfully recover from its government-stimulated overinvestment. Haste makes waste.

Recession Update: Economy Worsens

CNN made a decieving headline today: “Jobless rate down for first time in a year”. What is perhaps comical is that the only “jobless rate” that was down was the number of jobs being lost (“only” 247,000 jobs were lost in July). What the headline implied was that the unemployment rate had decreased, when in reality,  unemployment is still on the rise. Indeed, we are in the middle of the deflationary spiral. The same CNN article acknowledges that the national unemployment rate will likely increase to the double digits.

While it may be a little early to call Obama’s economic policy a failure (seeing as most of those “shovel-ready” projects will not begin until the end of next year), there certainly has been little to no recovery. In the middle of July, when the markets usually boom due to the spending of savings on family vacations, the only good news was that fewer jobs were lost than the month before and the unemployment rate fell 0.1%.

Obama’s manipulation of the the banking industry doesn’t appear to have done too much help, either. According to Fox Business, due to continued real-estate deflation and instability, banks are continuing to experience significant losses. Of course, Obama’s solution to this problem is another bailout, this time of the real-estate industry. Based off of our experience of past bailouts, the real-estate bailout will likely shift the instability elsewhere, while keeping the real problem in place.

Confidence in Washington Falling Considerably

According to the Bureau of Labor Statistics, thirteen states now have double digit unemployment rates. As a result of the lack of improvement, many Americans are now questioning Washington’s ability to combat this problem. In fact, a new Fox News Poll indicates that a majority of Americans doubt that the Obama Administration has any clear plan for fixing the economy. The poll results also indicate that 73% of Americans doubt that Congress has such a plan either.

As of Healthcare, the poll indicates that most Americans don’t believe that major health care reform can occur without increasing taxes and the budget deficit. In fact, 64% of Americans would rather have their ailments treated by private health insitutions than by the federal government. Further, only 3% of Americans consider thier current healthcare quality poor.

What was perhaps most interesting about this poll was the last question:  “Do you think members of Congress should be required to read and know the details of legislation before they can vote on it — even if the bill is thousands of pages long?” The bipartisan answer was a resounding 92% yes.

So what does this all mean? It means that America has lost confidence in Washington. America has even lost confidence in Obama. Change has failed. Hope has backfired. What do we have left?

Government Intervenes Deficit Spending: Will this help?

Or will it end all hopes of recovery?

According to CNN, the government has pushed the debt over$9,542,000,000,000 with the intention of stimulating the economy. The large majority of this money is trying to stabilize banks and “make credit more accessible”. The logic behind this is that in times of economic growth, interest rates are low.

However, interest rates cannot sink below inflation rates without massive bank failure. This is because the rate at which the real value of loans decreases due to inflation and the rate at which the real value of loans increase due to interest balance when these rates are equal. So, banks can only make wealth when their interest rates are higher than the inflation rates.

We should now realize that the intervention in our banking industry will NOT help the banks, but rather cause permanent damage. While curing temporary illness, the government has injected a poison: inflation. With an approaching fivefold increase in total currency in circulation and with artificial competition in the banking industry, not only will inflation rates increase rapidly, but banks will not be able to raise interest rates to keep up.

The federal government has already applied regulations that will prevent the banking industry from increasing suddenly and steeply. The result of this will be bank failure, followed by hyper inflation and ridiculous interest rates, and then ultimately the fall of the global economy.

It is a sad thing to predict, but no other result can come from this print-and-spend government and its attempted control of the credit market.

Inflationary Stimulus

According the the Federal Reserve Board, the federal government has nearly quadrupled the money flowing through our economy in the last five months…

While in the short term programs and people can pay down their debts, in the long term price inflation is expected to reach the double digits according to Dick Morris. What does this mean? Well, all those who were saving their money for harder times will see the value of their savings drop quickly. Further, interest rates will rise, making it harder to get a loan and start a business.

So, with diminishing savings and a halt in entrepreneurship, what can we see happening soon? Well, nothing good.

A Temporary Gain

DOW jumped 500 points today.

Unfortunately, this is nothing. DOW has already dropped 7000 points since the height of the Bush era. Bush began the bailouts late in 2008, and finally, 2+ trillion dollars later, DOW jumps 500 points…

Well, I want my money back. I’m sure most Americans do. We can only begin to imagine how much 2 trillion dollars flowing through our economy would help. Instead, it has been sapped in by the government and dumped into failing companies, ultimately to be lost.

Americans have a right to be concerned. But still too many are impartial.