Ron Paul and the Credit BubbleSubmitted by Hard Work on Fri, 11/02/2007 - 12:45
From a number of long years of study and observation, I have come to the personal conclusion that we have recently bore witness to the largest credit bubble in the history of America. This bubble, which started in Tech/Telecom in the late 90s, then found its way to housing, mortgage and structured finance in the past five years, has destabilized the economy and allowed for a number of major maladjustments that have let many reap undue rewards at the long term expense of our economy.
One of the central drivers of this bubble has been an implied guarantee by the federal government and, especially, the federal reserve that if things went downhill, if risk that was taken started to cause trouble, that the "authorities" would step in and ensure that everything "worked out". This is what we are witnessing currently with many of the actions taken by the Fed and calls from a number of government leaders (i.e. mortgage "relief").
In my opinion, the truly free market would have business swings, but WOULD NOT have massive bubbles such as the one we have borne witness to. This bubble was fomented by the activities of central bankers and government officials continuously trying to stop any downturn. The "Greenspan Put" is one common term for this activity.
Essentially, every time there has been a potential problem, the central bank has stepped in and basically worked to debase the currency to prevent a collapse. If you can't save, you must get on the treadmill every day just to keep up, essentially.
But now tremendous risk exists. The housing market is a huge bubble, our country is in massive debt, the savings rate has been NEGATIVE for a number of years, mortgage, banking, financial and insurance firms (the heart of the madness) have been getting slaughtered recently in the markets (see tickers CFC, MER,MBI, WM, PHM for a nice cross section of the destruction).
What we need to realize, and what Ron Paul knows, is that it is not the Free Market that caused these problems. What really took place is that the government, via trying to do too much to prevent any adjustment, acctually encouraged extreme recklessness. The "safety net" encouraged people to climb up a thousand story building to take advantage of potential windfall profits. "Heck, if things go wrong the Fed will bail us out," is what these folks' actions represented.
So, my point is, the economy is in trouble due to too much action by the government. But many will try to blame the Free Market. We need to explain to everyone that it was not the Free Market that caused the problems, it was too much government intervention encouraging nutty risk taking. If Ron Paul is to get elected, more people must understand this. When the Good Doctor talks about the Fed and transferring wealth, this is much of what he means. We need to get the government out of the business of underwriting risk. We need to do it ASAP or the bill will come due very fast and it will be a very large bill for every taxpayer, wage earner and saver out there. Act now. Support Ron Paul.