When will Americans become wiser?

We are in our current economic crisis because many politicians, almost all on the left, believed and still believe that giving subprime loans to those who normally aren't credit-worthy is a great way to help the poor who normally wouldn't own a home. As with all such short-sighted attempts by the left at compassion, the long term impact has been far worse to the entire country than if they just did nothing. When will we have intelligent compassion from our political leaders where the long term cost is measured against the short term gain? We have many examples to use as yardsticks (Social Security, Medicare/Medicaid, Freddie Mac, etc.) of what the long term costs are and yet when the Democrats take over government, they keep ignoring history and keep repeating it over and over again making each successive bad decision bigger than the previous one. As for the Republicans, they are not much better when they take power. The best they can say is that they increase government spending at not much of a lower rate than the Democrats. But these idiots wouldn't be in power if we didn't vote for them which comes the crux of the problem: most Americans are idiots. The leaders' financial irresponsibility only reflect our own. How can we expect our leaders to choose the right financial course when most of us can't live within our means? How can we expect our leaders to care about the long term costs and real issues when we vote for leaders based mainly on historical significance and how much they promise to give us? I can only hope that in the future, wisdom will come as Americans age and that with longevity increasing, the wiser voters will become a lasting majority.

Inflation Bill

The current downturn is actually the fix to an abnormal increase in the money supply. Previous bailouts actually fueled the increase in the money supply to "fix" past economic downturns, but the bailouts were ill-timed and only caused the following upturn in the economy to be higher than it should be. This bailout and, to a smaller degree, the Inflation Bill (I refuse to call it the stimulus bill) are repeating the same mistake of applying economic pressure at the wrong time. Instead of slowing the pendulum when it is swinging down, it is just applying pressure instead to make the pendulum swing higher again in the next upturn. However, unlike previous bailouts, the entire world is far worse off than in the past and the scale of the bailout dwarfs previous ones. We won't have enough foreign sugar daddies to buy the debt and offset the effects of inflation. We will experience inflation in the double digits, and triple digits is a non-zero probability. As inflation heads into double digits, the Fed will clamp down on lending rates to cut the money supply, but because of the scale of this cash infusion, there will be a prolonged period where inflation will continue to rise while the economy declines. Remember stagflation? We are going to have a reunion. Let us not forget that the bulk of the baby boomers are beginning to retire now. Social Security and Medicare/Medicaid, which already take up half of our federal tax dollars, are going to skyrocket government spending through the roof. With this additional infusion into the money supply, it may be that the Fed's efforts to clamp down on inflation will be virtually useless for a couple of years. All of this is madness, and it seems Obama's celebrity economic staff left their knowledge of basic economics behind at some point. Maybe they aren't really smart and just have long resumes and skills at skirting tax laws. The USA will survive all this idiocy, but it may not survive it in one piece after the next major downturn. As for what we can do personally, it is obvious that we ride the initial rush then diversify a significant portion of our investments to gold ETFs and non-perishable goods before the bulk of the traders get a clue.

Obama: Jimmy Carter part II

People are asking what Obama's presidency will be like. I predict it will be similar to Jimmy Carter's presidency where government spending increased overall but spending on military suffered to fund increased welfare and entitlement programs. Taxes will be increased which will slow down the economy. Like Carter, Obama faces an energy crisis as oil production is on a downward trend as a result of decreased demand, and like Carter, Obama will respond by adding more layers of government bureaucracy. Obama will also begin facing the greatest danger to the USA as the bulk of the baby boomers begin to retire during his watch driving government spending drastically upwards through Social Security and Medicaid/Medicare, but like Carter, his presidency will be marked by how he is unable to deal with fundamental economic problems. What was interpreted as patience during the bailout bill fiasco will be seen as indecision as was during Carter's presidency. Obama will thrill the world, but as he is unable to make things better in the USA, the honeymoon will be over domestically as it appears that he cares more about the rest of the world than his own country.

Why the government intervened

I really don't like what the government has done by taking over Freddie Mac, Fannie Mae, AIG, and funding various other major transactions because what they are doing is setting the stage for another similar problem just as the savings and loan bailout set the stage for later problems, but I understand why they intervened. Almost all of our major companies borrow money for day-to-day operations. This is because even if they make tons of money, they don't make it in a steady flow throughout the year to guarantee that they can pay for any specific day's cost of business. What the government saw was a run by investors away from banks which would eliminate enough money from being available for companies to pay for their day-to-day operations which would effectively stop the economy. Our economy runs on the trust of investors in the banks, and when too many investors flee to cash, the banks don't have the money to lend to the companies. What the government saw was another depression occurring. This wasn't because the economy wasn't fundamentally sound from a short term perspective but because the dip in available money for lending was far too low causing too much of a shock for the economy to ride out without significant damage which would take a long time to recoup. However, the root of the current problems causing investors to flee is because the government intervened in previous problems and causing investors to ignore valid risks in the future which eventually build up causing yet another big mess. What the government needs to do is extricate itself from this death cycle by interfering as little as possible even to the point where the economy may go down slightly because removing short term fear by investors shouldn't lead to them ignoring the riskiness of their investments too much as happened when bad mortgages were repackaged as investment vehicles leading to the sub-prime mortgage mess.

Ignoring financial risk comes home

The savings and loans debacle, the sub-prime loan mess, and the current collapse of brokerage firms have their root in one thing - the attempt to mask investment risk. By allowing investment companies to mask the riskiness of their investments either by repackaging bad loans or relying on the backing of the government have only replaced short term risks and smaller downturns with big ones that come less frequently. It is time to remove the abstraction and let the riskiness of investments become naked for all to see without any significant assurance of the government bailing them out. Let each bad loan and investment fail and hurt those who made them directly. Forget all this layer of bureaucracy that tries to hide or push back the bad news.

Choosing Palin shows balls

Mind you, I still believe McCain won't be a good president. His saving grace is that I believe Obama would be a significantly worse president. However, I have to say that McCain has balls and brains to choose Palin as his VP choice. While Obama decided to temper his basic message of change by choosing Biden, an integral part of the political machine, McCain increased his ownership of the message of change by choosing somebody who was far from his image as being a part of the Washington political machine. I am resigned to having a president that will not address the real fundamental economic issues of the country, but McCain made me a little more interested in the race for the White House.

Russia's expansionism

It is evident now that Russia is moving into a state of expansionism. In bordering areas, Russia is using both the carrot and stick to either ensure neighbors are friendly or are gradually diminished. For neighbors like Georgia or Ukraine, this means that Russia will offer Russian citizenship and subsequently military "protection" in problem bordering areas gradually subsuming them into Russia itself. If you ever played a boardgame called Diplomacy, you would recognize what is happening. Russia is making its move to increase its control of the world. What its goal is to become the next sole superpower. This is why Russia finds missile defense in Eastern Europe directed at Iran threatening to its own interests since those interceptors could also be used against Russia and would decrease the threat and influence that Russia's military has in its quest for world domination. With the USA the current king of the mountain, Russia's ultimate goal is to topple the king and take his place on top of the mountain. So what should the USA do? If we really were playing this game like the Diplomacy boardgame, we would use our current geopolitical dominance to crush Russia's confidence and aspirations. Probably the best way to do this without a direct confrontation is to have Russia get sucked into another resource depriving conflict like the Soviet Union's attempt at quelling Afghanistan. With Russia virtually bulging at its borders, another conflict like that with Georgia is guaranteed. What we have to have our CIA and military do is gradually increase the military capability of possible future conflict areas so that Russia can no longer do what it did to Georgia quickly or cleanly. However, in the real world what we have are too many people in the USA who aren't willing to take such decisive actions considering them to be too self-serving. The trouble is that in the real world if the USA isn't willing to preserve its dominance, it will lose it to those who want dominance more.