Banks failing, gas prices rising, mortgage companies going belly up, the stock market experiencing the largest one day decline since September 11, 2001 – we are witnessing the perfect economic storm.  The government reassures us that all is well, yet the magnitude of economic failures are increasing.

Today, we hear from strong advocates of higher taxation, increased spending, higher budget deficits, tougher regulations, bailouts and all kinds of subsidies and support programs as tools to restore economic growth. The Federal Reserve recognized early on the severity of the problems and, over the past year, lowered short-term interest rates an unprecedented 11 times, dropping the Fed funds rate from 62 % to 1: %. This has not helped, and none of these other suggestions can solve the economic problems we face either. Some may temporarily help a part of the economy, but the solution to restoring growth lies not in more government but less. It is precisely too much government, and especially manipulation of credit by the Federal Reserve, that precipitated the economic downturn in the first place. Increasing that which caused the recession can’t possibly, at the same time, be the solution.

The magnitude of the distortions of the 1990s brought on by artificially low interest rates orchestrated by the Fed, on top of 30 years of operating with a fiat currency worldwide, suggests that this slowdown will not abort quickly.

 

That quote sounds like it could have been written today.  It wasn’t, it was written on February 9, 2002 by Ron Paul.  Yes, the same Ron Paul labeled a kook, nutcase and other pejorative labels by mainstream politicians – the same mainstream politicians responsible for the economic mess we have today.  The thing is, the kook was predicting economic catastrophes for years while the mainstream politicians were taxing and spending fiat money as fast as the Fed could print it.

Bigger government with more monetary debasement and deficit spending means a steady erosion of the free market and personal freedoms. This is not tolerated, because the people enjoy or even endorse higher taxes, more regulations and fewer freedoms. It’s tolerated because most people believe that their financial and economic security is the responsibility of the government. They believe they are better off with government assistance in facilitating the free market, having been taught for decades that it is necessary for government to put a human face on capitalism. Extreme capitalism, i.e. freedom, we have been told is just as dangerous as extreme socialism. As long as this belief prevails, our system will continue in its inexorable march toward fascist-type socialism.

Governor Patterson warned today that New York State could fail to realize $1 billion, or more, of tax revenue due to the bankruptcy of Lehman Brothers.  The hasty fire sale of Merrill Lynch to Bank of America doesn’t help.  The government realizes it can’t buy itself out of this mess and refused to bailout Lehman Brothers.  For once the government did the right thing – NOTHING!

But, that is not enough.  There is no magic solution and people are going to have to endure hardships if the economy is going to be made strong again.  The answer is simple:

• cut the size of government and government spending
• reduce taxes
• pay off the government deficits
• replace the Federal Reserve with a sound-money policy
• allow the free market to work

Today’s dire financial events were a loud warning that have been preceeded by other warnings.  Time is running out, the warning will continue forever.  If economic policies don’t change the day will come when it is too late.  History provides the lessons – the Soviet Union and the Roman Empire are two big ones – unfortunately we, as a country, have not learned from past mistakes.