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United States On the Fast Track to Socialism

Politics / Economic Stimulus Oct 09, 2009 - 01:09 AM GMT

By: LewRockwell

Politics

Best Financial Markets Analysis ArticleThe economic meltdown has put the country on the fast track to socialism, but through a series of tiny steps. One need only to examine the supposed victories in the war on depression to see how this is happening. The latest is the claim that the Obama administration has successfully renegotiated many mortgage obligations in a way that allows people to keep their homes.


Before looking at the program, we have to ask, is this really a victory? If people are in over their heads, drowning in debt, it is a far wiser path to lift them out rather than hand them a snorkel through which to breathe. The answer for most of the sad cases of people with homes larger and more expensive than they can afford is to move to a new abode. I don't know why or how such thoughts became unthinkable: we not only have a right to a home now, but we have a right to live forever in a discounted home we can afford.

If people would move to cheaper places, their debt problems would be solved in shorter order. If many people bailed out of expensive homes, their prices would go down and approach reasonable levels, and perhaps then the people who are living beneath their means could actually ramp up their standard of living by buying from the glut out there. And isn't this something that has been a national priority for several decades, providing better housing for the poor? Here it is within our grasp: let the prices fall!

In any case, how was the Obama administration able to accomplish the miracle of letting people continue to live in lifestyles they can't afford? They offer to pay $1,000 for every loan that a mortgage company could renegotiate. Why didn't they just agree to pay the mortgages? It's unclear. Seems like that would have been an easier path from A to B. Instead, they wanted the mortgage companies in on the deal.

And where is this money coming from? You can use all the fancy words you want, but in the end government has no money. Everything government has it gets from you. That is the most fundamental lesson of political economy, without which no clear thinking takes place. And yet it seems to be the most covered-up truth of our times. So if you know this one point, you will be leagues ahead of almost everyone else in thinking about these issues: one way or another, you will pay.

How will you pay? It can happen through the old-fashioned method of taxation. Or it can happen through more debt that will have to be paid in the future. Or it can happen when the Fed creates new money that eventually shows up in the form of dollar depreciation, and this is the most insidious method there is. This is, of course, how the current crew believes it can make the magic happen. It's a form of counterfeiting.

It's not compassion to steal from some to give to others. It is using violence to accomplish your ends, which, in this case, only delays necessary pain. No new wealth is created. It is merely shuffled around from spot to spot by force. It is you who are being robbed to pay for the mistakes of these homebuyers. Even Americans who didn't participate in the boom are being punished, made to cover the bad purchases of others.

Thus can we see that there is no amazing thing taking place here; no genius policies nor dazzling acts of the supernatural. This is old-fashioned redistribution, to sustain the unsustainable.

It's odd to watch the ethos of public affairs these days. Everyone seems to agree that mistakes were made in the past. People lived beyond their means. The boom created nutty financial arrangements in which people with no money and no jobs and no prospect of paying were able to enter into massive credit obligations lasting decades. Everyone seems to understand that there is something wrong here.

Where the split occurs is what to do about it. The party in power is under the belief that the way to fix a problem is to continue the practices that caused the problem in the first place, and delay for as long as possible the correction that must take place. On the other side are people who believe that reality needs to reassert itself, and the sooner the better.

Take note that I'm not talking about the need for blood in the streets or for lives to be shattered. I'm talking about moving to a different neighborhood, possibly renting rather than "owning," and generally downscaling. Is that really too much to ask? Not really, so the question appears: why is the government not insisting on this? I think the answer comes down to the banks and institutions that continue to hold bad assets. They don't want them repriced because that would be liquidation, and they are powerful enough to concoct policies that prevent that, for now.

So what appears to be this glorious favor to the American middle class is in actual fact another form of bailout for the banking system, however temporary it might be. But mark my words: home prices will fall, and these mortgages will eventually be re-priced. There is not enough financial trickery available to postpone this. And when stage two of the great meltdown happens, we will once again be suffering regret. Then there will be yet another chance to do the right thing.

Let the market speak. It is the only institution that seems willing to tell us the truth anymore.

Llewellyn H. Rockwell, Jr. [send him mail] is founder and chairman of the Ludwig von Mises Institute in Auburn, Alabama, editor of LewRockwell.com, and author, most recently, of The Left, The Right, and The State.

http://www.lewrockwell.com

    © 2009 Copyright LewRockwell.com - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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