TEA PARTY DAY!!!
LETS DUMP SOME TEA!...time for me to be vocal, a non-wedding post, and some 411 on economics...
So yesterday, Wednesday, April 15th, I headed down to the State Capitol to protest the recent administrations blitzkrieg of government spending to fix our economy. It was great. I believe the organizers only expected about 200 people to show up, but something like 3000 to 4000 hard working locals showed up to voice their opinion. Personally, and I have to be blunt here, I am fed up with Obamanomics, where the answer to fixing this economy is spend-spend-spend! I am only 32 years old, and when I get older, it is myself and my children who will have to deal with this national debt by paying higher taxes. And knowing that, is just really frustrating....
Here is the rhetoric that I hear coming out of Washington these days:
1. That deregulation of the free market is the reason why the economy is failing
2. That government cannot sit by and do nothing.
2. That government cannot sit by and do nothing.
Now is it just me, or is it that that nobody in Washington really has a clue how the economy works? Is it just me, or is it that Washington really has no idea how we got ourselves into this mess? Is it just me, or is it that Washington really has no clue on anything other than saying "George Bush got us here...."
Well what really got us here?
.....the Federal Reserve.....
Yes, it's not Bush, or "free market" principles that got us into this mess. It's the Federal Reserve's manipulation of the free market, that got us here. It is there over regulation of the free market, that created the bubble that eventually burst. But lets begin all of this at the beginning.
For those who are not familiar on the role of the Federal Reserve, here's a quick overview. The Federal Reserve REGULATES the interest rates at which banks can borrow money from the government.
By lowering interest rates, the Federal Reserve can:
1. Encourage businesses to expand and to hire more people
2. Encourage investments into all markets from housing to technology
3. Encourage the creation of new businesses.
Why doesn't the Federal Reserve keep interest rates low at all times? Well, they are worried that if too many people were employed, and too many people had high paying jobs, that it would spark hyper-inflation. Secondly, the Federal Reserve worried that low interest rates will result in low yield treasury bonds, thus making U.S. Government bonds worthless as an investment, therefore affecting the value of our currency in a negative way.
As you can see, the Federal Reserve plays this see-saw with the U.S. Economy, raising and lowering rates to CONTROL and REGULATE the economy. As you can see, the U.S. Market, was far from free. If anything, it was over regulated. So when Obama preaches that free market principles got us here, he is way off track....we never truly had a free market.
SO HOW WOULD A TRUE FREE MARKET WORK?
In a true free market, interest rates are controlled not by the Federal Reserve, but by supply and demand. When people save more, interest rates go down. Why? Because people have more money in the bank, and they really don't need to borrow to buy anything. So banks, consequently have to make interest rates very attractive. Businesses see the low interest rates, and they start expanding or investing into new businesses, and most of them will survive because the public has money to spend. Why? Because the public has actual savings in their pocket.
So lets review this really quick.
WHEN PEOPLE SAVE MONEY IN THE BANKS IT MEANS:
1. The banks have more money to lend
2. Interest rates naturally have to lower because people don't have to borrow (as they have savings)
3. Low Interest rates means that more businesses can expand, and new businesses can be started.
4. Because people have more disposable income (savings), businesses new and old, are more likely to flourish.
WHEN PEOPLE DON'T SAVE MONEY IN THE BANKS IT MEANS:
1. Banks don't have more money to lend.
2. Interest rates go higher naturally because people are more likely to borrow (as they have less savings)
3. Higher Interest rates means that businesses will not expand, and new businesses will most likely not be started.
4. Because people have less disposable income, new businesses are more likely to fail. But this will workout anyway, because less new businesses would be created due to high interest rates.
America's saved less and less, a crash was inevitable.
SO WHAT THE HELL HAPPENED?
Like I said...The Federal Reserve over regulated. Yes...OVER REGULATED!
They kept interest rates low, which spurred investment into the housing market, spurred borrowing in America, while America saved less and less and borrowed too much. THE ENTIRE OPPOSITE OF WHAT SHOULD HAPPEN IN A FREE MARKET! Suddenly, wealth was not created by cash or savings, but by credit. People were going on vacations by borrowing money not saving for it. Developers thought they could build hundreds of thousands of homes, because people could qualify for zero-down loans. They didn't have to save to put down 20% anymore.
The market was bound to crash as Americans saved less and less.
As a real estate investor who consulted on many foreclosures, I met many couples who borrowed too much. They not only bought a house which they could not afford, they also took out equity loans to buy toys for themselves. Many couples who were in trouble, got in trouble because they created their wealth by borrowing. It was only a matter of time till their borrowing would catch up on them. I saw friends who were developers, loan officers, and businessmen, all take the same risk because....interest rates were low! And guess what? They all lost.
But here's what you have to remember.
IN A TRUE FREE MARKET, INTEREST RATES WOULD HAVE NEVER BEEN THIS LOW FOR VERY LONG....
BECAUSE PEOPLE WERE NOT SAVING, INTEREST RATES WOULD HAVE BEEN HIGH!
But the government and the Federal Reserve didn't move the interest rates higher, and people kept borrowing and borrowing and not saving.
As you can see, it wasn't Bush's fault.....more so, it was the Federal Reserves fault.
SO WHAT NOW? WILL OBAMA'S PLAN WORK?
Obama tells us that Government has to do something. There are a handful of economist and businessmen that say, the Government has to do something. We have big businesses who have resulted to corporate welfare and say, Government has to do something. So....should it do something?
Right now, Obama believes that by spending trillions of dollars to stimulate the economy, and by investing into future green jobs, the government can create new jobs and force and the evolution of the creation of green jobs in America. He, like the Federal Reserve, is trying to manipulate the market. Obama wants people who can't afford homes, to have homes. He also believes that the upper income wage earners, those who create jobs and invest into businesses, should be taxed more. And by doing all of this, we should return to a nirvana like economy. All-in-all, he's trying to create another bubble.
He plans to accomplish this goal by getting the banks into great shape, so banks can start lending once again, and people can start spending by borrowing again. But we all know, that borrowing is just creating more debt...and that's never a good thing. So if he does manage to create another bubble, it will eventually come crashing down again.
Unfortunately, Obama, like George Bush, or Bill Clinton, or Reagan, does not want to abolish the Federal Reserve. They don't view the Federal Reserve as the culprit...even though it is. So his plan really won't work. If anything...prepare yourself for another bubble.
UNFORTUNATELY...With every new stimulus bill that he passes in the name of the economy God, the more likely we will all pay higher taxes, which means we will save less. More so, our currency will eventually devalue itself, thus causing hyper-inflation.
FORTUNATELY.... There is good news out there. The great news is that people are not borrowing, and that the free market is still operating somewhat. At the current moment, Americans are not listening to Obama and are not borrowing or spending. They are saving!!!
And once Americans create true wealth through savings, then and only then, will we see a true recovery.
WHAT TO DO?
Save-Save-Save. That's all. And when the time is right, throw a little money into the stock market, and into Gold. But overall...save your money. Remember, real wealth is built through cash. Cash is and always will be king. Leverage your savings with the ownership of Gold, which has always held it's value, even before Jesus was born. Do not borrow, and throw away all credit cards. Use your check cards to do your spending...this way, you'll never go into debt.
Well peeps...I'm outta here. Next time I promise to post something wedding like. I just had to get this off of my chest.
Steve Young
The Hawaii Wedding Reporter
http://www.dreamweddingshawaii.com/
Steve Young
The Hawaii Wedding Reporter
http://www.dreamweddingshawaii.com/
posted by Steve Young @ 4:38 AM
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