Thoughts of Liberty

Why is it that men who will scream freedom when no freedom exist are so few? Why is it that the crazies who think they can change a world so much bigger than them so popular? I look at men like Neal Boortz and Ron Paul and even Ralph Nader these guys truly act as if they are capable of saving the world.  They act as though they actually believe that they can impact something so much larger and more power than them that it is utterly unfathomable.  I say that... I think that... but then it hits me... I am no different than they are. What separates me from men like this is only time.  I truly believe that I can change things.  I see this world not as it is but as it should be.  I am a visionary and I see how fouled up things are but instead of being depressed I open my eyes wider and I see the potential.  When an antique hunter finds a rare treasure or when a chef finds that perfect fish it isn't a matter of the present but of potential.  I find that I am no different.  I see the potential and I know that I can bring that potential to life if only I get the opportunity.   These guys, these revolutionaries for all of their flaws are precisely what I will be in due time.  These are people who where naive kids just like I am now but they have survived. So often when we are in college it is easy to shout freedom and chant for peace or whatever it is we believe in but as time passes our wills are sapped and our principles dulled.  These men, these revolutionaries, they are no different than I or any of the other visionaries except these guys have not been dulled but refined.  I ask myself why there are so few influential people willing to stand on principle and I see that it is because the task is so difficult. It is so tough to stand alone even if you are the only one who is in the right... sometimes it’s just simpler to be wrong.   What is most interesting to me is the money that these guys must make for their effort.  I know it sounds hollow for me to mention it but when I consider the number of true visionaries it is those with the courage to stand alone that often garner a huge following.  I wonder how I will survive in these various arenas if I am going to stand up to the status queue and stand on principle and truly try to change the engrained errors and inefficiencies but today it hit me.  I dawned on me.  In today’s culture it is possible to be the lone voice of sanity.  Between book sales and website hits you actually can survive as a revolutionary.  The more I look into it and the more I research it the more I realize that my dreams of changing the world while broad may be far more plausible than everyone who knows me thinks.  It might even be more plausible than I believe. It seems as though when someone is willing to take that size risk to be the only one who is right the very act breeds courage in those around them and garners a following that makes it possible to actually make a difference.  Maybe I won't change the world but I'm beginning to see that thinking that way may not be a bad thing.  The very courage to try may be enough to do significant good.  I sure hope it is

I read a quote by Samuel Adams that sums up my thoughts on the matter...
“It does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people's minds”

     A recent report commissioned by Freddy Mac clearly shows the priorities of these pseudo-governmental organizations, their democrat lead boards and the politicians that regulate and control them.  The report goes into the details of the “social benefits” which are provided including the dissemination through which they “increased the rate of home ownership, particularly for minorities and underserved populations.”  They fail to mention in this report the reason that these populations are “under-served” or by what measure they determine the proper level of service.  In the report commissioned by Freddy Mac in 2006 the writers hail Freddy and Fanny as promoting home ownership through “reduction in homeowners’ financing costs and to increased stability in the economy.” Things are very stable right now Freddy, thank you for your work.

    In fact the reason this population is “under-served” is because they don’t have enough money to actually pay for these houses.  This seems to clearly sum up the intent of Freddy and Fanny when deciding which loans to back:

 “The Impacts of Affordable Lending Efforts on Home ownership Rates” (2003). Professors Quercia, McCarthy, and Wachter develop a methodology to analyze the effect of affordable lending activities, such as flexible underwriting standards and lower required down payments, on home ownership rates by geographic region and targeted population. Using the American Housing Survey, they show that financially innovative products from the GSEs— many of which are financed by the retained portfolio —have been responsible for increasing the home ownership rate for minorities by as much as five percent.

Freddy Mac and Fanny Mae have provided funding for “financially innovative products” to increase home ownership for minorities by five percent.  I am all in favor of minorities owning homes but we should not encourage them to buy homes they cannot afford!  Freddy and Fanny control this market.  Various sources that I have viewed show an increasing market control held by Freddy and Fanny in the secondary mortgage market with some sources showing over 70% dominance.  With the clear biases of Freddy and Fanny to purchase loans made to these “under-served” individuals and families that the normal market would not loan to, or at least would not loan to with such lax conditions and rates, it should come as little surprise that bad mortgages have proliferated.  Due to pressure from democrats mixed with their control of the board for these companies there has been a strong market pressure for banks to loan money to those with poorer credit.  Since Freddy and Fanny where willing to buy these in the secondary market it was easy for banks to make these loans and then recapitalize by selling them to these GSEs.  On the contrary this behavior discouraged banks from making loans to better risk people because not only is there an added cost in getting good credit risks to choose your bank but because of the added difficulty of having to find a different secondary market since these where not as sought after by Fanny and Freddy who want to recapitalize banks serving “under-served” sectors.  In short it is the government funded attempt at social engineering that altering the free market and created this problem and not greedy banks on Wall Street.  The banks behavior was shaped by government and without that government interference these loans never would have been issued, housing prices would have been more in line with long run averages and this bubble and its subsequent and disastrous collapse would never have occurred.  All of this would have been avoided had the democrats in congress not forced their politics and social engineering.  No amount of regulation would have solved this problem on free markets!

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Fredric van Hayek was one of the most important members of the Austrian School of Economics.  He was born in Vienna, Austria-Hungary on May 8, 1899.  Coming from an academic family Fredric Hayek received a doctorate in Law and then in Political Science as well as studying psychology and economics.  Initially leaning towards a more socialist world view he soon changed to a more classical liberal view and later became a part of the Austrian School after hearing seminars by Ludwig von Mises and after studying under Friedrich von Wieser both prominent in the foundation of the Austrian School of Economics.   He shared the 1974 Nobel Prize in Economics with ideological rival Gunnar Myrdal "for their pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the interdependence of economic, social and institutional phenomena." He also received the U.S. Presidential Medal of Freedom in 1991.

                Hayek was known for his research and models which tended to conflict with the prominent Keynesian views of the time.  As a prominent part of the Austrian and Classical Liberal study of the day Hayek was a buttress against the Keynesian views and a part of the change back towards classical liberalism in the 80s through his shaping of the thoughts of world leaders like Margret Thatcher and Ronald Reagan who adopted many of his broader  ideas.  Probably his most popular work, The Road to Serfdom made 4th place on the list of “100 best non-fiction books of the twentieth century,” produced by National Review Magazine and several other top lists.  In The Road to Serfdom, Hayek explains that communalism leads inevitably to tyranny of some form and uses several contemporary examples from German Nazism to Russian Communism.  The book was so well written and bore such authority that even the proponents of communalism had to admit that the arguments where well reasoned and valid with people like John Maynard Keynes expressing his agreement with the premises of the book and communalists like George Orwell even admitted that his Hayek’s points where true and needed to be more seriously and regularly consider. 

                Even today the debates of communalism versus capitalism rages on and the Austrian School and the Classical Liberals are still at odds with the Communalists and the Keynesians.  In the struggle Fredric Hayek is a voice of reason, expressing the dangers of the communalism that sounds so promising in theory, but proves so dangerous to liberty in their practice.  Fredric Hayek should be studied by every capitalist and in my opinion “The Road to Serfdom” should replace Orwell’s “1984” on every school reading lists.  

There are some very great very wise men who have predicted this.  They have explained that government involvement in the banking industry is dangerous!  but no one listens. Some of these wise men have Nobel prizes... these men are the Economists of the Austrian School.  Men like Friedrich Hayek, Ludwig von mises, and Carl Menger.  

The Austrian School scholars have long broadcast the dangers of interference with interest rates by the FED; but they have been ignored so let us look at the validity of this claim that the FED could be the source of our "business cycle" rather than the cure. 

First let us look at Interest rates.  What are interest rates?

Interest Rates are no different than prices or rent if you will.  It is the price of renting money.  When people save they are postponing consumption for later.  This means that there is pent up demand.  To postpone that consumption for later they get the reward of Interest.  Savings is future consumption.  The more savings the greater the supply of loanable funds and thus the lower the interest rate.  Now the borrower in a net sense is the firm who is investing.  Firms consume today to increase future production.  I say that it is only firms because I am referring to net savings which would cancel out consumer savings from my definition of savings.  

So the scenario is this:  Individuals save.  Savings is future consumption.  Firms borrow.  This is present consumption to create future production.  In a perfect free market as savings goes up interest goes down and investment goes up.  This means that the more future consumption there is the cheaper it is for firms to increase future production.  This is good because it allows firms to prepare for the pent up demand of future consumption.  

As individuals consume more in the present and less in the future there are fewer loanable funds and therefore higher interest rates.  The higher interest rates mean it is more costly to increase future production so firms focus on present production but are less likely to invest in future production.  This is good because when individuals are consuming in the present there is no need to increase future production because there is no pent up demand.  

Interest rates in a free market control supply and demand.  So long as interest rates work properly they will equalize present and future supply and demand so that production capacity and consumption are equal.  Interest rates if allowed to move freely will reduce the problems of the business cycle by making the cycle happen with greater frequency but less severity.

What has happened, however, is that the National Bank or FED has prevented the market from working.  The FED controls interest rates.  Artificially low interest rates prevents people from saving while encouraging firms to invest.  This means that in the present the economy heats up because both firms and individuals are consuming in the present but the problem is the pattern increases future supply while decreasing future consumption artificially.  Therefore in the long run we will have too much capacity and/or too little aggregate demand relative to aggregate supply.  This creates a recession or depression.  This would not happen to a significant scale if the interest rates move freely because of the above explanation but if the interest rates don't move the wrong signals are sent.  

The FED continues to try the same failing policy only delaying the inevitable and creating more future problems.  We cannot create wealth through monetary policy!  only through production.  The only real long run impact of the nations controlled monetary system through the FED has been to unfairly redistribute wealth at random and make it harder for both firms and individuals to make informed rational choices.  This makes the economy less efficient and creates market failures.

Its simple.  The FED has created this problem and now asks us to trust them to fix it.  The problem is they are so worried with fixing things right now that they are willing to create more problems in the future.  I say lets deal with it now instead of magnifying it in the future.  Stop fixing things till they are broken!  Listen to the people and stop this economic manipulation.