Once again I find myself having to write again about what the Federal Reserve is doing. Recently Chairman Ben Bernanke of the Federal Reserve has been getting quite a bit of criticism…and rightly so. Sarah Palin has been in the news the last few days because of her outspoken criticism of the Federal Reserve pumping another 600 Billion into our economy. She claims that this will cause inflation. Palin speaking out is a sign that times are definitely changing. History has shown that there has been very little talk when it comes to politicians and the Federal Reserve. I think this is mainly because like most Americans, they didn’t understand how the Federal Reserve worked. Although, Texas Congressman Ron Paul has been an outspoken critic of the Fed for as long as he has been in office. But his outspoken criticism never really generated much interest from the mainstream media or the public.
I’m sure a lot of people are asking the question, “why is the Federal Reserve printing more money, what do they hope to achieve?” That is the purpose of what I am writing about today. In Ben Bernanke’s (Chairman of the Federal Reserve) own words he claims that the printing of more money is going to cause interest rates to decline, which will cause homeowners to refinance their mortgages. He also claims these lower interest rates will force people to put their money into risky assets (because you will earn less in interest in CD’s, savings accounts ect) causing the stock market to rise (http://seekingalpha.com/article/234822-bernanke-explains-qe2). This rise in the stock market Bernanke thinks will cause people to feel better about their financial situation and start spending money again. Since our economy is 70% consumer spending, he thinks if he can get people spending again it will get us on the way to economic growth.
I think Bernanke is misguided on so many levels. Lets take it from the top. Bernanke thinks that getting interest rates .25% lower is going to cause people to refinance their mortgages. But the facts show that most people who have equity in their homes have already refinanced. 30 year mortgages are already at 4.5%, is 4.25% really worth paying all the closing fee’s to refinance your home again? I believe this will have little to no affect on the number of refinances.
Bernanke claims that pumping money into the economy to lower interest rates will force people to put their money into the stock market looking for a higher return on their money. CD’s are only returning around 1%, high yield savings accounts are around 1%, and corporate bonds aren’t much better. Bernanke thinks that if he can make the stock market go up then we will see what he calls the “wealth effect.” Basically we will all feel better that our 401k’s are going higher, which means we will be more likely to go to the mall and spend. But in my opinion, the way to get out of our recession isn’t about tricking people to spend money. I thought everyone has pretty much agreed that over-spending is the reason we got into the mess we’re currently in. We bought homes we couldn’t afford, encouraged by low interest rates caused by the Federal Reserve, and also by exotic mortgages requiring little to no money down. In my opinion the root of our problem is because our economy is driven by consumer spending. The cure is moving away from a consumer driven economy to a more sustainable economy driven by manufacturing.
Bernanke is trying to encourage spending money we don’t have. This was what got us into the problem we are now in. We became consumers, not producers. The Federal Reserve’s policy of trying to spur economic growth by “tricking” us into spending money will only exacerbate the problem. This is what Washington does best, it kicks the can down the road. They can’t tell us the truth, if they did, we would realize that we have to cut spending dramatically. While this is the tough medicine we need, it virtually guarantees that the incumbents in Washington will be voted out. It will be obvious that their policies have failed, and they would pay a heavy price at the ballot box. If there is anything that I have learned about politics, it is that Politicians love power and they are willing to do almost anything to keep it. Convincing the public that everything is fine gives them the best chance to stay in office. While the Federal Reserve might succeed in prolonging our day of reckoning, mark my words, the day of reckoning is coming.
So where do we go from here? We need to become a nation of producers once again. That means DRASTICALLY removing regulations so businesses can return to the United States. Everything from taxes, red tape, to environmental laws must be repealed. I don’t pretend to have all the answers, but I do have common sense. About 75% of our budget here in the U.S. is Defense, Social Security, and Medicare. Another 8% is interest on our debt. The politicians can talk about cutting pork barrel projects, but this is just political satire. It will do pretty much nothing to get us out of the mess we’re in. In my opinion we need to completely abolish Social Security and Medicare. We must encourage market based solutions to these programs. Freedom is not giving a portion of every paycheck to the government and then expecting them to take care of you once you retire. I do believe we should continue to pay full benefits to anyone within 10 years of retirement. But after that it must be completely phased out and fast. Personal responsibility means we need to save throughout our working lives in order to be able to afford our retirement and medical bills.
Medical bills would come down drastically if our doctors weren’t billing insurance for the treatments we received, but were billing the client directly. Because we know our health insurance will cover our treatment, we don’t shop around for which doctor has the best prices. In this type of environment, of course doctors are going to jack up their prices if they know there is no risk of losing the customer. Medical insurance needs to be more like fire insurance, you only use it in unforeseen emergency situations. This would keep medical insurance premiums extremely low since it would very rarely be used. With low insurance premiums everyone would be able to afford it. With over half of all bankruptcies being caused by unforeseen medical issues I believe this type of insurance would help dramatically. Standard medical costs will also stay under control since consumers would seek a combination of the best doctor for the best price. In this environment a doctor would not be able to jack up his prices without risking losing customers. Can you imagine how much auto insurance would cost if every time you went to get an oil change they billed your auto insurance company? There is no difference between this and the doctor billing your insurance for a standard check up. While much more discussion and thought is needed in this subject, I believe it is a place to start.
Do we really need over 150 military bases stationed across the world? If that isn’t a military industrial complex I don’t know what is. Can you imagine if Russia had a military installation in San Diego? Or how about China having a base in Atlanta? I would be pretty pissed off. I’m sure this is how most of the world feels about our military bases throughout the world. It’s time to pull our troops out of all of those countries and secure ourselves and our borders at home. Our military budget for the year is over $750 Billion. This could be cut dramatically by bringing our troops home from around the world. Some of those troops can be used to secure the Southern Border, the rest could be discharged and used in a more productive capacity in the private sector work force.
We can either start to put these plans into action NOW or wait for the crisis to hit. If we wait for a crisis to take action, odds are the solution will be more government intrusion and control of our lives. I don’t see our bond market holding up any longer than 2 years if we don’t take action. Let’s make the hard decisions now, or risk the International Monetary Fund (IMF) and George Soros making them for us.
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