The politicians in DC have been telling us that we need to act now in order to stabilize the economy. They passed a massive bailout bill against the voice of the people last week in order to do just that. Afterall, the bill was named the Emergency Economic Stabilization Act of 2008. In predictable fashion, markets around the world closed lower in the days and even minutes after the bailout was passed. Could it be that the politicians have misdiagnosed the problem and is now proceeding with the wrong treatment?

On the popular TV show House, patients with mysterious illnesses are treated by Dr. House. He and his team of doctors try to find out what is wrong with the patient in order to cure them. The kicker is that it is never simple to diagnose the problem. In fact, that point of the show is that it takes a doctor who thinks completely outside the box to solve these medical mysteries.

Fortunately, our economic crisis is not as mystifying as the patients on House. The mainstream economic school of thought is just not capable of understanding the current state of the economy. The politicians believe we can just throw more money at the problem and it will be fixed. They happen to be wrong.

In order to understand what we should do to fix the problem, we first must understand how we got here. Just a month ago, people who supposedly understood the economy was telling us that the fundamentals were strong. Clearly, they were not. In fact, they must have been held together by duct tape considering how quickly it has fallen apart.

This economic crisis, like those before it, was created during the economic boom. No one complains when the economy is booming and everyone feels richer. The free market is touted as the greatest thing in the world during these times. The free market might be the greatest thing in the world but, the it didn’t create the boom. The government created the boom. The boom created the bust. So, the government is responsible for the economic calamity we now find ourselves.

Every piece of legislation that is signed into law has an affect on market forces and therefore direct capital to places it otherwise would not go. The enforcement of the Community Reinvestment Act and the use of Fannie Mae and Freddie Mac to buy up mortgages directed massive amounts of capital into real estate. This alone didn’t create the sinking Titanic that we are on today but, it did contribute heavily.

The artificial lowering of interest rates flooded the economy with dollars. Due to legislation to make sure that every American could own a home, these extra dollars flocked to houses. This caused the price of houses to skyrocket from 1995 to 2005. The artificial lowering of interest rates was possible because we have a central banking system known as the Federal Reserve.

It is said that the Federal Reserve’s purpose is to create greater financial stability. In reality, it has only created more distortion in the economy.

With the government affecting the flow of capital and making it profitable to give mortgages to practically everyone, banks did just that and gave mortgages to everyone. They created all kinds of creative financing to put more people into homes because they were easily able to turn around and sell those mortgages to Fannie and Freddie. If the only problem was with mortgages given to people who would normally not qualify, this would be a smaller problem.

As housing prices went up, almost everyone refinanced and borrowed money against their homes believing that home values could only go up. Once the value of houses reversed course, many people found that they couldn’t actually afford their larger mortgage payment and with negative equity in their homes, they couldn’t borrow the money to make the payments–that is a bad idea anyway.

With the availability of loans against homes diminished, people could no longer live beyond their means. Spending had to stop. The price of houses had to come down as homeowners started to miss payments and foreclosures spread across the country. Without the same level of spending to drive the economy, jobs were also lost.

This economic turmoil will continue until all the bad debt is liquidated and there is once again sufficient capital to be invested productively. The only way for there to be sufficient capital is for people to save. Government cannot create money to spur the economy. What it does is create a bubble that leads to the economic destruction we are witnessing today.

In order for bad debt to be liquidated, companies will have to go bankrupt and cease to exist as we know them. People will lose jobs and homes and maybe more but, it has to happen. Trying to rebuild on a shaky foundation only means the crash will come later and be more painful.

The only way for people to save is to live beneath their means. We are going to once again learn to save our money for the things we want. We won’t be able to borrow money to buy all our trinkets and widgets. To put it in bleaker terms, our standard of living will go down. It won’t be fun but, it is the fastest way out of the crater we are in.

Wall Street is sinking into the abyss because of these economic conditions and it has to. The bailout bill that was passed last week doesn’t change the fact that banks are not willing to lend money like they used to. It is not as if banks aren’t lending money at all. They have to lend money to make money. The only difference between now and the last decade is that you need to be well qualified to get a loan–not many are qualified today.

Throwing money at this problem will not suddenly make the banks change their minds and lend money frivolously again and they shouldn’t unless we want this problem to get even worse. The unfortunate part of all this government intervention is that there is a consequence to printing so much money. They aren’t taxing us for the money. They are going to print it and that is worse than taxing us because we don’t see it. It is basically robbery.

I call the government “they” for a reason. The people are not the government and the government are not the people. The people should be the government but, this is not a perfect world. We didn’t want the bailout bill passed, it gets shot down and on that day the people won. The politicians couldn’t let that happen so it gets passed anyway and the people ultimately lose.

This drunken sailor creation of money is likely to cause runaway inflation like we’ve never seen before in the United States. We won’t see the inflation immediately since the banks are still not lending money to every person who walks through their doors. However, the banks will find themselves with a lot of reserves once they are no longer in fear of a run. When that happens they will begin to lend money because that is how they make money and inflation will skyrocket.

Next to hyperinflation, our current economic woes are going to look like a walk in the park. Every dollar that the government is creating to “fix” this economy is going to hurt us that much more. The price of necessities are going to go through the roof. If we think food and gas are expensive now, just wait until the government is finished saving the economy.

Washington DC has misdiagnosed the problem. They think the problem is that banks are not lending money. That is not the problem. The problem is that DC created the bubble by flooding the economy with too much money. Their solution to fix the problem is to flood the economy with more money. While that might make some sense if the problem was what they say, it makes no sense knowing what the problem really is. If too much money caused the problem, the solution is not more money.

Deregulation is also a popular topic in DC. The problem is not deregulation of the economy. The problem is too much regulation of the economy. Regulation of the markets is any form of government intervention. Just because the government is attempting to do “good” with bills like the Community Reinvestment Act, doesn’t make it non-regulatory. Those bills regulate the flow of capital–that is the definition of regulation. Because this problem was created by government intervention, more of it is not going to solve the problem.

The politicians are administering the wrong treatment to the economic crisis. If they don’t stop, things are going to get much worse before they get better. The way to cure cancer is to remove it from the body. In this economy, the government is cancer and we need to remove it.

I went into the debate expecting a meltdown of epic proportions for Sarah Palin. She has been unable to put together coherent sentences in interviews in the past weeks. One would naturally assume that this debate was going to be the equivalent of a goat heading to slaughter. If you watched the debate, you would know that it wasn’t the case. I once again viewed this year’s Vice-Presidential debates from Pace University’s Schimmel Theater in New York City where almost everyone was an Obama supporter.

I did miss the first 15 minutes of the debate due to an Indian club throwing an event with food. I love Indian food so I gave up the first 15 minutes of the debate for it. The topic appeared to be energy when I got to the theater. My first impression was how well Sarah was speaking. I had almost forgotten how well she spoke in her speech during the Republican Convention. The Sarah at this debate was more like the one who I thought had ended the Democrat’s chance at the White House this year.

As far as substance goes, there is really nothing new to report here. My views on the first Presidential debate apply here all the same. Both candidate’s ideas are ridiculous and not different from each other.

Biden did stress one point to be a fundamental difference between the two tickets: the Iraq War.

Unfortunately, Biden must not know the meaning of fundamental. I agree that we should withdraw from Iraq and end the wasteful war. However, that point alone is not a fundamental difference. Iraq is only one part of a much larger picture. That picture is the American Empire. We are in 130 countries–I can’t even name 130 different countries. When one of these candidates decide to talk about withdrawing all our troops from around the world, then they can call it a fundamental difference.

To make matter worse were their comments about Pakistan and Iran. I was displeased with what Obama and McCain had said in their debate and the same goes for Biden and Palin. Pakistan has had nukes for years and we’ve been giving them money in the tune of billions! Why is this suddenly a grave problem?

And in a spin-off of that topic, you would have thought that the citizens of Isreal would be voting for our President in November. What was the point of all that pandering to Isreal? Isreal has more nukes than any nation in the Middle East. They can defend themselves just fine. We are constantly coddling Isreal as if they are powerless. There are few countries in that part of the world that can match Isreal’s sophistication and military strength. If any country needs protecting, it is Iran.

In regards to the powers of the Vice President, both candidates need to more regularly read the Constitution. Biden referred to Article I of the Constitution and claims that it says the Vice President is part of the Executive branch. Of course, Article I does not say that but says that the Vice President is the President of the Senate and has no vote except when there is a tie. Clearly, that speaks of the Legislative branch and not the Executive. The VP in fact does have authority in the Congress since he or she is the President of the Senate. The VP would have no authority in the Executive. The best demonstration of the VP’s job functions is displayed in HBO’s recent John Adams mini-series.

When Washington was elected President, Adams was the runner up and became the Vice President. Adams in fact sat in the Congress bored out of his mind most of the time. He would advise the President from time to time as other members of the cabinet did. Otherwise, he could just as well has sat in the Senate and read the newspaper. I would have preferred if that was all Cheney did.

To believe that either Biden or Palin offered anything substantial, different, or meaningful is a reflection of how far we’ve strayed from the ideas of the Founding Fathers. I don’t want to constantly reiterate the same point but, both parties are the same! They will only make government bigger and take away more and more freedoms. The way that they do it might be a little different but, the end result is going to be the same. Big government has predictable consequences and it is never a good one.

The candidates also briefly talked about a topic that I have a strong opinion on: global warming or “climate change”. For some reason, we have changed the term describing this “crisis” from global warming to climate change. It might have something to do with the fact that the Earth is not warming–just a hunch. To claim that the climate is changing is absurd. When is the Earth’s climate not changing? I can write pages about the ridiculous government policies on climate change but, I will spare you from it. You can read what I’ve written in the past.

So who won the debate? Putting aside my dislike for both parties and both tickets, I would say that Sarah Palin came out the victor. I expected her to trip all over herself. She didn’t. She was charismatic–more so than Biden or Obama. She smiled often. She spoke in the vernacular. She looked confident–except for a few times where she seemed nervous.

While people in the big cities aren’t as likely to be wooed by Palin’s seemingly common-folk ways, I am still inclined to believe that the vast majority of Americans will be. She just feels warmer and less like a politician.

An example that demonstrates this point is when the candidates discussed how they were really just like you and me. Sarah talked about her kids–one going to war, one with a disability, and those going to college. She talked about paying bills, etc. Biden had his own story of hardship and how he is better off now. The big difference here is when they talked about sitting at the kitchen table to figure out the finances.

This is where Biden is so clearly a politician. He claims the American people are looking for help. I’m sorry, but I don’t want any government handouts and neither do the majority of the American people. We are hard working and self sufficient people. In order for government to “help” anyone, it has to steal from someone else and I do not support thievery. The only form of “help” I want from government is for them to stay the hell away–the further away the better. I am convinced that most people are still willing to make an honest living and Biden’s suggestion is an insult. 

In the study of marketing, the product is only one factor in a successful campaign. Sarah Palin can be the least qualified person to be a heartbeat from sitting behind the Resolute Desk but, if the rest of pieces are sound, she just might end up in that position.

The best case scenario is if the American people rise up and vote third party. The Republocrats are still on track to take us into the smoldering depths of hell. There are four other candidates in the running: Barr, Baldwin, McKinney, and Nader. Pick one of them.