Newsweek recently published a piece titled We Are All Socialist Now. The majority of the article is fairly objective and brings up the question of which direction the country is going to move in from here: American free markets or European socialism.

It is completely true that the conservatives spend as much as the liberals in recent decades. There is little difference between the two parties other than the rhetoric–if even that.

The American instinct still favors free markets and small government. That was how America became a land of opportunity for everyone around the world. As much as the socialists in this country want to convince us that the European style of government is better, we know it is not. The European system still stands because of American capitalism–free markets are the only proven means of bringing the most amount of people out of poverty.

My gripe with this Newsweek piece is towards the end as the authors suggest that “the answer may indeed be more government”. It is not the answer. The authors believe in the myth that government needs to stimulate the economy because people and businesses will not. The economy doesn’t need a stimulus, it needs to shed off the bad investments.

The piece further suggests that all the coming problems–global warming, aging population, energy costs–are going to require more government intervention. Of course, that is also wrong. The only means to solve those problems is to get government out of the way. Don’t make things worse by adding government.

Even more ridiculous is the suggestion that “the Obama administration is caught in a paradox. It must borrow and spend to fix a crisis created by too much borrowing and spending”. That is just insanity. The truth is, Obama must not borrow and spend to “fix” a crisis created by too much borrowing and spending. To do more of what caused the problem is ridiculous. There is no paradox; just stop spending.

“Obama talks of the need for smart government. To get the balance between America and France right, the new president will need all the smarts he can summon”. Unfortunately, no president or government or any individual can summon the “smarts” for this illusion of “smart government”. The only thing we are going to get is big government.

Markets are smart. The economy is trying to recover and Obama is only going to kick it while it is down. After Obama is done, we just might all be socialists.

The House defeated the $700 billion bailout plan today and the Dow Jones responded by dropping 777 points–777.68 to be exact. This was the largest single day drop ever. Analyst and politicians may start blaming the people for being non-supportive of this bill but, the market had to fall. It was up or held steady because of speculation that a bailout was coming and due to the naked short selling bans. The market is now merely doing what it is supposed to do: find equilibrium.

TV pundits and Washington elites will try and convince us that we need to do something now more than ever. We should continue to do nothing to bailout Wall Street. Any bailout will only compound the problem and cause more economic problems. We are in the worse crisis since the Great Depression and if government doesn’t keep its hands off, the problem is going to get much worse.

The idea that we need to ensure prices do not fall is a ridiculous notion. By propping up home prices, gas and food prices will go up as well and no one wants that. Housing prices cannot stay at their current levels. In most of the country, home prices have already fallen through the floor from their highs. There should still be more to go. In big cities like New York, real estate prices have held pretty well. It can’t and won’t last.

It was due to the government passing legislation that forced banks to lend money to anyone and everyone so that everyone could “own” a home that caused this crisis. If you cannot afford a home, you should not be buying one. Using “creative” financing is not a good solution. I don’t like to point a finger at any particular party but, in this case, it was the Democrats who pushed through the Community Reinvestment Act. It was originally signed by Carter in 1977 but, not well enforced and amended until 1995. Essentially, it was President Clinton who presided over the increase for mortgage access in inner cities and distressed rural communities.

This act also promoted the use of Fannie Mae and Freddie Mac as a means to unload these mortgages due to their risky nature. Fannie and Freddie were GSEs–government sponsored enterprises–and now they are fully government owned. The two GSEs would repackage the mortgages as securities and sell them on the open market. Because Fannie and Freddie were government backed, their mortgage securities were given high ratings even though they clearly did not deserve it.

The point is, the government caused this horrible financial mess we are in. If left to free market devices, the amount of bad mortgages would have never risen to such levels. So when politicians–especially Democrats–try to blame this crisis on the lack of regulation, they are lying through their teeth or just plainly do not understand economics. Either of which is not a positive for holding public office.

The exponential rise of real estate prices is directly attributed to the massive amount of buyers that flooded into the real estate market due to government demanding everyone own a home and bid prices up higher and higher. Now because everyone’s houses went up in value, some decided it a good idea to refinance and borrow against their home so that they could take that vacation, buy that new car, or whatever. It was fun for several years until people started missing payments and foreclosures started taking place.

Housing prices started to collapse and now millions of Americans have upside down mortgages with negative equity in their homes. The party had ended and here comes the hang over.

Government bailouts and interference of market forces is the equivalent of drinking more and more alcohol in order to delay the hang over. It is logically not a good idea. You need to allow the alcohol to leave the body or in this case, allow the bad debt to leave the market. In fancy-pants talk, we need to liquidate the bad debt. It won’t be painless–hang overs aren’t painless but, they are necessary.

The economy is not in good shape and if we can keep the government from trying to “fix” things, it will start to improve a lot sooner. However, if we allow the government to intervene like it did during the 1930′s, the 16 year Great Depression is going to look like a walk in the park. We do not need government works projects or any other absurd creation of Hoover or Roosevelt.

While it is difficult to do nothing while people are suffering–you and me included, one must remember the ideas of economist Frederic Bastiat. We need to take into account the opportunity costs that we do not see. It may look like a good thing if government provides jobs because in the short run unemployment would be kept in check but, new and more efficient jobs and markets will not get the capital they need because government had directed capital elsewhere. That is exactly how a short painful recession can turn into a long painful depression.

The other danger of government intervention is that the only way government is going to be able to pay for the bailouts and works projects is to increase the national debt by borrowing or by printing more dollars. Both choices are incredibly bad. The current economic crisis won’t kill us, hyperinflation will. Having a lot of dollars is meaningless if they can’t buy anything. The Federal Reserve has already increased the money supply by 8% in the last week to try and “smooth” the gears of the financial system–it won’t work. It is only going to devalue the dollars we currently have.

It was a great victory for the American people today that this bailout of the rich and well connected was defeated. We cannot privatize profits and socialize losses. It is unlikely that Paulson, Bernanke, Bush, and co. is going to let it go. They will try to push some sort of bailout through as best as they can. The Senate will vote on the bill later in the week. This bill does nothing to benefit the people. We need to tell our Senators that we do not support the bill and demand that they vote against it.

Any Senator who votes for this bill should not expect to be re-elected. This is a grand robbery of the American people and I’m glad we didn’t stand for it. The massive public outrage over this bailout bill played a great role in its defeat in the House. Today was a victory for the people. May we continue the fight.

For more insights into the economic crisis and its inner workings, check out LewRockwell.com and The Mises Institute.

I hate all kinds of central planning. I love free markets. The actions of the United States government in this past week and in the past months since our financial system have started its collapse has been the definition of socialism. Our politicians keep telling us that this is a necessary evil. It has to be done in order to protect our savings, our money, our economy. The reality is that they are destroying our savings, our money and our economy.

The Federal Reserve played chicken and decided to allow Lehman Brothers to fail to test the waters. The market responded by collapsing through the floor. This is what should happen and needs to happen. The Fed then decided they could not let AIG fail and bailed them out with $85 billion freshly printed dollars and an almost 80% stake in the company. So now the government owns Fannie Mae, Freddie Mac, and AIG. What if WalMart fails? Are we going to go to the government to buy groceries? This is ridiculous.

Our financial system was maybe a couple of days away from a complete meltdown. This would have been one of the biggest market crashes in history but, the government stepped in and estimated that they would spend half a trillion dollars or more to stabilize the markets. They are going to set up an entity similar to the RTC of the Savings and Loan crisis that would buy all the bad debt from all the banks. Who is going to own this bad debt? You and me. I don’t know about you but, I don’t like making bad investments. Especially not ones that I have no say in.

So now we are falling into the hellhole of socialism. There is nothing remotely good about socialism. The theory sounds nice but, the execution has always been the same. I don’t care if you want to redefine what socialism is to keep it a theory–it is never going to work. Central planning–regardless of the form–is never going to work.

Government has no money. They don’t produce goods and therefore cannot produce wealth. They can only steal from us. That is what they are doing right now. They are stealing our money to make sure that their friends on Wall Street don’t lose their shirt. Instead, we will lose ours. I don’t think you really support this. What is your benefit that Fannie and Freddie were “saved”? That AIG was “saved”?

If you have a mortgage that you couldn’t afford, you now still have a mortgage you cannot afford and on top of that, the dollar’s value is about to fall through the floor. Maybe you worked for Fannie, Freddie, or AIG and might have been out of a job if they collapsed. You’ll find a new one–yes, you will. Instead, we are going to put this giant band aid on the problem to push the day of reckoning later. It doesn’t help you. It is just going to make sure that you hurt harder later.

If the government wants to help America and the American people, they can pay off our mortgages. They can eliminate the interest on our credit cards. Pay our student loans. Get the people out of debt. How about, we bail out the American people? Why are hard working American people bailing out these giant corporations so that their executives can get their millions of dollars in salaries? I don’t want to pay their salaries. They made bad choices, they should live with it.

Millions of Americans made bad choices to buy a house they couldn’t afford. Bail them out. If we are going to have bailouts, we should bailout the American people. Not the multinational corporations.

The economic blow back of these policies are predictable. The ban on short selling of almost 800 financial institutions is market manipulation. The markets are going to go up in what will appear to be a bull market. There is no bull. We have not hit a bottom of any sort. The Dow Jones was more likely to have tanked below 10,000 than to have hit any bottom. With the government announcements of the biggest bailout that we have ever seen, the market responded by skyrocketing. The volatility of this past week could have either made you a lot of money or lost you a lot of money.

No one knows when this fake bull is going to take off the mask and reveal it is really the nastiest bear we have ever seen and send the market sinking like a rock. Playing the stock market now is exceptionally dangerous but, it can also make you an enormous return. Because of this “temporary” ban on short selling, the market will fall through the floor when it decides to correct. The officials say that they want to restore equilibrium but anyone who understands economics has to laugh at that. Eliminating short selling is doing the exact opposite of creating equilibrium–it is ensuring we stray as far away from equilibrium as possible. So when it hits the market that the stocks are not worth this much–and they aren’t–it will snap back like a rubber band.

Our markets are going to collapse. It is hard to determine when with all this government interference and manipulation but the law of economics cannot be suspended. If we really enter into a full blown form of socialism, we will all be equally poor in no time flat and our markets would have collapsed because of it. The alternative is that we stop bailing out the corporations and we enter into an incredibly painful depression. It won’t be fun but, at least there will be a future option of being better off. Socialism ensures that such an option won’t exist–there will only be one option: equality in the sense that we will all be equally poor.