As the economic indicators turn down and election year politics heats up, the calls from politicians for more government intervention and enhanced economic stimulus are becoming more strident. Last week, with the onset of the general presidential campaign, and with increased attention on the economy shown by the Bush administration, I could not help but think that something big was in the air. And by big, I mean the kind of massive new Federal spending initiatives that we haven't seen since the Great Society of the 1960's.

In particular, Fed Chairman Ben Bernanke's June 4th address to the rain-soaked Harvard graduating students provided much food for thought. In it, the Chairman spent a great deal of time discussing both the burdens imposed on the economy by high energy costs and dependence on foreign oil and the positive economic effects offered by more robust fiscal stimuli (which is economic speak for increasing government spending without increasing taxes). It occurred to me that Bernanke was perhaps laying the groundwork for the next great Federal spending campaign. As has been the case in the past, Federal spending is touted as a means to fix our nation's social and structural problems, while simultaneously igniting economic growth. Although this is a mix that no politician can resist, all it promises the citizenry is botched policy and hyperinflation.

It appears that, despite government statistics showing sluggish growth, our economy is heading into a recession, perhaps severe. Depression is also a possibility. While the government and financial elites are only grudgingly coming to this conclusion, the rank and file has accepted the reality and is demanding solutions. The most politically "attractive" way out appears to be to lower interest rates still further and encourage more spending both on a personal and Federal level. However, big expansions of government spending may encounter resistance, and as a result would need to be carefully packaged. Spending on alternative energy just may fit the bill.

Although few deny that the development of alternative fuel sources would be a good thing for this country and the world, it is wrongheaded to believe that government-directed spending can bring about meaningful change on that front. Government spending involves three major problems: inefficiency, political bias and major cost over-runs.

Almost without exception, the executives within government (bureaucrats) are unskilled in business. Although many are academically gifted, few have experience, or interest, in balancing investment and financial risk. History has shown time and again that government spending economic development is notoriously wasteful, and leads to enormous taxpayer liabilities and unintended consequences. For example, the vast government spending over decades to reduce U.S. poverty has failed lamentably. Some would argue that has even contributed to the institutionalization of poverty. Similarly, increased government spending on education has led to steady declines in educational quality.

By promoting and sponsoring inefficient solutions, government spending can push out entrepreneurs, who might otherwise revitalize an industry. Indeed, it is government spending that has almost single handedly transformed our once great "producer" nation into a "consumer" nation. Once established, government spending programs never disappear. It is certain that any new bureaucracy created to develop alternative energy will persist indefinitely, whether or not it succeeds at all.

What history has clearly shown is that government "non-spending", in the form of reduced taxes and regulation that has proved the greatest boost to enterprise.

In truth, politicians are much more interested in the spending than they are in the results. In distributing taxpayer money politicians can play the part of Santa Claus, especially if they don't raise taxes to pay for the goodies. In so doing, they are reading directly from the textbooks of John Maynard Keynes, who somehow gained academic transcendence by claiming the government can jump start the economy by simply printing money and spending it.

Of course, there is a price to be paid for such deficit spending, a little nuisance called inflation. When the government prints money to meet its obligations, it debases the currency. In effect, it levies an inflation tax to make up the difference. If the authorities can disguise the inflation in the short term, then so much the better for them. Not so much for the rest of us.

No one should be fooled by all this talk of a government led effort that will finally wean us from our dependence on foreign oil, rid the planet of its environmental woes, and supercharge the economy in the process. Instead, it's simply a recipe for more bureaucracy and higher inflation. Have we all forgotten how the "Guns and Butter" of the 1960's led to the stagflation of the 1970's? Our politicians are banking on it.

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read Peter Schiff's book "Crash Proof: How to Profit from the Coming Economic Collapse.
 

 

 

June 14, 2008: Nancy West From The U.S. Department Of Housing And Urban Development

 

Bruce Norris is joined once again by marketing and outreach specialist for U.S. Department of Housing and Urban Development, Nancy West. Bruce and Nancy discuss home owner month and the outreach FHA is involved in for the event and throughout the year, foreclosure prevention workshops, who the buyer is now entering the market, FHA rehabilitation loans to consumers willing to rehab homes, rehabilitation loan program 230k, streamline rehabilitation loans, how no special inspection is necessary if under $15,000 in repairs, which loan is appropriate depending on the amount of work needed, how the consumer can receive up to 110% of after approved value, the way the Realtor would structure the transaction if these loans are used, if an investor can take over an FHA loan, how FHA was replaced by other loan products, the seasoning period for FHA loans and why it exists, tweaks to the property flipping rule in 2003, if FHA loans are assumable between two owner occupants, the 1980s and the simple assumption and the elimination of the program in 1989, why the program was eliminated, if HUD was satisfied working with investors in the last cycle, why the last downturn was different and why we could be hurt because the financing can't move forward, if bankruptcy prevents consumers from getting an FHA loans, how FHA requires at least two years to laps but less time granted if consumer had extenuating circumstances, how the consumer typically waits two years for bankruptcy and three years for foreclosure to receive an FHA loan, talk of FHA buying defaulted loans by Barney Frank with the Banking Committee, how it will take an act of Congress and Senate and President approval, daily proposals trying to create solutions, how FHA is not really talking about these solutions until something looks real, if an election year will matter, other states that are still appreciating, the states with the most problems, how states and local areas differ, how FHA focuses on the positive things when dealing with consumers, rent approximating rent for first time in some areas, how the interest rate might become more important than the price, how the consumer needs to be educated, if FHA will be hiring, and FHA.gov.

 

 

 

(Sep 18, 2007)- "If the dollar loses value too quickly, it could wreak havoc on the economy and financial markets - driving up interest rates and inflation and slashing Americans' purchasing power" -Peter Schiff 

 

(Sep 19, 2007)- "People keep talking about Fed bailouts as if there is no cost. All the Fed can do is create new dollars. What that does is diminish the value of all the dollars everybody already has. They try to socialize the losses among all the holders of dollars" -Peter Schiff

 

(Aug 16, 2007)- "The housing bubble has burst. Prices are going to collapse and sales are going to fall through the floor." -Peter Schiff 

 

June 10 -- In Pennsylvania and all across the country, Americans are struggling to keep their heads above water. The housing crisis is causing record numbers of foreclosures. Food and gas prices continue to skyrocket with no ceiling in sight. But it's not just the day-to-day financial pressures that worry so many. For generations, Americans have relied on the equity they built in their homes to help fund their retirement. But with housing prices nationwide continuing to fall dramatically each month, the nest egg so many working and middle-class Americans have spent years to create is eroding. With so many Americans reaching age 65 in the next decade, we must act now to safeguard their retirement. Of the approximately 330,000 people living in Pittsburgh, 24 percent are age 55 or older. That is one reason why the Eaton Global Residential Division has joined a coalition of U.S. manufacturers www.suppliersforhousing.org to urge Congress to pass the housing relief bill. Our coalition is made up of suppliers who manufacture the goods and provide the labor for homes that are built across the nation. In Pennsylvania, our company has a large division in Moon that manufactures power-distribution equipment and includes circuit breakers for the industry.....................


Click On This Link To View The Entire Article

(Sep 21, 2007)- "With the Federal Funds Rate cut, the Fed revealed that it has no interest in defending the dollar or containing inflation. This kind of irresponsibility is all gold needs to move higher from its current levels unless the Fed somehow finds its backbone within a year or two, then gold has a good chance to take out its inflation-adjusted high of nearly $2,000 per ounce within this decade." -Peter Schiff

 

 

(July 31, 2007)- "It's going to soon hit $90 and go north of $100 next year. We should see $150 to $200 oil in the next two to three years because of the drop in the dollar.'' -Peter Schiff