As investors watch the unfolding of our current economic crisis, questions come to mind about where money should be invested safely. Accurate and timely flow of information is essential when investing. Without accurate information, investors end up putting money in all the wrong places and suffering loss.
Our very own government is busy promoting two very big lies that will be devastating for investors in future months and years.
Big Lie #1: A lack of government regulation and free market capitalism are to blame for the current mess.
This is a huge lie. First of all, we do not have true free market capitalism in this country. The amount of regulation is staggering. Secondly, true free market capitalism rewards investors when they make good investments and punishes investors when they make bad investments. Allowing businesses to fail is a necessary part of capitalism. It gives investors feedback needed to make good decisions. When the government steps in and rescues failing businesses, investors are deprived of vital information and end up making more bad investments. We are seeing the results today and will see even more severe results in the near future.
It was the government, not the free market, that passed the Community Reinvestment Act in 1977 that requires banks to lend to high-risk borrowers. All in the name of home ownership.
To facilitate this process, the government, not the free-market, created two huge government sponsored entities to purchase these high-risk mortgages and to facilitate the flow of funds needed to keep the market liquid. By labeling Fannie Mae and Freddie Mac government-sponsored entities, the government created the perception that it would guarantee the success of these two giants, which encouraged investors to buy the stock of these two entities. (After all, how often do “guaranteed” investment opportunities come along?)
Finally, the government, not the free market, lowered interest rates to 1% to encourage borrowing. This has lead to historic levels of debt and it is the unwinding of this debt that is causing all of the problems we are seeing today. By the way, never in history has more debt solved a debt crisis.
So, why would the government tell such a lie when all of these facts are public information? Why doesn't the government admit that this grand experiment has failed and adopt a hands-off policy when it comes to anything related to the free market?
That brings us to lie number two...
Big Lie #2: Only government regulation and intervention can save us.
That explains it all. You see, the framers of our constitution feared this very thing; a runaway government. A government that believes that it knows what is best for us, the citizens. A government that believes that it alone has the power to save us from ourselves, that we are not capable of making smart decisions. And you know what happens when you are told something over and over again? After a while you start to believe it. Most people today do not fear where this mess is taking us because they still believe that the government can and will save us.
The government wants us to believe that free market capitalism caused this mess and the only way out is for the government to step in and take complete control. (by the way, this is the same logic that Germany used in the 1930's to take complete control of the their economy)
The fact is the government led by FDR and his New Deal did not lift this country out of the last depression. It made the depression more severe and longer than any of the previous depressions. (That's right, the world had seen several depressions prior to the “Great” one. The only difference was they were a lot less severe and were generally much shorter.) Roosevelt's own treasury secretary, Henry Morgenthau summed up the New Deal mess this way:
"We have tried spending money. We are spending more than we have ever spent before and it does not work... We have never made good on our promises... I say after eight years of this Administration we have just as much unemployment as when we started... And an enormous debt to boot!"
Does that sound like a policy that we would want to follow today? So, why would our own government want so desperately to follow a strategy that has been proven to fail? Because government is only interested in one thing and that is power. If it were widely known that this plan will fail just as it did back in the 1930's, confidence in the government would fade and individuals would demand a return to small government and true free market capitalism. That, my friends is something that our government is not going to let happen. Be assured, they will fail at this current attempt, but they will not fail without a bitter fight to the end even if it means taking down the entire world's economy with it.
It is truly a bleak picture, but it is a necessary cleansing of the system. Remember, failure gives us valuable feedback so that we might make more intelligent decisions in the future. Pray we all learn these valuable lessons this time around.
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