…but the vast majority of Americans — on both the left and right — are idol worshippers of the State in practice, in at least one way or another. Just saying.
Anyway, here’s a great blog by a great thinker of liberty, quoting another great thinker of liberty:
My colleague Walter Williams sent to me the following anecdote. It’s probably apocryphal, but its point nevertheless hits home — namely, too many people forget that when government acts on Jones and Smith, the reality is that people, not some mystical and magical entity, is doing this acting. If Smith is offended that Jones is allowed to free-ride on Smith’s efforts, the job classification of the persons who enable Jones to do this free-riding should make little difference to Smith.
Here’s the anecdote:
“Today on my way to lunch I passed a homeless guy with a sign that read ‘Vote Obama, I need the money.’ I laughed. Once in the restaurant my server had on a ‘Obama 08′ tie, again I laughed as he had given away his political preference — just imagine the coincidence. When the bill came I decided not to tip the server and explained to him that I was exploring the Obama redistribution of wealth concept. He stood there in disbelief while I told him that I was going to redistribute his tip to someone who I deemed more in need — the homeless guy outside. The server angrily stormed from my sight. I went outside, gave the homeless guy $10 and told him to thank the server inside as I’ve decided he could use the money more. The homeless guy was grateful. At the end of my rather unscientific redistribution experiment I realized the homeless guy was grateful for the money he did not earn, but the waiter was pretty angry that I gave away the money he did earn even though the actual recipient needed money more. I guess redistribution of wealth is an easier thing to swallow in concept than in practical application. “
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. ‘Since you are all such good customers, he said, ‘I’m going to reduce the cost of your daily beer by $20. Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now paid $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
‘I only got a dollar out of the $20′, declared the sixth man.
He pointed to the tenth man,’ but he got $10!’
‘Yeah, that’s right’, exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he got ten times more than I!’
‘That’s true!!’ shouted the seventh man. ‘Why should he get $10 back when I got only two? The wealthy get all the breaks!’
‘Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!’
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible
Please take the following as an indicative, and not as an imperative:
Just stop paying your mortgage By Peter Schiff
If you are a mortgage holder who is either struggling with crushing payments, bitter for having overpaid for your home during the bubble, or who has extravagantly refinanced when prices were rising, the government’s landmark $700 billion bailout package has an important message for you: stop making your mortgage payments . . . immediately. Furthermore, if you believe that with some planning and sacrifice you may be able to meet your mortgage obligations, the government’s message is clear: relax, don’t bother.
While angry voters have labeled the package as a bailout for Wall Street, it is more akin to a “Get out of Jail Free” card for anyone who acted irresponsibly during the boom. Here’s why.
Nobody likes foreclosure, least of all politicians. The new law clearly indicates that the government will make major efforts to reduce foreclosures through “term extensions, rate reductions and principal write-downs” of the troubled mortgages that it buys from the private sector. In other words, your new landlord will bend over backward to keep you in your home. The legislation telegraphs this by including a provision that extends until 2013 the exclusion of loan reductions from taxable income.
When a financial institution holds a mortgage, homeowners must live with the fear of foreclosure. Private institutions only have obligations to shareholders. In the case of a defaulting borrower, they will look to recover as much of their principal as possible. If foreclosure is their best option, they will take it in a heartbeat.
The government has no such obligations. Its only goal is to keep voters happy. After supposedly bailing out the fat cats on Wall Street, no politician wants to be accused of evicting struggling families. Once you understand this, all of your anxiety should melt away. Why pay your mortgage if foreclosure is off the table, and if you know that lower payments, and possibly a reduced loan amount, would result? A tarnished a credit rating is a small price to pay for such a benefit.
Unfortunately, this boon will not extend to those foolish individuals who either made large down payments or resisted the temptation of cashing out equity. The large amount of home equity built up by these suckers, I mean homeowners, means that in the case of default foreclosure remains a financially attractive option. As a result, these loans will be much less likely to be turned over to the government.
If your mortgage does become the property of Uncle Sam, the growingly popular impulse to “just walk away” should be replaced by “just stay and stop paying.” No one will throw you out. After a few months, or years, of living payment free, you will get a call from a motivated government agent eager to adjust your loan into something affordable.
To bolster your bargaining position it will help to be able to claim poverty. As a result, if you have any savings, spend it soon, before they call. Buy a bigger TV, a new wardrobe, or better yet, take a vacation. After the hardship of spending all of your refi cash, you probably deserve it. If you have any guilt just remember, Washington argues that consumer spending is the best way to stimulate the economy. Living beyond your means is a patriotic duty.
If you do get the opportunity to live for a while with no mortgage payment, don’t make the tragic mistake of using your extra cash to pay down your credit cards. As the growing level of credit card defaults will soon push credit card companies into bankruptcy, we can expect a similar bailout plan for American Express and Discover Financial. When that happens, expect massive balance reductions for Americans who can demonstrate the inability to pay. The bigger your balance, the greater the benefit.
Taxpayers, however, will not be so lucky. The savvy investment strategists who see the government turning a tidy profit on its mortgage purchases have not factored in the incentives that will discourage nonpayment. The only way the government will be able to profit would be to buy the mortgages at deep discounts to actual loan values. However, if the purchase prices are too low, the plan will bankrupt the institutions it is trying to bail out. On the other hand, if it substantially overpays, which seems far more likely, it will bankrupt the nation.
In any event, as more and more borrowers succumb to the allure and safety of nonpayment, look for the number of troubled assets to swell. This will ensure that the $700 billion merely represents the first installment in what will be a multitrillion-dollar plan. Just as government policies provided the primary impetus in blowing up the housing bubble earlier in the decade, its latest attempt at market manipulation will only result in making a terrible problem far worse.
Schiff is president of Euro Pacific Capital and author of “The Little Book of Bull Moves in Bear Markets.”
We are being told that the cause of the current credit crisis is one of liquidity, so the government should engage in massive deficit spending (i.e. eat up the credit — as well as our future) and the Fed should pump out dollars (i.e. destroy their value until they are worth little more than Monopoly money.)
But the problem is not the lack of money; it is the inability of the markets right now to determine the true value of assets, thus leading to a reluctance to offer credit. To take a simplified, limited example, one can not take out a home equity line of credit when the lending institutions can’t tell what one’s home is really worth, and therefore what equity one actually has to draw from. That problem is roughly the same throughout the capital markets right now, not just in the home mortgage market.
And why can’t the markets determine true value? Is this a failure of the free market system, as all its enemies and pretend friends in both Parties (including the two anointed and disastrous choices for president) are saying? Not at all! It is government failure, not market failure. This is the consequence of employing unequal or ever-changing weights and measures, as the government and Federal Reserve have been employing for decades. We are paying the consequence of that sin now, and engaging in much more of the same sins will not solve the problem; it will only delay (for a short time, maybe) and dramatically worsen the consequences. God will not be mocked.
This not a mere theological conjecture. It is an economic law as certain as the law of gravity. Try as hard as the central planners and price fixers might, they can no more revoke this law than they can get an apple to float on its own.
I have seen no more succinct and more clear presentation of this principle — and explanation of the “liquidity” problem – than that provided in a blog by Dr. Michael S. Rozeff (Professor of Financial Planning and Managerial Economics, University at Buffalo). The man he sites, and that is featured in the short, linked video is a hero of mine, too. Do read on:
Jim Rogers tells it like it is here. He’s a man after my own heart who is up front. But there is one critically important point where his thought is fuzzy. Asked about suspending market trading, he correctly said this would not help and in fact would defer an economic and market recovery. He went on to explain why: “Nobody has liquidity. Nobody will lend any money. Nobody has any money.” But a few minutes earlier, he correctly criticized the Fed for its money-pumping. So, with his confusion of thought, he is raw meat for Fed-supporters who wish to save the system by pumping up money and calling it liquidity.
(UPDATE: Jim Rogers prefaced his statements about money and liquidity with the words “They are saying…” The audibility was low at that point and I missed it the first time. Thus, he attributed those statements to others, the Fed and Treasury. I withdraw my statement that he was confused. Sorry, Jim. My critique of the content of the statements remains. The Fed and Treasury are basing hugely important and expensive policies on a misunderstanding and socialization of money and credit.)
If he were alone in this confusion, it would not matter. But there are lots of people with the same idea, and so they are helpless in saying what is wrong with the Fed’s money pumping. And the Fed has this argument, wrong though it is, that it is supplying the liquidity that the markets need. This argument could not be more wrong.
Liquidity is an effect, not a cause. Illiquidity is the effect of people who have money not wanting to lend that money. When they refuse to lend, then the credit markets lack liquidity.
People have plenty of money to transact. The money supply has not dropped at all in this whole episode. Wealth has dropped. Valuations have dropped. There is not less money. For every seller, there has been a buyer. Money changed hands. It did not disappear. The trades were at lower prices. Wealth disappeared. Assets were marked down in price.
So, Mr. Rogers is correct to say that nobody has liquidity (meaning that many debt markets are not trading in much volume.) Stock markets of course are still trading high volumes and are liquid. It’s the debt markets that have become illiquid, and it’s not for lack of money. The money in t-bills and in money market funds is very large.
He’s right to say that nobody will lend any money. He’s 100% wrong to say that nobody has any money. They have money, and so they don’t need the Fed to add more money. They are not lending that money, and the Fed should not attempt to take their place and become a lender of first, last, or any resort.
The problem is CREDIT. It’s a simple fact (overlooked by all the officials that Rogers correctly calls “idiots”) that a lender will only lend to a borrower after assessing the credit-worthiness of the borrower. That is done, in part, by learning what the borrower’s assets and liabilities are. One of the biggest problems now is that the lenders cannot ascertain the actual values of the borrower’s assets and liabilities. The financial firms are carrying junk assets with unknown values. They are carrying liabilities in the form of insurance guarantees like credit default swaps that have unknown amounts and values. Nobody will lend to a borrower whom they are so unsure of. The market needs transparency. Bailouts make matters worse because they hold up the weak banks rather than letting them fail. The potential lenders have a harder time telling the good from the bad. Furthermore, banks are connected in many ways in loan markets. Keeping the bad ones alive and running only weakens the stronger ones that they are connected to. Lenders are then more afraid to lend to any of them, good or bad.
It is the job of the markets and investors to sort the bad from the good and the beautiful. It is the job of the markets to shift the capital that is there away from the incompetents to the competents. This is why bankruptcies should have been allowed to happen from the start. This is why the market dropped sharply on the bailout bill. I learned yesterday that when the bailout bill was first broached, the volatility index (VIX) immediately rose, and it rose again when the bill was passed. The market took it as a signal that the downside risk had just increased.
Officialdom has continually been making matters worse for months. My hat’s off to Jim Rogers for speaking so bluntly and accurately. We need more like him.
This is my last post re: the bailout — I promise. Until the next great socialist leap forward, that is.
I post this, though, b/c it sums up the whole blasted mess exceedingly well. And for those who want to just skim to the bottom line, here it is for you: “Hell’s bells, Farmer John, just eat the damned seed corn. You ain’t gonna live long enough to see next year’s harvest anyhow.”
I post here an excellent article from one of my clients, FreedomWorks — one of the few “free market” organizations still standing against socialism in this country. Unfortunately, this article was published yesterday – just prior to today’s sell-out of America to Marxist principles.
Something tells me the President, Paulson, and Bernanke — not to mention the vast majority of Congress — all watched the wrong cartoons growing up. They should have watched this:
(And many more good ones are listed at the bottom of the window after the video concludes.)
