Tuesday, September 23, 2008

Encouraging Obama Statement

This Presidential election has been "all about the money" for me. That's why I was an early Ron Paul supporter. Only Paul was talking about our coming economic difficulties (which we are now starting to see) unless we brought about real change. Not the kind of change that Obama or McCain are peddling. Neither candidate were talking about the economy before the "housing crisis" hit. Ron Paul even predicted the Fannie Mae/Freddie Mac meltdown back in 2003 saying in part:

Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

Despite the long-term damage to the economy inflicted by the government’s interference in the housing market, the government’s policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.

Ron Paul's presidential campaign speeches focused on economic and monetary issues, music to my ears. But I digress.

The point of this post was that I am somewhat impressed by Obama's statement today that he may not be able to implement some of his initiatives (health care, education, energy, etc., etc.) due to the current financial crisis and the state of our economy. I'm encouraged by this on two fronts. First, it shows that he does know his initiatives will be extremely costly to the US taxpayer even if he never talks about the costs of the initiatives or how he plans on paying for them and secondly it shows that he might restrain his actions to only those things that we can afford (or put up with the burden of funding) rather than pushing them through now and trying to figure out how to pay for them later.

I'm hoping that McCain will follow suit. He hasn't proposed nearly the same amount of domestic spending increases that Obama has, but his military expansion/adventurism and additional tax cuts would be just as costly.

Since I gave Obama a complement, I must also admonish him on something. He has been arguing to great lengths that our current failure is the result of the "free market" run a muck. He couldn't be more wrong. The market always has a tendency to want to correct itself, and the reason why things are so bad right now is because the government is continuing to intervene in the market place and trying to stop that correction. The more the government tries to stop this correction the more pressure that is building up on the other side.

Lets not forget the roots of this problem which was the Government Sponsored Entities (GSE) Fannie Mae/Freddie Mac. The Republicans were very close to passing legislation back in 2005 to better regulate these quasi-governmental beasts but it failed in committee specifically because of democratic opposition. This article gives a good recap.

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