The Freedom Factory

New Zealand Prime Minister John Key speaks a strange language. It’s English, all right, even with an accent, but he is one of the only world leaders who is speaking of relaxing regulations, cutting taxes, spending within budget, and focusing on making his country more productive.

Rather than jumping on the tax, borrow, spend, print, populist bandwagon with nearly every other world leader, John Key’s solution to the tough times is to “use this time to transform the economy to make us stronger so that when the world starts growing again we can be running faster than other countries we compete with.”

Key’s idea is to grow the country out of recession by improving productivity, not simply catering to populist calls for wealth redistribution, stifling regulation, and growth-inhibiting class warfare taxes. He calls attempts to use debt and money printing to “prop up growth” risky, saying that saddling future generations with debt could be counterproductive. He is one of the only politicians who states “There is actually a limit to what governments can do.”

At a time when governments are growing by leaps and bounds, and everyone seems convinced that Big Brother holds the keys to economic prosperity, it is refreshing to see a world leader (actually an ex-currency trader) embrace sound economic principals.

Key admits that New Zealand will not pull the world out of recession; it’s too bad other leaders lack such humility!

Here’s a link to the Wall Street Journal interview with Key.

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Republicans block spending bill in Senate over earmarks, Federal Reserve refuses to disclose identify of aid recipients-Senate challenges disclosure, America now has its first CIO, Obama says there is no time to delay Socialized health care, lawsuit attacks Craigslist in challenge to Web privacy, Chinese central bank sees signs of recovery, Germany in uproar of GM mismanagement…just the latest in your Freedom Under Fire Report! Continue Reading

White House budget found to have “fuzzy math” on war estimates, new role for federal government to provide broadband Internet, U.S. gives Palestinians $900 million, Harvard economist says bailing out homeowners is a mistake, 4th Obama appointee found evading taxes, bank Nationalists look to Sweden, temporary nationalization of mortgage industry now permanent, 1 in 31 adults behind bars in U.S., Australia leaves benchmark rate unchanged, and Bush memos claim unfettered rendition powers…just the latest in your Freedom Under Fire Report! Continue Reading

It seems like everyone is looking for someone to blame for the economic crisis. Congress blames the banks for risky lending practices and corporate greed. Banks blame lawmakers for relaxing regulatory standards, keeping interest rates artificially low, and using Fannie and Freddie Mac to increase homeownership. Both groups also blame hedge funds for manipulating markets and distorting asset prices.  So, who’s to blame?

In isolation, one group might be responsible for our current difficulties. However, it does not work like that. The U.S. economy is a complex system that involves hundreds of millions of participants that interact in trillions of symbiotic transactions. Consumers lend to banks, who in turn lend to businesses and other consumers. Government provides oversight and takes a cut of every transaction. As you can see, there is no single entity to lock in the stockade for all to tar-and-feather.

The more meaningful question everyone should be asking is: how did I contribute to this crisis? Since the problems are rooted in the housing market, let’s start there. If you bought, sold, or refinanced a home in the past 7 years, like it or not, you contributed to the housing bubble. Granted, Mr. Greenspan facilitated your transaction by keeping interest rates too low too long in an effort to spur the economy following the dot-com bubble and 9/11 attacks. But nonetheless, your transaction had a direct impact on the ‘market’ and drove up home prices.

If you consumed beyond your means and carried a balance on your credit card, you contributed to the credit bubble. With access to cheap, short-term funding, the banks profited from your excessive spending habits and made a nice profit charging a 15% APR. Additionally, the banks probably increased your credit balance, adding more credit and leverage to the system. Plus, all the goods you purchased were probably manufactured in China, increasing the U.S.’s foreign trade deficit, which in turn fueled more lending to the banks.

Finally, if you invested in any type of managed investment that had exposure to sub-prime mortgages or leveraged financial instruments, you contributed to Wall Street’s greed. Although you are not directly responsible for the decisions of others, your capital enabled institutional investors to gamble with your money. This is one of Robert Kiyosaki’s primary complaints about managed mutual funds. They always collect management fees, pay themselves ‘performance’ bonuses in good times, but the investor bears all the downside risk. In short, always perform due diligence and understand what you are investing in. Just because it appears safe, does not mean it is.

All of these transactions were made possible by debt, cheap capital, and leverage. Before looking to blame someone else for the economy, first consider how you contributed to the problem. As the saying goes: every time you point a finger at someone, remember there are three fingers pointing back at you.

In summary, the economy will only begin to recover after each American accepts responsibility for and rectifies their individual actions. The force of the market it much greater than any program the government can create. Even the $700 billion bailout, impressive as it is, only represents about 5% of the United States’ annual GDP.  The economy created this problem and should be allowed to resolve it. Placing blame and looking to government to solve our problems will most likely only prolong the pain.

On June 14th, the Financial Times reported that finance ministers from the world’s biggest economies (G8) disagreed with each other on the role of “speculators” in driving politically unacceptable energy prices. Today, the Associated Press adds Saudi Arabia to the list of country’s blaming financial markets for rising prices. The U.S. Energy Secretary declared that insufficient production was to blame for high oil prices, not the popular scapegoat, “speculators.” Perhaps both are right to some extent, but only if you properly define “speculator” to be our very own central bank!

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