The Pain of Two Corrections

Today, for the first time since May 1, 1997, the Dow closed below 7,000, down 4.24% to 6763.29. It has been nearly twelve years since the market has seen these levels, and that was when the tech boom was going full throttle, well before the 2000 correction.

Did we even have a complete correction in 2000? With a central bank making the calls of monetary policy, I’ve realized that we cannot know whether the correction was actually sufficient enough to clear out all the malinvestment and bad management decisions. Think about it: interest rates were sharply lowered, credit was injected into the economy, and before too long the economy was back on its feet again (thanks in part to the new housing bubble). Just because the recession may have been weakened by the Federal Reserve’s intervention, it doesn’t mean that it wouldn’t have negative consequences later on. In a true free market where the market would control money and credit, this would be much easier to analyze. We do not have that convenience though, because we have to live with and analyze the actions of the select, unelected few who call the shots.

I bring this up because we obviously do still have market forces at work. Despite regulation, intervention, and manipulation on the part of the government and Federal Reserve, the underlying powers of the market do not disappear for good. Today the stock market has been sent to levels prior to the correction of 2000, and I can’t help but speculate that part of this is because investors are starting to understand more deeply the consequences of credit manipulation from the Fed, as well as an inflationary monetary system.

Over time, we as a nation have subscribed to the Keynesian belief in economics that you must spend and inflate your way out of economic hardships. This is the root of our largest problems today. Some of the key principles of capitalism are saving and investment, but over the past century we have gotten the mindset that it is the government’s responsibility to manage and influence the economy. It is this belief in inflation and debt financing that has caused us to get so overwhelmed by a correction that is beyond the hands of government and central planners.

What if, by lowering interest rates to artificial lows in 2000, Greenspan prevented, or rather delayed, areas of the market that didn’t fully correct? What if providing such cheap money was one of the primary reasons for the largest and most irresponsible bubbles this nation has ever seen? A small group of central planners, if they worked 24/7, could not get close to controlling the marketplace in a more efficient and responsible manner than a capitalist free market. With the key influence of money and credit out of the hands of the consumers and investors, I find it very hard to believe when people blame our problems today on the “free market”.

No matter what political, economic, or social systems are in place, the forces of the free market are always at work. This is why every nation that has tried its way with a fiat monetary system has not lived to see its lasting success. No piece of paper guaranteed by a government and central bank can take the place of gold and silver, the only items consistently and universally accepted as currency in all of human history.

Every attempt at government and central planning is an effort to go against human nature. Capitalism is not about “greed” as many have made it out to be. Capitalism is the only economic system that supports, rather than discourages, the profit motive. Capitalism is a consumer driven economy, which leads to lower prices and higher quality products. In a true free market capitalist society the regulation of the market, not the government, is unleashed in full force. The ability of free choice and individual responsibility will outweigh any government bureaucracy’s ability to regulate.

The government and Federal Reserve do their best to limit individual responsibility and ability. Over the past year we have been forced to bailout massive corporations and essentially the whole government-managed banking industry. If these were such pressing matters, why not leave it up to the people to decide whether or not these corporations were “too important to fail” and deserved money of which they had earned not one penny? If it was such a pressing matter, there was nothing stopping people from sitting down and writing a check for the Treasury to distribute to its banking buddies.

We have lost the ability to make our own decisions with our money. Talk about taxation without representation: over the past year, the Treasury Secretary and Federal Reserve Chairman (formerly Hank Paulson, now Tim Geithner and Ben Bernanke), two unelected officials, have handed out trillions of taxpayer dollars. This past December, former president George W. Bush ordered an “emergency” bailout of the auto industry. Rather than let these mismanaged auto businesses fail, reorganize, and come back as a stronger entities, the taxpayers are being forced to pay the bill for stupid mistakes made by the businesses. In other words, if we decide to not buy their crappy vehicles, we’re forced to bail them out with our taxpayer dollars.

The regulatory abilities of the free market are starting to rev their engines. The monetary dictatorship of the Federal Reserve cannot manipulate credit and destroy the value of the currency without serious repercussions. Bailing out failed and irresponsible business decisions won’t eliminate the problems of mismanagement and malinvestment. Nationalizing industries will not lessen the pain felt by the consumer during this economic crisis, nor will increased regulations.

Countless times our officials have gone with short-term solutions that ignore the laws and history of economics. They go for the route of more government intervention and involvement in the economy. Many people today can’t comprehend a system where the government wasn’t responsible for getting the economy out of a recession. Somehow people fail to see that this is not a problem caused by lack of spending, but lack of saving. It’s pretty simple: Congress encouraged businesses to hand out irresponsible mortgages that they knew people couldn’t afford, people took these irresponsible mortgages they knew they couldn’t afford, and both sides of the party went deeply into debt. But rather than take the signals of the recession that we need to cut back on spending and increase our savings, the government has gone on a spending rampage in the past year, the likes of which the world has never seen. Not to mention that this is money we do not have, which only means it will come through more borrowing and inflation of the dollar.

The free market has been put off and suppressed for a good amount of time now. However, like I said, its forces can and will never completely disappear. Human nature, common sense, and the yearning for individual responsibility will eventually outwit and overpower all regulatory and deceitful agencies keen on destroying those very principles and natural laws. History shows there are no exceptions.

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