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You Can’t Afford To Ignore What The Government Has Done And Is Still Doing

By: Steve Johnson

8/6/2009 - 15 Comments

Despite the talk of an economic recovery in sight, a more realistic look at the fundamentals of the economy reveal that the recession is more likely turning into a depression.

The weakening dollar tells us that more trouble is on the horizon.

Most personal financial bloggers try to stay away from politics and stick to small ways that readers can improve their personal finances regardless of what the government is doing.

But that approach is not as beneficial for readers because the government is the biggest dog on the block and if you are not careful, he will eat your entire lunch.  The government's role in the economy is too big to ignore. Without understanding the government’s role in the economy, you cannot make accurate financial decisions and are likely to lose your life savings.

No One Wants To Talk About Monetary Policy

No one really wants to talk about monetary policy. We want the politicians to do their jobs and take care of it.  But we also want the politicians to continue providing entitlement programs without raising taxes.  And there lies the problem.

Raising taxes is not something that any politician can run a campaign on.  Voters want it both ways. We want to elect politicians like Obama who say they can lower taxes and also increase entitlement programs. 

Once in office, congress and the president realize that they cannot even afford to fund the entitlement programs that were already committed (SS, Medicaid, Medicare, etc.), let alone add any new programs without a drastic increase in taxes.

The solution is to increase the national debt and create more money by lowering interest rates – through political pressure on the Treasure and the Federal Reserve.

The short term consequences are a booming economy that delivers what was promised. The problem is that the long term consequences result is a devastating crash after the phone economy tips over, when consumer credit and debt is exhausted.

Then after unemployment spikes and the economy starts to look like it is in a dose drive, suddenly everyone wants to talk about monetary policy and the role of the Federal Reserve and how it affects the economy - but it's too late, the damage is irreversible. 

Federal Reserve

The most important part of managing the economy is understanding the role of the Federal Reserve and how they led us into this recession.  Once you get that down, you can clearly see how Wall Street and congress worked together to create the housing mess that we are in.

In the last few years, many good books have been written in length about the misguided monetary policies of the Federal Reserve, like Peter Schiff (Crash Proof), Ron Paul (End The Fed) and Thomas Woods (Meltdown).

But nothing has changed, if fact the monetary policy has gotten a lot worse and the Federal Reserve is creating money even faster and holding interest rates near zero - inflicting further damage on the economy, while the politicians are busy selling there plans to the public.

The really sad part is realizing that the deepening recession and millions of lost jobs could have been prevented. If only the Federal Reserve would have maintained it's independence and resisted political pressure to juice the economy.

Political Motivation

Despite the Federal Reserve’s argument that they are independent of congress and the president, they have clearly actioned in junction with the president for at least the last 20 years. There motive for choosing to print money is purely political.

Even if the monetary policy was reversed today and interest rates were increased to market levels, the economy is going to suffer for many years from the damage that has been done.

Here is quote from Peter Schiff’s latest book, The Little Book of Bull Moves in Bear Markets,

“Even the most uninformed US citizen will be forced to notice that other nations’ living standards are on the rise, just as ours is on the decline.  This may finally force them to realize just how badly the United States has lost ground as an economic power-and how much work it will take to dig ourselves out of the gigantic economic hole. “

“Ultimately, we are going to need a free-market president, who understands sound money and Austrian economics and has the toughness, courage, and leadership talent to take the bull by the horns and begin the process of shrinking government, dismantling programs we can’t afford…”

Without an understanding of what the government has done and is still doing, it is very difficult to make investment decisions or career decisions, because you don’t know which companies will survive as the government reacts with more regulation, more taxes and more central planning

The days of ignoring the government’s monetary policy are over.  Everyone needs to become educated in what the government is doing and how each action they take will affect their business, investments, jobs and the long term consequences on the economy.

If you want to protect your personal finances, find the time to educate yourself about monetary policy and the economic trends that are created by the actions of the government. 

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The Revolution: A Manifesto

Dr. Ron Paul's THE REVOLUTION: A MANIFESTO is a concise and convincing argument for a return to America's libertarian principles. But the best and most important chapter, without a doubt, is Chapter 6, "Money: The Forbidden Issue in American Politics." Here Dr. Paul details the operations of the Federal Reserve System in stunning clarity. You see, the effects of inflation are not uniform -- the Fed System works as a wealth redistribution system from poor and middle-class to the rich and politically connected. This is the true cause of the increase in inequality and the diminishing middle class.

What Has Government Done to Our Money?

Rothbard gives us an exceptionally clear, detailed description of what money is and how it has come to be manipulated by governments and central bankers into almost worthless inflationary fiat paper currency. He then explains how gold became the most respected and trustworthy currency of choice and the prospect of either hyperinflation or the greatest depression the world has ever seen may be arriving in the very near future.

Crash Proof

Peter Schiff has predicted the economic hardship more accurately then any other economist in the world in this book. Everything from the housing crash to the credit crunch to the stock market. Peter has a plan to help you servive the crash. Peter explains why the Wall Street investment firms are still trying to sell you stocks, and was the house prices are likely to continue to decline for years to come.

Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse

In discussions of today's economic meltdown and what to do about it, the Federal Reserve is a stealth helicopter: it never shows up on the radar. With the exception of a few esoteric specialists and those Ron Paul Revolutionaries who burst into chants of "Abolish the Fed!" Historian Thomas Woods notes in this important book, the Federal Reserve bears a large part of the blame for the mess we're in. In the first part of "Meltdown," Woods shows how both in theory and in practice, Fed policy fueled an artificial boom and is now leading us to a much larger meltdown.