Paradoxially, apparently many people think a lack of regulation contributed to the current financial meltdown. Exactly the opposite, government control is the cause.
Let's explain this in a simple, factual way that everyone can understand, to avoid the glossy eyes that evoke apathy, and reaction of "conspiracy" or "not mainstream".
It is a well documented fact that the equations for the CPI were modified numerous times by the government since early 1980s, thus causing the official reported CPI to be several percent lower than the actual rise of prices:
See ShadowStats.com. It is a self-evident fact that changing the weightings for the basket of goods in CPI changed the result percent. It is an "Enron-like" accounting gimick. From mid-1980s to early 2000s, some things (e.g. gas, Asian manufactured goods) were declining or fairly flat in price, while others things (e.g. healthcare, housing, education) were rising at 10+%. By re-weighting and using other statistical tricks (e.g. hedonics), the official CPI was reported several percent lower than the actual basket of goods that matter most to people. For example, if 80% of one's economic net worth is tied into the price of their house, and housing prices were rising nearly 10%, then the individual sees the CPI at 3% (and thus interest rate at 5% cost) lower than his gain.
This undeniable manipulation of reality (i.e. propoganda) caused institutional money managers to buy government bonds at lower interest rates, because such fund managers are required in their prospectus to invest their clients' money in bonds, when the CPI is lower than the interest rate paid by bonds. Thus it is an undeniable fact, that via the manipulation of CPI, the government has for decades effectively centralized manipulative control over interest rates. Granted, no one forced fund clients (e.g. everyone with money in an interest bearing account, fund or managed retirement account) to be ignorant of prospectus ramifications.
With prices of houses rising say 10% per year and 30 year mortgage rates at 5%, individuals had a powerful incentive to borrow to invest their money as a deposit on a mortgage, rather than save the money in bonds.
So the government's manipulation of the CPI statistic, reported lower than the actual inflation of prices for houses (healthcare, etc), is what caused the housing excesses and abuses.
Also, the government's manipulation of the CPI has cheated retirees (on Social Security, Medicare, etc.) by making annual cost-of-living adjustments lower than the actual prices rises in the economy.
To now say we should add more regulation, or in any way give more control to the government over market pricing, is asking for more of what got us into this mess. Re-read the above, and understand that the government's control over CPI reporting, gave them control over market interest rates, which gave them control over whether individuals and bankers would mutually abuse debt for housing. Some think the repeal of Glass-Steagall fueled the explosive growth in derivatives (the contractual gambling spagetti that sits on stop of bad debts), yet the derivatives were incentivized by the underlying Bacchanalian debt bubble and investors' opportunity cost of bonds paying less than actual inflation, both caused by the CPI manipulation. The lowering of interest rates below the true price inflation rate, by manipulating the CPI, thus forced investors to seek higher returns in riskier investments. Let's not transpose cause & effect-- the root cause driving the political results (e.g. repeal of Glass-Steagall).
The additional control given to the government in the recent bailouts, will repeat what happened in the Great Depression. Instead of letting the free market set prices, the New Deal artificially set prices and interest rates, thus made the problem worse and it was still getting worse after 6 years into late 1930s. Such severe economic hardship (as in Weimer Germany) can give rise to fascist governments and a world war. With that in mind, why are the following activities going on?
Hopefully the readers can email me some plausible reasons, to squelch any silly thoughts of conspiracy.
Price fixing either causes shortages (when price is lower than too many people are willing to pay) or causes misallocation of savings (e.g. housing example I detailed above). When control interferes with the free market, then bubbles, crashes, and misery results.
Others have recently explained the effects of government price fixing:
After calling the House representative, one can instantly put an end to this insanity by simply trading dollars and bonds, for PHYSICAL gold and silver (not stocks, not ETFs, which are manipulated), before the government restricts selling of dollars, bonds, and stocks, aka "capital controls" (they've already restricted short selling). This instantly protects the individual from the insanity. And if only a few percent of the public were to do this, the dollar system, the control it gives the government over the free market, and thus the insanity, would stop for everyone. Gold and silver are the antidote, because the government together with the Central Bank, is simultaneously jacking up inflation (by overcreation of dollars throughout 1980s, 1990s, and now to bailout debt) while they manipulate the CPI lower than the inflation they are creating. It is an enslavement system that was foisted on the USA in 1913 without a Congressional quorum, as most Congressmen had gone home for Christmas. Ditto the original income tax law "enacted" without a quorum, which created the demand for those new Federal Reserve dollars in 1913. With ability to create dollars out of thin air, all politicians are in the back pocket of this system. It is the system similar to the one our forefathers shed their blood to escape in old feudal England. Remember the dollar was redeemable in gold for citizens until 1933, for foreigners until 1971, and in silver coin for citizens up to 1964. The enslavement system has taken over since then:
Click here for a chart of Total American Debt vs. National Income. Click here for a chart of Total American Debt Percent National Income
The dollar Titanic is sinking, imagine those who did not jump ship soon enough, and got trapped.
Some people think the dollar is still backed by gold at Ft. Knox. The government officially reports 261 million troy ounces of gold in "deep storage" valued at $42.22. That $11 billion "on the books" value divided by the current market $900 price of gold, is 12 million troy ounces. So the government is officially reporting in a rather sly way, that it has sold or leased out 249 million ounces of the gold, which perhaps is why the gold is classified as "deep storage". Perhaps accountants can be "officially" correct, using "Enron-like" gimicks.
Henry Ford wrote that if the people understood the dollar and the fractional reserve banking system, "there would be a revolution before tomorrow morning". There are two fundamental, undeniable mathematical facts that most people do not know about the dollar and the fractional reserve banking system:
Disclaimer: The above are my personal opinions. I seek safe harbor. I am not a professional advisor. I am not responsible for anything anyone does after reading this. Seek your own counsel on all matters.
Shelby Moore [Send him email] has been a commercial software developer since late 1980s (including was one of first 3 programmers of what is now Corel Painter), and occasionally writes economic commentary that has been published by SilverStockReport, FinancialSense.com and Gold-Eagle.com. He recently completed Miningpedia.com and his current development project is GoldWeTrust.com, also known as SilverWeTrust.com.
