It's been difficult to keep abreast of what's going on lately with how busy I've been in school, and the fact that people are hoping for the best in the economy just because the stock market is up. All it means is that there are people with confidence/hope that the economy will turn around, so they have decided to put invest again. Unfortunately, the fundamentals behind why we crashed in the first place haven't changed at all, and have only gotten worse. The great depression era saw the same sort of bear rally we're seeing now, preceding the actual "depression".

Not that I believe it'll become a full depression, in the typical context. What they have done so far has been a twofold process. Their first goal is to instill all sorts of government programs and increase the size and power of the federal government. Their second goal is to print and borrow money like crazy in order to create an inflationary force to counteract the deflationary forces of a recession/depression. Mind you, these goals were present in both administrations to different degrees.

They have done their job well, as we have been running the printing presses nonstop. The problem is, no country has EVER done what we're doing to the scale we are doing it without hitting hyperinflation, and a subsequent alteration to the class structure of the country. In Weimar Germany they tried the same things we are in order to stave off a depression, but in the end they only ended up carrying around wheelbarrows full of money and being taken over by the Nazi party with their "national socialism" to save the country and uplift the working class/unions. History repeats itself in many ways.

Although printing money like wild to counteract deflation and devaluing the currency so paying back debts would be easier could've possibly worked, it requires a rapid stop to avoid swinging into the many problems of inflation. The president even came out and spoke about it this week, saying the following-

We can't keep on just borrowing from China,' Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. 'We have to pay interest on that debt, and that means we are mortgaging our childrenís future with more and more debt.' Holders of US debt will eventually 'get tired' of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. 'It will have a dampening effect on our economy.'"
While at the same time he was advocating MORE spending for massive healthcare programs. The politicians speak with forked tongues, and act with hidden hands. Unfortunately, our president has taken to speaking in what is truth, yet DOING the opposite. He is exactly right about what he just said. The serious issue with printing money isn't just the inflation we cause, it's CHINA.

The USA is responsible for 5% of China's GDP. China is the largest holder of US debt. They have a massive amount of our paper currency. They have been holding it against their best interest, on our demand, because if they were to ever dump their holding in US currency, the currency would rapidly inflate and... die. It is an extremely serious situation. The worst case scenario is for them to see the US as being such a risky customer that they no longer value our contributions to their economy (and 5% isn't that vital in the grand scheme of things), and they go ahead and dump their dollars.

Unfortunately, that's what's about to unfold. China has been buying up MASSIVE amounts of gold. China buys gold with US currency. China requested to buy all the gold from the IMF, about $100 billion I believe. If the countries don't veto that purchase, that would mean $100 billion paper dollars would be flooded into the economy. China is preparing to pull out of their investment in the US, but slowly as to not cause a sudden panic. The end result will be
1. The hyper inflation of our currency as their dollars are dumped into the economy.
2. Our greatest lender will no longer lend to us.
3. The AAA credit rating of the country will be downgraded, and that means high interest rates.

And the result would be an inflationary bludgeon to skull of this economy. China has already stopped buying 30 year treasuries and is only buying 3 and 7 year treasuries, which forced the US government to start selling treasuries to (get this) THE FEDERAL RESERVE BANK! Essentially selling our debt to ourselves. This has never been done before, but the results shouldn't be hard to ascertain.

Meanwhile, all these things are multiplies at the state level, as microcosms of what's happening at the federal level. California is still sliding headlong into the abyss, with a massive budget deficit caused by a host of social programs and senseless spending that the state government has perpetuated over the past 10 years as it has DOUBLED in size. CA spends billions on illegal immigrants and social welfare, and the politicians bow their heads to every special interest group that shakes some cash in their face or donates to their campaigns. We have a legislature of the unions and special interest groups, not of the people. CA is a prime example of what happens when senseless socialized spending and political corruption runs amok. If people would look carefully at what has happened here, they would not stand for this same failed recipe at the federal level.

So while CA is sliding into the ocean, the government is preparing to bail out possibly California and back their bonds. What this means is, California's problems will be levied upon every other citizen of the union, and THAT would technically be unconstitutional. That would be taxation without representation, as only Californians got to vote for their legislatures, the ones who ran the state into ruin. CA may be the 8th~11th largest economy in the world, but the state needs to solve its own problems despite the shock waves that'd hit the rest of the economy. The rest of the country should not have to pay for it on the basis of the same "too big to fail" mantra. Too big to fail has thus far only been used to nationalize banks and industries and give the government unprecedented powers. This same trend could be extended upon the sovereignty of the states.

So, we are left with the question "What should be done?" What should be done is a wholesale revelation of just how destitute the current state of affairs is on local, state, and federal levels. People have to start changing things at the local level to effect the federal level. Voters have to start placing value in principles, and making that the basis for who they vote on. Against the federal government, the good states are making moves to thwart the federal expansion and encroachment of power. Their are a number of sweeping legislations on state sovereignty and gun ownership that could become a strong force to turn the tide on federal power and irresponsibility. California voters have been standing up to the corrupt legislature and refusing to pay more taxes in a state that is already the highest taxed in the nation (and we still have the greatest deficit!!!). More people are waking up and making demands for a sensible reality.

I think the federal policy of choice should to let companies fail, let the economy hit the wall it's going to hit anyway, give a very moderate amount of support to those who will struggle in the recession, stop spending and devaluing the currency, stop reckless borrowing and printing for it, and stop the trend of micromanaging the now nationalized organizations. "Yea, but that doesn't describe something we need to do," you might say. That would be wrong.

Upon adopting the above policies, where would we be? We'd be in a state of affairs where the economy is in a faster spiral downwards. it would be a hard recession, rife with poor confidence in the markets. Short term, it would suck badly. Long term, we would not be in the dire straits we're building for ourselves now. Life is pain, and the more you try to avoid it the worse it'll be. Based on how capitalism works, when the economy faces a major downturn, as it always does, it inevitably climbs back out of it through new innovations, better and stronger new businesses to replace the huge, old businesses that died during the downturn, and the overall economy is better for it after the winter ends.

Those forces of change happen because of the pieces that make a capitalist economy run, the seller and the consumer. They are the driving force behind the highs and lows of the economy. It is all purely based on needs and desires, where if their is a need that must be filled, someone will produce it in hopes of turning a profit. That force is what keeps a capitalist economy going, and for the whole country, it means that growth never stops because the vital pieces of the economy are always focused on what the economy needs (it's a circular relationship).

Unfortunately, people seem to think that it's the government's place to control the economy, be it through nationalizing or manipulating the will of those "vital pieces of the economy", the consumers and businesses. people think that the government exists to solve all problems. That's not it's purpose, nor is that an efficient function of ANY government. people need to make the economy work. Just as the people got into a mess, they will have to get themselves out. It will happen of its own accord as it always does, so long as government doesn't crash in and make a mess of the whole system, as the arguably did during the great depression, thereby extending it far far longer than it had to be. Socialism needs government to keep afloat, capitalism doesn't. The only thing we need government to do is to keep us safe and keep thing in order during a downturn.