Last night I watched the third and final debate of Obama and McCain. I wanted to jump on the computer last night and write about this, but I figured I should at least sleep on it and gather my thoughts. I don’t have all my thoughts gathered, but I did find an article this morning from a guy I highly respect who finally posted an article on his website. His name is John Reed and here are some excerpts from his article.
“The mortgage foreclosure rate in the U.S. in October of 2008 is only about 2.5%. During the Great Depression, it was about 50%. So why is 2.5% causing so many problems? Leverage. If you only have a tiny percentage of equity in your home or bank or mortgage lender, you are wiped out by a tiny increase in foreclosures. Thenormal foreclosure rate is around 1%.”
The market shifts from “growth” to income over time. “Growth” means people buy a stock or real estate because they believe it will go up in the future. When that belief is not present—as now—the market switches to an income orientation. That is, investors will value stocks and real estate according to the amount of income it throws off. The less you pay for a stock or property, the greater the return you get from its dividends or cash flow. When the prices fall ridiculously low, the incomereturns get ridiculously high. At the same time, as the dopey masses rush to buy bonds, bond yields fall, thereby making the dividend yields on stocks and the cash flow of rental properties even more attractive relatively speaking.”
“The Democrats and media are trying to encourage as much fear of a Depression as possible to get votes and ratings. It’s working. Obama will probably get elected and have filibuster-proof majorities in Congress. God help free enterprise and the future prosperity of the American people.”
“People think the Great Depression was caused by the 1929 stock market crash. Nope. It was caused by the Federal Reserve keeping money too tight. They are bending over backwards to avoid that now. Fed head Ben Bernanke is one of the leading scholars of the causes of the Great Depression. We were lucky to have him there now.”
“The majority of Americans, especially Rust Belt voters like those in Ohio, are too ignorant to understand that tariffs hurt the countries that pass them. They see it as the repatriation of jobs. In fact, tariffs hurt the countries that pass them, in no small part through retaliatory tariffs by the other countries who can no longer sell to America. That kills jobs in both countries and the hurt far exceeds whatever jobs “come back” to the protectionist countries. Virtually all economists agree on this, and they rarely agree on anything. During thhe Depression, 1,028 of them in the U.S. signed a petition against the Smoot-Hawley tariff, to no avail.”
“Watergate’s Deep Throat famously directed Bob Woodward to “Follow the money.” Those angry at the subprime mess should do the same. In doing so, they will find out something that no media story has revealed. Most of the lost money went into the pockets of those who sold their homes from 2004 to 2006. My oldest son is currently trying to buy his first home. The houses he is looking at sell for about $300,000. a couple of years ago, they sold for about $550,000. They are all foreclosures.”
“I think a big part of the problem is that our citizens are ignorant of economics, markets, free enterprise, and business. Furthermore, our college students have long been the targets of socialist indoctrination by America’s college professors and to a lesser extent by our public school union teachers. In the public schools, the problem is less socialist indoctrination than just plain lousy education and ignorance. But this has allowed us to evolve into a situation where when there is a speed bump in free markets, like gas price increases or falling stock market indexes, our citizens want free markets replaced with government-run markets. “Government-run markets” is a contradiction in terms. Cuba has such a system. We will be far worse off if we go that way and we seem to be doing just that.”
So before I quote his whole article I will leave it at that. You can read it all by clicking the links above. In any case, the main truth here and take away point is to always educate ourselves as to what is really going on in our world. We can not bow down to fear. We cannot be ignorant. And we certainly cannot be arrogant by defending ideas that are not true or talking about things that we do not know much about.
I want to write more about this, but for now John has helped bring most of what I have been thinking into perspective. Look for another post on the subject here soon…
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