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Social security thiefSocial Security (SS) is called the third rail of American Politics; when, in truth, it’s just a third rail period!  Within the next ten years outlays for Social Security will exceed incoming revenue from SS taxes and things get really interesting.  Now, you may be saying, what about all the money in the SS Trust Fund? Well, my friends, it’s time for a little truth about Social Security.

Since its inception, Social Security has generated an annual surplus; this means that after paying out current benefits, there is money left over. What happens to this money?  It goes into the general fund (the same place the rest of your taxes go) and is spent on other programs.  When the government spends the Social Security surplus it prints Treasury bond certificates equal to the amount that went into the general fund.  Normally, Treasury bonds are sold on the open market. Again these are the same instruments that China has purchased, and the same bonds now being swapped for stocks and bonds in the current bailout.  (See “Big Trouble in Little Washington”) The Treasury bonds printed for Social Security however, are quite different. By law they cannot be sold on the open market, they are stored in a vault in West Virginia.  Had these bonds been sold on the market, they would have been inflationary (increasing the money supply) just like regular Treasury bonds.

Click to continue reading The impending Social Security crisis


The real price of gas

This issue was displaced somewhat by the current economic news, but it is still near and dear to our hearts because we feel it everyday!  What’s behind it?  If you’re tuning into the cable news channels you’ve probably heard that it’s greedy oil companies, speculators (an upcoming topic), increased demand in India and China, or because we restrict drilling. Well, which is it?

As much as I hate to ruin a good myth, and this one is a gem, it’s none of the above.  Going back to my column on the Federal Reserve, we see that the FED lowered interest rates, and by keeping them there, money poured into the economy. Again, what happens when there are more dollars competing for the same number of (or, close to it) goods and services? Yep, prices rise.  Gas prices have risen drastically, because oil prices have risen drastically, because the Federal Reserve has increased the money supply drastically

Click to continue reading Pain at the Gas Pump

When economist Milton Friedman celebrated his 90th birthday, Ben Bernanke, the current Federal Reserve Chairman, said the following:

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve System. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.

We did it!  Quite an admission isn’t it?  Well, they did it againAnatomy of a Crisis highlighted the policies and practices that lead to the housing bubble, and in this column I’ll discuss how it was the Federal Reserve (the FED) that made the bubble possible in the first place. The FED doesn’t manipulate the money supply directly,at least not very often, they do it by setting interest rates, altering reserve requirements (the amount of money banks must keep on deposit with the FED), and serving as a safety net for the fractional reserve banking system that I briefly discussed in “Big Trouble in Little Washington”. A fractional reserve system that couldn’t expand deposits to the extent that they do without the FED.


Click to continue reading What Is The Federal Reserve Doing?!?!

According to President Bush this bailout is a good deal for Main Street.  He assures us that the tax dollars invested will pay for themselves and then some.  Oh really?  That’s the definition of a good investment. Well, if this is such a good investment why aren’t private investors rushing in to snap up these assets and companies at bargain prices?  Hint: Because they aren’t good investments!

Adding the $700 billion to the rest of the actions taken recently (Bear Stearns, AIG, Fannie Mae and Freddie Mac, FHA rescue bill, and the rest) the total balloons to a whopping $1.8 trillion, and counting!  Where is this money coming from?  Unfortunately for us, it’s coming out of thin air!  Anytime the government spends more than it receives in tax revenue, they engage in deficit spending. This is accomplished by the Treasury Department auctioning Treasury Securities on the open market. These are the same securities that China has purchased to the tune of $2.2 trillion. With me so far?

Click to continue reading Big Trouble in Little Washington

In the late 90’s the Clinton Administration put pressure on lenders to offer riskier loans (sub-prime) to the poor, and those with poor credit, to increase home ownership. This was accomplished by lifting restrictions on Fannie Mae and Freddie Mac, allowing them to buy these risky mortgages on, what is called, the secondary market. By expanding the loans that Fannie and Freddie could buy, banks were able to extend more of these loans since they knew they could slough them off on Fannie and Freddie.

Click to continue reading Anatomy of a Crisis

He predicted this mess we’re in now in 2003, almost three years before John McCain predicted it. Ron Paul is not my first choice for President, but he deserves way more credit than he gets. His strong suit is economics, and he could mop the floor with McCain and Obama on this subject.

On Sept. 10, 2003, U.S. Rep. Ron Paul, R-Texas, testified before House Financial Services Committee, which was holding hearings regarding special privileges extended to government sponsored enterprises (GSEs). Think Fannie Mae and Freddie Mac. In his testimony. Paul criticized such privileges in general and warned of the potential for disaster posed by government involvement with Fannie and Freddie specifically.

Click to continue reading Do People Give Ron Paul Enough Credit?