It’s no longer speculation or academic debate, the United States has sacrificed principles in order to save the economy.

“I’ve abandoned free-market principles to save the free-market system, to make sure the economy doesn’t collapse…I am sorry we’re having to do it, I feel a sense of obligation to my successor to make sure there is not a, you know, a huge economic crisis. Look, we’re in a crisis now. I mean, this is — we’re in a huge recession, but I don’t want to make it even worse.”

One thing I have learned about government is this: when government takes away a right, freedom or principle from the people it governs, it is very hard to, if unlikely, persuade that the government to give that right, freedom or principle back to the people.

It is becoming very clear the “Car Czar” will be involved with price setting or product selection, which is not a free market practice, and add government ownership to major financial institutions and the United States is that much closer to a socialist economy – much like China.

So, let’s a return the discussion back to the world of academia. To use a quote from Benjamin Franklin:

They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety

Can this quote also apply to the theory of the free-market economy?

Think about this – is a country only deserving of capitalism or free-market principles only when the times are good, or should that country apply the same theories at all times, regardless of the potential impact on society?

I want to pull out one comment President Bush said:

“Look, we’re in a crisis now. I mean, this is — we’re in a huge recession, but I don’t want to make it even worse.”

Has anyone bothered to ask the question about government interference in the economy? What is the long term impact of near zero percent interest rates? How will government dictation of what products to sell change business moving forward? How will the huge debt interfere with the ability to deal with social security?

Changing horses midstream may actually cause more harm than good, yet no one seems to be talking about it. Sacrificing free-market practices and principles today may cause more economic problems tomorrow, and chances are we will never regain the free-market principle of the past.

Here is a tip – if you really want to confuse your young child, send them mixed signals. 

Every time I listen to members of the current administration speaking about the states of the economy, I feel like that young, confused child receiving mixed signals from his parents.  Case in point, look what Federal Reserve chairman Bernanke and President Bush were quoted as saying Monday about the current economic situation…

Bernanke

“Well, you hear a lot of loose talk, but let me just … say, as a scholar of the Great Depression — and I’ve written books about the Depression and been very interested in this since I was in graduate school, there’s no comparison,” 

Bush

“I can remember sitting in the Roosevelt Room with Hank Paulson and Ben Bernanke and others, and they said to me that if we don’t act boldly, Mr. President, we could be in a depression greater than the Great Depression,”

President Bush was recalling a conversation between himself, Bernanke and Treasury Secretary Henry Paulson only weeks ago.  During the last two months only negative information has hit the market – housing starts at lows, unemployment rising, credit still unavailable, Citi Group needed Government assistance – so what changed and which is it.  

Is the United States simply in a long, deep recession or is the Nation facing a “depression greater than the Great Depression”

I am not a believe of conspiracy theories, and I have no intent on being cynical, but it almost appears Bernanke and Paulson are giving the “real” information to Bush and trying to keep the public calm by saying “there is nothing to worry about, pay no attention to the man behind the curtain”.  Actually, the ones who are really getting the correct signals are those pulling money out of hedge funds but it even looks like they are starting to have problems getting their money.

Economic information aside, if the administration wants to make public perception of the economic situation any worse, continue to send mixed signals. 

Oh – and for the record – I think Bernanke is right, this has no major comparison to the Great Depression of 1929.  To me it smacks of, and has a direct comparison to, the Long Depression of 1873.

There are a number of things that are being said in the news / press / world of blogs that I need to be addressed.

The Stock Market is not the economy

Without a doubt, the stock market is wild right now.  The press gets excited when the wild swing and destruction of capital takes place, but it has happened a number of times in the past – it’s all part of capitalism.  It happened in 2001, in 1990, 1987, early 80s… and on and on and on.

Corporate scandals, poor business practices, and just plain dumb luck will lead to situations like this all the time.  Currently, the financial industry is in disarray but this does not equate to an overall bad economy.  While economic growth is not historic highs it is also not contracting.  As of now, the United States is not, officially, in a recession.

The collapse of AIG, et al., is not a giant conspiracy

I want to know if people are still taking their medication.  More and more there are stories / commentaries that the bailout of AIG is due to the company being a front for the government or that we are heading into a financial dictatorship.

The reason AIG was given what amounts to a structured bankruptcy is quite simply. Their debt, the bonds they offered, was considered to be some of the highest-grade investment vehicles on the market.  Just about every major company in the WORLD owns said bonds and if the assets suddenly became worthless, the potential for failures of companies worldwide was very real.

The $700 Billion dollar rescue is the right thing

The creation of a Resolution Trust is the right thing to do and creates a bottom for the mortgage industry – the mortgages are now set with a value established by asset managers, backed by the government, and create a tradable security for the investment market.    Furthermore, as the real estate market improves the government will be sitting on A HUGE asset bank that goes right back into the treasury.

This is all caused by poor regulation, greed and policy

Yes, policy created this current situation, but it wasn’t Bush policy – it was Clinton policy.  President Clinton pushed extensive changes allowing lenders to distribute and fill “questionable” loans, his legislation – essentially – allowed the sub-prime mortgage industry to start.

In 2002, Ron Paul called for change due to the financial risk, in 2003 President Bush recommended a regulatory overall to prevent a collapse and in 2005 John McCain warned of a financial collapse but NO one acted.

Who failed to act?  Congress.

Bankers utilized the “loose” regulation and got greedy.  They started to issue loans to individuals who could not afford their loans and, next thing you know, boom there is a crash.

This is life…

The stock market, the economy and life are full of ups and downs.  What the government is doing right now is attempting to provide stability to the financial and credit markets, and as the economy as a whole.  Is it what I want to see in a free market society, no?  Is it the right thing to do, yes.

If you haven’t noticed, the Republican Convention is moving forward!

If you may have missed it, and I am guessing you did, the Republican Convention started on Monday of this week.  The crowning moments of a slow, throttled down convention was afforded to the public by Cindy McCain.

“”I would ask that each one of us commit to join together to aid those in need as quickly as possible. As John has been saying for the last several days, this is a time when we take off our Republican hats and put on our American hats.”

I think the message she is sending is clear – we are not going to beat you over the head about Hurricane Gustav but we need to be respectful of the world around us.