The FDIC Is Broke

Federal Deposit Insurance Corporation (FDIC) Chairman Sheila Bair wrote in a March 2 letter to the industry that "the deposit insurance fund could become insolvent this year" if new assessments aren't levied against the banking institutions which are ostensibly "insured" by the incapable government program. This is in stark contrast to the rosy picture she painted last July when she was quoted as saying "People should not worry. Their deposits are safe".

As Kathryn Muratore points out, imagine what an actual above-board insurance company would do in an emergency - say a hurricane hitting a populated area. In the days before and after the hurricane, can you imagine State Farm sending a bill to all of its customers in the Southeast for an emergency premium hike to cover the payouts that it knows are imminent?

In years past the Congress would have simply appropriated more tax payer dollars or used the monopolistic ability of the Fed to create new money in order to stave off the FDIC collapse. But with the recent looting of current and future tax payers to pay for the "stimulus plan" and the massive creation of new money by the Fed to bail out the financial industry (including Fannie Mae and Freddie Mac), the FDIC has been forced to resort to fleecing the "insured" banks.

UPDATE

Jobs vs Productivity

Speaker of the House Nancy Pelosi said that the goal of the stimulus plan is to create jobs. This is wrong for two reasons:

First, it is not the government's role to create jobs or stimulate the economy. The free market is perfectly capable of creating jobs and promoting economic growth without the government. The problem that must first be identified is that what we have is not a free market. There are myriad acronymic federal agencies that pepper the economic spectrum that remove any real functionality from a true free market. A true free market would be one without the interference of the largest destructor of wealth the world has ever known -- the Federal Reserve. A true free market rewards for success and punishes for failure.

Second, the goal should not be job creation but productivity. Twentieth century British economist John Maynard Keynes was such a proponent of government's role as the creator of jobs that he recommended that government pay people to dig holes and fill them up. Unfortunately this philosphy has spread like a disease throughout the media, politics, and academia. Productivity is the key to economic viability, and the easy credit conditions created by the Fed and the misdirected focus on job creation without long-term sustainability is what has turned this nation into the largest debtor and consumer in the history of mankind.

Read Tom Woods' article.

Obamanomics: Print More Money!

Peter Schiff, president of Euro Pacific Capital and predictor of the US economic collapse, explains why we cannot print our way to prosperity. Note: this failed idea is not held exclusively by Obama; "free-marketer" Bush and McCain hold this same view.

Republicans vs Democrats

There is a very public battle occurring between the ideologues on the left and the right, and each camp has its set of designated talking heads whose sole purpose is to propel its own agenda. It seemingly need not matter that the size and scope of the federal government has been expanding exponentially regardless of who was at the helm. If you ask the Democrats, the latest economic crisis can be blamed solely on President Bush and his policies. That same question posed to the Republicans returns a predictable answer of the Democratically lead Congress.

It is a never-ending cycle that plays an essential role in the transfer of power from the people to the state. The state only increases in size - it never shrinks. It never cedes power once taken. It is a unilateral movement toward despotism that is only enabled by the people looking for more security. We have become a nation that turns to the government to solve our every problem and give us that feeling of sanctuary.

How many times in the past year have we heard the talking media heads use the phrase "consumer confidence" and then look to grade our leaders on their ability to convey and inspire this confidence? Why is it the government's responsibility to inspire consumer confidence? The best way to inspire confidence is to get the government out of the business of centrally planning the economy - the market is too vast and complex to be positively manipulated by any collection of arrogant politicians and bankers.

We must stop falling for the same tricks that have distracted us for so long. The war between Republicans and Democrats must be ended and the true enemy must be identified: the state.

The Falling Prices Fallacy

Why is it that home prices must always increase and falling home prices are commonly considered a bad thing? Apply that same logic to gas prices. Gas prices are always looked at from the perspective of the buyer and thus falling gas prices are always preferable. What about those who have positioned themselves as sellers in the gas exchange who stand to benefit from increasing gas prices? Recognize this farce: how many people were taking the side of gas station owners or others on the supply side of the oil equation when consumers were “gouging” them with cheap gas prices?

Why are home prices rarely looked at from the buyer’s perspective and that falling prices make homes more affordable for those who are looking to purchase? This idea of ever-increasing home prices perpetuates this ill-conceived notion that homes provide an infallible savings program despite the economic climate. When will people recognize this simple equation: for every seller, there must be a buyer. For every swing in prices, there is a party who benefits and a party who suffers. One can’t always parlay their current house into a bigger house because it will always gain in value.

But we should know this by now. How long has the government (through the Federal Reserve) been artificially depressing interest rates and flooding the market with newly printed money in order to pander to their constituents and keep up this ruse that everyone must own a house? Rather than continuing to wreck this economy with their never ending bailouts, their “investment” of tax payers money into programs like Fannie and Freddie, and their ongoing war against falling housing prices – why don’t they let the market determine housing prices and interest rates? Well, then we wouldn't need our benevolent leaders and central planners, would we?

When money is so cheap, why NOT borrow and spend? What is the incentive to save? So you can make a measly 2% in a savings bond or a CD? That doesn’t even keep up with even the official CPI as tracked by the Labor Bureau (not to mention what CPI would be if they would actually compute it the way they used to or include such costs like energy and food).

As is always the case, there are ebbs and flows in the markets. The best thing that could happen right now is for home prices to fall and interest rates to rise. Higher interest rates will effectively create a stockpile of aggregate capital that can be used to finance our inevitable future spending binge once pressure is put on the Fed to drop rates again. But if you get rid of the Fed, and get government out of the business of money management and central planning, markets will correct – and home prices will become more desirable.

That is if one does the unthinkable and looked at the situation through the lens of the buyer.