Democrats And The Housing Crisis

The housing crisis that may severely depress the economy is caused by gov't, as have been most of the evils in human history. Jefferson understood this and so was a Republican against gov't. Accordingly, Jefferson also stood against a gov't central bank that would control much of the nation's economy. Instead he favored a private, free enterprise banking system..

In such a system there is no banking Czar in Washington DC who makes dictatorial wild guesses about how the economy ought to function or what the money supply should be. Instead, the decisions are left to millions of individuals making their own moment to moment analyses about the economy. The capitalist wisdom of the masses is considered superior to the whimsy of a gov't ego maniac central banker; even a well intentioned one.

The current crisis is caused because the gov't, in effect, printed too much money that was then injected into the housing industry. The idea was to pull up the entire economy, in the wake of 9/11, by encouraging the construction of more and bigger homes. But sadly, if the housing sector can pull up the entire economy it can also pull down the entire economy, which it is threatening to do now. There can be no free lunch cooked up by printing money or shuffling papers in Washington, as much as Democrats would love it to be so. The economy is shaky now, specifically because of about 700,000 projected foreclosures in 2007. The number is projected to rise to 1,200,000 in 2008 at which point the economy may suffer dramatically more. No one knows what will happen but with at least a year or two of a growing foreclosures to come it may well get dramatically worse from where it is now.

The Federal Reserve's (our central bank) response to the crisis created by printing too much money was to, in effect, print more money - more drugs to ease the pain of withdrawal. In the long run it might work, but only if it is part of the process of withdrawal by which the Fed stabilizes the current economy and then slowly reduces the money supply back to "normal" levels. But, we don't know if the Feds will panic about the money supply or what their guessing will prompt them to do. We do know that the entire nation's economy is in their hands since we have given them complete control over how much money to print. After looking at the monetary history of the United States, we know that our central bank usually will guess wrong. They will print too much for too long into a expansions and then deflate for too long into a recessions; thus whipsawing the economy back and forth doing serious damage to economic efficient and growth as whole industries expand and then collapse in very wasteful and inefficient ways.

In a real banking system the paper money is backed by gold which exists in a fixed supply. Gov't Czars can't create more of it and in generally will not destroy it; so the money supply is always comparatively consta