false 5 0 false false Tue Oct 20 00:00:00 -0700 2009 Thu Oct 29 09:53:03 -0700 2009 Thu Oct 29 10:47:07 -0700 2009 1 Meltdown A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and the Government Bailout Will Make Things Worse". Thomas E. Woods Jr. explains how a combination of central economic planning, perverse incentives, interest rate manipulations and other government tactics are the root cause of this economic mess we're in.

And to clear up any misconceptions, the crisis wasn't caused by a failed "free market" in need of more oversight and regulation. For starters, the Federal Reserve's manipulation of interest rates and its ability to create of money out of thin air, along with the countless laws and alphabet soup of regulatory agencies, the market is far from free. The Fed, especially, sent all the wrong signals to investors, speculators, and potential homebuyers with an artificially low interest rate for much of the 2000s. And the answer to failed regulators who were supposed to have averted the housing bubble, ponzi schemes, and wild speculation about all kinds of financial instruments is NOT more regulators.

A part of the book I particularly enjoyed was the way Woods debunked myths about the Great Depression. Woods explains just how Hoover's and FDR's massive government works projects did more to prolong the Depression than restore the economy to sound footing. Woods also draws interesting parallels to how the Obama administration is repeating history, and the outlook isn't too bright.

Chapter 6 focuses on money and how the Fed has devalued the dollar by inflating the supply of money (without anything to back its creation). Because of inflation, Americans have no incentive to save because over the years, their currency erodes in value. Woods also makes repeated reference to the Austrian School, an economic philosophy devoted to liberty, sound money, and limited government developed in large part by Ludwig von Mises and Nobel laureate F. A. Hayek. (Two great websites where you can learn more about the Austrian School are The Mises Institute and the Foundation for Economic Education.)

Not only does Woods reveal the sources of the crisis, but he also offers solutions for the future. He says letting foolish companies go bankrupt is a good thing. The assets they mismanaged can be liquidated and better managed my wiser companies. Another solution is to get rid of Fannie Mae and Freddie Mac, two government-sponsored entities that have way too much power to meddle in the real estate market. The bailouts need to end. Where's the incentive to act prudently if you know the government is going to step in when you screw up? If I were a corporate executive, I'd make my company as big as I could, hoping I'd be "too big to fail". That way, I can pocket all the profits during a boom, and I can rely on the taxpayer to bail me out during the bust. The Fed's power to manipulate money must be abolished, and legal tender laws must be reformed to allow Americans an alternative to the ever-decreasing dollar.

The book, my friends, is a great, great read, and I plan on visiting it again and again to remind myself how we got where we are now and what we must do to avoid a similar crisis in the future.]]>