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Monday, August 23rd 2010

9:42 AM

More on Unintended Consequences of Tea Party Policy

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I wrote here about my concerns with Tea Party views of the GSE's, Fannie and Freddie. This continues the discussion. Now, as you can see, I don't claim to have an answer about the GSE's, Fannie and Freddie. But the real question comes down the government guarantees of loans. We know that if government guarantees loans, the free market is skewed. In other words, we know that prices are pushed up by easy money. Only if money is tight can this guarantee even approach a free market system. 

However, if we do away with the guarantees we may do away with the 30 year mortgage as the investors may refuse to invest in these mortgages. That could really cause problems with the economy. I am not saying it is good or bad, but you have to pay cash to buy a home in Argentina. We may as well as default on our debt if we see the 30 year go away. 

Again, I don't claim to have an answer, just the questions. The Tea Party doesn't even ask the questions. They are like a bull in a china shop in their thinking. But the bigger issue is whether we do what the IMF wants, and cut massively and raise vat taxes, or if we cut slowly and try to deflate more slowly. The Tea Party apparently wants massive deflation, right away. I don't think that this would be great, although I understand fully that the US is not competitive in the world. I am not saying that I have the answers, but I know that the IMF style cuts will transfer more wealth to the top. Whether the Tea Party is bogus or sincere makes no difference really, as Wall Street will gain at the expense of mainstreet if programs for the poor and middle classes are drastically cut. This is why I warned Bill of this issue on the Hennessy blog:

Oh yes, and one more issue I have with you:

10 percent of the people control 93 percent of the wealth. A country cannot continue to have the top people controlling more and more of the wealth or it won’t work properly. So, how do you propose to change that ratio and why can’t we keep certain social programs in place to also facilitate some movement of money from these people who get perks from government, scam people with bad loans, etc. to people who need some benefits just to get by?

I believe your move towards self reliance is a bogus attempt to enrich Wall Street. And you know that is exactly what will happen if you continue down this path.

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