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Poverty

Poverty has always been a big problem for our world. Every attempt to wipe out poverty invariably aggravated the problem. The first thing that people say is "the government must do something! We need to take more resources from some well-heeled sector and transfer it to the poor. Many people believe that you can wipe out poverty by a simple forced transfer of money through taxation, welfare and similar government initiatives. In one form or another that has been the most typical route for our world over the centuries. Yet, poverty persists.

The primary reason is that government has always done more harm than good for "the poor." It is no coincidence that the highest rates of poverty are always in countries or areas that have a high concentration of government! Look at the poorest countries in the world. What is the most powerful common denominator in those poverty-stricken countries? These countries are usually Marxist, communist, fascist or socialist. The common thread through these destructive ideologies is that they are very top-heavy in government. The bottom line is that more government means more poverty. Look at the United States during the 1930s. We called it "the Great Depression" but really it should have called "America's last great socialist experiment". Roosevelt's "New Deal" should have been called "FDR's Raw Deal". The lesson: more government means more poverty.

Housing bubble

The housing bubble that recently popped was not a market-driven event. The artificial rise in housing prices and the pain associated with the now-evident dropping prices (foreclosures, mortgage problems, etc.) show us a major crisis that was created by the government. How? First see the cause of the housing markets artificial rise during the 2000-2005 period. What happened? Several key government-driven events occurred:

1. Money supply & credit (controlled by government) were expanded exponentially

2. Interest rates (controlled by government) were lowered drastically

3. Lending standards were lowered to allow almost anyone to get a mortgage

4. Bankruptcy laws were very lenient (made less lenient in October 2005)

5. Government-sponsored enterprises (GSEs) bought mortgages from banks

This combination of factors took a bull market in real estate and turned it into an overblown bubble that had to pop. The government runs the printing presses and it sets the interest rates. To increase home ownership, the "benevolent" hand of government lowered lending standards to the point that many people that had no business buying a property bought very easily. Banks had no problem giving John Q. Public a huge mortgage at low interest rates on over-priced property since they were not ultimately on the hook for the money. The banks could make their money at the closing (points, etc.) and immediately sell the mortgage to GSEs such as the Federal National Mortgage Association (FNMA) and be rid of the risk of carrying these vulnerable, sub-prime loans. FNMA bought mortgages with a total worth in excess of $2 trillion in the past six years. All these factors contributed to a huge housing bubble with hidden yet unavoidable problems that are now coming to the surface.

As you can see, government involvement in the housing industry drastically warped supply and demand and now you an ugly situation unfolding. More and more homeowners are having trouble keeping up with their mortgages. Homebuilders are now struggling. Realtors and mortgage companies are shrinking their staffs. Foreclosures are skyrocketing. Millions are now at risk. The great economist Ludwig von Mises (see http://www.mises.org/) observed that artificial booms fuelled by credit and currency expansion are always followed by inevitable busts. To add insult to injury, local governments across the country raised property taxes to record levels causing further headaches for those seeking to hold onto their homes. The aftermath is now clear; millions are suffering due to the unfolding bust in the housing bubble.

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