May you Live in Interesting Times

That's one fortune cookie fortune that has come true; we are indeed living in interesting times.

It doesn't take a PhD in economics to understand the tension rippling through world markets since August 2007. Regular, almost daily appearances by Federal Reserve Chairman "Helicopter" Ben Bernanke and Treasury Secretary Hank Paulson are used to quell fears that America--and therefore the rest of the world--might be headed for prolonged depression.

As if on que, politicians are busy concocting various schemes they claim will improve our economic situation. Presidential candidates scramble to put forward the best economic plan in order to win votes, with both sides seemingly in agreement that increased regulation will help curtail economic worry.

Such was the case today with Fed Chairman Bernanke and Treasury Secretary Paulson who, in their appearance before Congress, called for financial overhaul and increased Federal Reserve oversight. Although no action is expected to be taken this year, the groundwork for increased Federal Reserve responsibility is rapidly being laid. Because central banking and fiat currencies are doomed to fail and wreck economies, we can expect increased Fed responsibility to result in prolonged economic agony when the marble palace magicians can no longer extract rabbits from their collective hats.

Before the magicians can pull out that last rabbit, though, there will be plenty of smoke and distraction. We're seeing that now. Fingers are (incorrectly) being pointed at the wrong people, from "predatory" subprime lenders to oil speculators to greedy, fatcat capitalists. The public demands a scapegoat, and our trusy elected officials are only too happy to oblige. Such is to be expected when you trust lawyers to diagnose economic problems.

Regardless of the where the finger is presently pointed, it seems nearly everyone agrees that free market capitalism is at the root of the problem. There are many myths about free market capitalism that pervert its beauty, perhaps none more prevelant than the belief that unregulated markets inevitably lead to chaos. The argument varies depending on the issue at hand, but it usually contains the following logic: In order to prevent chaos, maximize market efficiency, and assuage fears of total economic collapse, some form of a financial backstop or safety net is needed.

Such statements are, of course, complete nonsense. While I'm certain those making the argument in favor of increased regulation have the best interests of the public in mind, a crash course in Austrian Economics would greatly benefit them. The Austrian School is the biggest opponent of the central banks and their criminal practices, and her principles are about to become much more widely understood. Austrians were right about the cause(s) of America's Great Depression, and they are correct in their diagnosis of our present situation as well.

The right thing for the government to do in this situation is nothing. Same goes for the Federal Reserve (although abolishing the cartel would be nice). Let the banks fail, let inefficient businesses dry up, allow interest rates to rise. No bail outs, no subsidies, no safety nets - these practices only reward incompetence and allow the most unscrupulous individuals to rise to the top.

My recommendation is admittedly harsh, but it is the quickest way to remedy our present situation. To grant increased powers to the Federal Reserve, who can in turn bail out privileged firms (with your tax dollars), is to engage in the purest form of socialism. Whenever an institution enjoys a monopoly on the printing of a nation's money, it carries with the ability to determine the life and death of a nation's economic infrastructure...as well as the quality of life of that nation's citizens.