Ben Bernanke, Hank Paulson, and Congress

They all need to be reined in.

I am sitting here watching the House Committee on Financial Services asking Hank Paulson & Ben Bernanke questions. This is one of the most magnificent displays of stupidity and misfeasance I have witnessed in a long time.

Congress is now protesting the use of money that it appropriated. As usual, Congressmembers - with the exception of Ron Paul - are asking all of the wrong questions. I felt compelled to clear up a few issues here.

Here are a few examples of the kinds of questions Congressmembers are asking:

Why are foreclosures taking place? (This was asked by the not-so-brilliant Congresswoman Nydia Velazquez.)

Foreclosures are only a symptom. No matter what Ben Bernanke said in his convoluted response, falling prices do not cause economic problems. What does happen is a revelation of mistakes which were engendered by Greenspan - and now Bernanke - having inflated the dollar. The Congresswoman would do better to make an inquiry with the Mises Institute about the cause of recessions.

To answer Congresswoman Velazquez's dumb question: foreclosures are taking place because homes are unaffordable. Why? The inflationary orgy of the last several years. Thus, far from being a problem, falling prices is actually the cure. Everything Congress is doing is actually making the problem worse. The government and the Federal Reserve need to stop inflating, stop spending, and let the market set clearing prices.

Why is Treasury picking and choosing winners and losers?

As opposed to what? No matter how Treasury spends the money that Congress itself appropriated it is going to create winners and losers. All government spending is a below-zero-sum game. Only the unhampered free market engenders net economic benefits. Why? Only in the free market must consumption be financed with production. The Congress shouldn't be appropriating money for any kind of "rescue." Again, the government and the Fed need to get out of the way and let prices fall.

No matter which way the government or the Fed inserts money into the loan market - e.g., whether in the name of stopping foreclosures or propping up the bank - it is all about propping up the banking system. Think about this: there is no objective difference between giving the money to the bank, or giving the money to the homeowner to pay the bank. Bailouts of any kind diminish the need for the loan market to set market clearing prices, thus ensuring that inventories pile up and people are without homes.

Why won't the Congress and the Fed do the right thing? Because they would have to relinquish power. The entire bailout and inflate game is nothing but a destructive effort to make the insolvent solvent, keeping creditors (i.e., savers) hostage to debtors. The biggest sub-prime borrower of all is the federal government.

If the Congress did the right thing by letting the market function and dramatically cut its spending, the beneficiaries - i.e., the politically-connected - of the inflationary orgy over the last several years would have to find new, more productive lines of work. Wealth would be transferred back into the hands of savers and producers.

Imagine somebody who has been working at Burger King for the last several years, living at home with their parents because they couldn't afford a home with the outrageous, Fed-generated housing prices. Suppose this person has been diligently saving up their money. If we the let the market set the clearing price - which is the foreclosure market - people like this would suddenly be able to buy a house.

People have gone bankrupt for thousands of years. A fractional reserve banking system is inherently insolvent. You don't keep inflating to conceal the effects of insolvency. Let the bankrupt go bust. Politically-connected firms and institutions will be replaced by new ones. Politically-connected CEOs will be replaced by new ones. This would be a good thing. Let the market shake itself out. Everything Congress is doing today will only prolong and worsen the crisis.

Only one Congressman (Rep. Randy Neugebauer) mentioned a word about Ben Bernanke having doubled the Fed's balance sheet since September. It became utterly self-evident why Bernanke can do that and Paulson can get away with telling the Congress the government isn't making expenditures, but "investments": Congress is more intellectually bankrupt than we are financially.