Being a huge UFC fan, this analogy has to be my favorite of all time.

I’ll borrow an analogy from Peter Schiff. Imagine if you will a victim at the unfortunate end of a Brock Lesnar knuckle sandwich. The blow has knocked him out cold and the medics try to revive him. The best suggestion they can come up with is to have Lesnar pound the man’s head even harder with his fists. When the man has seizures from the repeated pounding, a medic (coincidently named Bernanke) screams gleefully “Hurray, he’s moving.”

Sadly, such is the response to our present crisis by the policy makers in Washington, DC. To solve a problem caused by malinvestments resulting from easy credit at 1 percent interest rates, the Fed is supplying even more easy money at 0.25 percent. None of the malinvestments have been allowed to be liquidated.

Housing prices have been propped up, banks and auto companies have been bailed out, regulations have been increased, debt covenants have been violated, unemployment insurance has been extended. In addition, there’s the cap-and-trade bill, the healthcare bill, and a “czar” around every corner.

All of these increase the already-humongous burden on wealth creators. In short, the problems that caused the Great Recession have been compounded. Real output must then necessarily decline. How can anyone logically assert that we are in the beginning of a recovery?

via A Path To Runaway US Inflation – Ganesh Rathnam – Mises Institute.

Fannie Mae announced a new “deed for lease” program, where they will take your deed and rent your house back to  you if you don’t qualify for a loan modification and can prove you can’t pay your mortgage. They will sign a one year lease with the current owners. They are hoping they can then sell off the houses a year from now, when they assume the housing market will be better and the value of the homes will be higher. This is some pretty optimistic thinking from a now government owned institution.

What would make them think the housing market is going to pick up that much over the next year. So far, unemployment continues to rise. The Fed has been busy at the printing press, and the government is taking debt levels into unknown waters. More than likely if the economy begins to pick backup, we are going to have massive inflation. That will lead to two scenarios. Either we’ll have hyperinflation that makes the 70s look like child’s play, or we’ll have a Fed induced recession to bring inflation under control. Neither scenario paints a pretty picture for a booming housing market.

Fannie Mae and Freddie Mac (Freddie is already doing something similar) are only delaying the inevitable. The market is much smarter than the government is. It will take into account that these government institutions have a ton of inventory being hidden from the market, what analyst call “shadow” inventory. If the housing market begins to pick up, it will be driven back down with this excess inventory. Instead, Fannie should take the short term pain and end it quick.

Because of Fannie’s mistakes it is asking the government (me and you) for another $15 billion after a quarterly loss of $18.9 billion. In total, it’s estimated that we will have wasted $200 billion on both Fannie and Freddie by the time this mess is over. Then again, we know how reliable government estimates are. So far we have handed over $61 billion to Fannie, and estimates are that Fannie is sitting on inventory around 65,000 homes.

Instead of becoming landlords, why doesn’t Fannie and Freddie sell of packages of houses as investment bundles. This would get the houses off their books, and it would bring them back into the free market where they can begin to stabilize the market. Investors will buy theses homes, and guess what they’ll have to do? They have to pay taxes on their profits, which ultimately will help with the government losses that will occur with the sale. With the investors holding properties, they will want to drive prices up. They’ll either rent them out, which investors are better at than the government, or they will fix up the homes and put them back on the market. Investors will not shoot themselves in the foot by flooding the market. They will slowly bring the houses onto the market to maximize sale prices and make the most profit. Whether renting or selling, the investor will be paying taxes on his capital gains.

The government should just take the short term pain of selling them off now? This may hurt the housing market, but it will be over and stabilization can begin. Instead, the government is prolonging this crisis and making it worse, and who’s going to eat this mess? We are.

By way of Mises.org, here is another great examples of the free market delivering a plethora of choices for consumers. Take note of the mention of the government forced recycling programs and why they started them.

Also, image what it would be like if the beverage industry was heavily regulated like health care. Think you’d have all these options. Inversely, if government would get out of health care, you’d see a plethora of options in that industry as well.

The Wall Street Journal  has an op-ed today by Charles Gasparino, a CNBC on air-editor and author, in which he explains why the government encourages the risk that led to our current crisis.

We’ll never know if LTCM’s demise would have tanked the financial system or simply tanked a couple of firms that bet wrong. But one thing is certain: A valuable lesson in risk-taking was lost. By 2007, the years of excessive risk-taking, aided and abetted by the belief that the government was ready to paper over mistakes, had taken their toll.

With so much easy money, with the government always ready to ease their pain, Wall Street developed new and even more innovative ways to make money through risk-taking. The old mortgage bonds created by Messrs. Fink and Ranieri as simple securitized pools had morphed into the so-called collateralized debt obligations (CDOs), complex structures that allowed Wall Street banks as well as quasi-governmental agencies Fannie Mae and Freddie Mac to securitize ever riskier mortgages.

Mr. O’Neal, the man considered most responsible for Merrill’s disastrous foray into risk-taking, told me in an interview last year that in the fall of 2007, when he saw that the firm’s problems were insurmountable, he had a deal to sell Merrill to Bank of America for around $90 a share. But Merrill’s board rejected it, believing he would be selling out cheaply. The CDOs would eventually recover, they argued, as the Fed pumped life into the markets.

Likewise, nearly to the minute he was forced to file for bankruptcy, former Lehman CEO Dick Fuld believed the government wouldn’t let Lehman die. After all, government largess had always been there in the past.

All of which brings me back to Mr. Fortsmann’s comment about policy makers helping turn a cold into cancer. What if the Fed hadn’t eased Wall Street’s pain in the late 1980s, and again after the 1994 bond-market collapse? What if policy makers in 1998 had allowed the markets to feel the consequences of risk—allowing LTCM to fail, and letting Lehman Brothers and possibly Merrill Lynch die as well?

There would have been pain—lots of it—for Wall Street and even for Main Street, but a lot less than what we’re experiencing today. Wall Street would have learned a valuable lesson: There are consequences to risk.

via Charles Gasparino: Three Decades of Subsidized Risk – WSJ.com.

This is another case of where we think government behavior can get different outcomes than we get in our personal lives. The results are the same. How many of you know a parent that constantly bails their child our of trouble? Does it lead to less trouble? How about someone who gives money to a drug or alcohol addict? How about someone who always gives or lends money to that one person who always seem to be broke? In our personal lives, we call these people enablers. They are not helping the person in question. They are enabling them to continue the bad habits they are claiming to help.

This is no different when the government does it. Are we to believe that executives and banks will not be more cautious if they know that the government will not bail them out? Of course they would be. The problem is mommy government has always bailed out and enabled her baby Wall Street. The behavior will continue as long as Washington continues enabling. Don’t fall for the excuses. Mommies always have what they believe are good reasons for bailing out their children, but the problem is they aren’t letting their children learn their lessons.

As I have said many times, the free market allocates resources based on their highest and best use. It is fine tuned by millions of decisions and transactions of individuals. This is why the market is so efficient, and meets the needs of society. On the other hand, government allocates resources based on politics. It has nothing to do with real needs, other than the need of a politician to get re-elected. The Wall Street Journal has  an article on how the Democrats are trying to please all their members with pay offs in order to get their votes. So how is paying off all members with pork for their state supposed to lower cost?

LAFAYETTE, La. — Democratic Sen. Mary Landrieu says she generally backs President Barack Obama’s health-care overhaul efforts. But she’d like to see a few items in the bill before voting for it, including bigger federal Medicaid payments for her home state of Louisiana, extended health coverage for her pet cause of foster children, and help for teaching hospitals in her state.

While pushing more spending in those areas, Ms. Landrieu also wants the plan to cut the overall amount the nation spends on health care.

via Democrats Pose Health Bill Hurdle – WSJ.com.

Some info on Republican plan via HotAir.

CBO director Douglas Elmendorf scored the new proposal from House Republicans on health-care reform and gave them plenty of ammunition to use against expansive and expensive Democratic plans for government takeovers. Their plan, which relies on interstate competition, HSAs, and tort reform, would only cost $61 billion in the first ten years of the plan — or slightly less than 6% of what Democrats plan to spend to overhaul the entire system:

This evening, CBO released a preliminary analysis of a substitute amendment to H.R. 3962, the Affordable Health Care for America Act, proposed by Representative John Boehner, the Republican Leader in the House of Representatives. CBO and the staff of the Joint Committee on Taxation (JCT) estimate that the amendment would reduce federal deficits by $68 billion over the 2010-2019 period; it would also slightly reduce federal budget deficits in the following decade, relative to those projected under current law, with a total effect during that decade that is in a broad range between zero and one-quarter percent of gross domestic product.

Unlike the Democratic proposals, the bill would actually reduce premiums:

CBO anticipates that the combination of provisions in the amendment would reduce average private health insurance premiums per enrollee in the United States, relative to what they would be under current law-by 7 percent to 10 percent in the small group market, by 5 percent to 8 percent for individually purchased insurance, and by zero to 3 percent in the large group market. Those are averages, however, and they are subject to a great deal of uncertainty; some individuals and families in each market would see different results.

via Hot Air » Blog Archive » GOP health-care reform cost: $61 billion, cut deficit $68 billion.

Found this post on EconomicPolicyJournal. I love our all caring government. They won’t be happy until everyone is a criminal.

At a press conference announcing the latest insider trading busts, the government has admitted that it is turning those seeking to make the markets more efficient (by aggressively seeking out important information), more like drug dealers.

That’s what happens when you start making more laws and stretch laws, you cause more and more of a society to protect themselves by using the methods of drug dealers.

“We allege some of the defendants [were] taking a page from the drug dealers’ playbook [and] deliberately used anonymous, hard-to-trace, pre-paid cellphones in order to avoid law enforcement detection,” federal prosecutor Preet Bharara told a news conference.

“When sophisticated business people begin to adopt the methods of common criminals, we have no choice but to treat them as such,” he said.

via EconomicPolicyJournal.com: Government Admits Driving Wall Street to Act Like Drug Dealers.

In an op-ed in today’s Wall Street Journal, Dr. Pardes, president and CEO of NewYork-Presbyterian Hospital, talks about the coming doctor shortage.

It is important to note that the shortage the country will soon face isn’t just of primary-care physicians. It is true that there aren’t enough primary-care doctors and nurse practitioners. But it is also true that we need more cardiologists, neurologists, general surgeons, pediatric subspecialists, urologists and other highly trained specialists.

Nonetheless, the few ideas to address the coming doctor shortages that were briefly considered in Washington treated the problem merely as a shortfall of primary-care doctors. One idea is to shift unused federal training funds to hospitals that need more positions, but only if those funds are used for primary care. Another is to move primary-care physician training out of hospitals and into federally qualified health centers. A third idea is to take training dollars away from doctors and instead use it to train nurses and other professionals.

None of these ideas would actually increase the number of doctors. At most the first two ideas would increase the number of primary-care doctors at the expense of the number of specialists.

But that’s not likely to happen either. The fundamental reason why medical students are not entering primary care on their own is that they can’t afford it. Medical-school tuition can cost a student as much as $50,000 a year. Some doctors start out owing hundreds of thousands of dollars before they are even able to open a practice. Going to medical school is a little like taking out a mortgage, only without getting a house in return.

Once doctors do start treating patients, they are squeezed between what they earn from government programs and insurance companies on one side and escalating malpractice insurance rates on the other. Meanwhile, specialists can often charge more and pay less in other costs than primary-care doctors. The reality is that many physicians cannot afford to go into primary care.

To address the shortage of doctors and the incentives that compel young doctors to eschew primary care, Congress needs to think about how to increase doctor pay, institute malpractice reform, and provide subsidies to reduce the amount of debt doctors have to take on. Residency caps should also be raised so teaching hospitals can train more doctors. Without these actions new doctors would be foolish to enter primary care, and thankfully our medical schools do not recruit foolish people.

via Herbert Pardes: The Coming Shortage of Doctors – WSJ.com.

Unfortunately, the doctor seems to suffer from what most commentators and policy wonks suffer from. They believe that you can cure an illness by increasing the causes of the illness. It would be like telling an alcoholic to drink a different alcohol to cure his liver disease. The government creates the shortage by manipulating the free market. When the government implements price controls via program reimbursement rates, you end up effecting supply negatively.  The doctor also doesn’t seem to realize that part of the reason education is so expensive is there is a massive amount of government money chasing after education services. The more dollars chasing a good or service, the higher the price rises.

The doctors has many bad assumptions here that undermine his stated goal. He says that the cost of education is extremely high. He compares it to taking out a mortgage without getting a house. This is in my opinion economically silly. Tuition is in investment like any other investment. Actually, if you pick the right major, it can be a very high yielding investment. With the high cost of medical school, one would expect a high return on that investment. In the free market that would be the case. As I’ve already said, tuition has climbed year after year because of all the government money in education. Remove government, and you will lower cost. On top of that, the doctor says government programs squeeze doctors with government reimbursement rates. This alters the return on investment analysis as well. If your investment continues to grow larger because of government, and your return is “squeezed” by government, of course you are going to begin to see shortages. This is what government always does.

Unfortunately, he then argues the government should do more. He says Congress should be looking at ways to raise doctor pay. Are you serious? Government is the reason your pay is decreasing. Get the government out of health care, and you will begin to see salaries increase.  In the free market, if there is a shortage in supply, prices increase. Seeing the increase in price (or pay in this case), competitors enter the market (in this case doctors).

Also, as price is driven up, entrepreneurs will look for alternate solutions to doctors. An real world example of this are the clinics at many local pharmacies.

Government on the other hand will just hold prices against the will of the market. As Austrian economists will tell you, “You can control price or supply, but you can’t control both.” Because government is controlling price, they will drive down supply. This will ultimately lead in the opposite outcome that the doctor claims to want. Even if the government funnels money in to subsidize doctors, they are taking that money from another area of the economy. While they may be able to falsely increase the supply of doctors, they’d end up producing a shortage in another area. This is why we defeated the Soviet Union. Central planning never works. Government always gets it wrong. The free market does this on its own by the decisions of millions of people. While I appreciate the doctors concern, I wish he’d drop his assumption that government can fix this. They have never been able to fix a problem in the economy without creating multiple new and worse problems.

The Senate, including Republicans, continue to alter incentives by passing tax cuts and tax increases. In other words, favors and punishments. And people whine about lobbyists. Well, of course, big companies are going to send lobbyists to Washington. Don’t you want to get the favors? If you don’t your going to get the punishments.

So let’s see how some of this effects the market. I’m guessing senators passed this without a care in the world about it’s effects.

Senate Alters Taxes for Big Companies

By JOHN D. MCKINNON and LAURA SAUNDERS

WASHINGTON — The Senate on Wednesday passed legislation that would give tax breaks to big companies hit by the recession and expand a credit for homebuyers, while raising other corporate levies, particularly for multinationals.

….

The Senate has passed a bill extending unemployment benefits and the popular tax credit for homebuyers. It also includes proposed tax increases to offset the costs that may be hard for some businesses to swallow. WSJ’s John McKinnon explains.

The senate passes the tax credit for homebuyers again. We are in the midst of a collapse in housing because of easy money by the Fed, which they are doing again, and because the government’s push for “everyone should own a home” social engineering. So what does the Senate do? Just more of the same. Incentivize people to buy houses. If it is in the homebuyer’s best interest to buy a home, they will do so without the government. Incentivizing them changes the behavior of purchasers and will make people who otherwise wouldn’t have purchased a home purchase one. This is what happened during the housing boom that led to this mess.

“We clearly are going to have tax increases going forward,” said Bruce Josten, executive vice president of the U.S. Chamber of Commerce.

The latest changes to business taxes are contained in a measure that would extend unemployment benefits by as much as 20 weeks from the current 79 weeks. In a bid to aid the property market, the bill would also extend for five months a tax credit for homebuyers, and expand it beyond first-time purchasers. That move is estimated to cost about $10.8 billion over the next decade.

So, we are going to extend unemployment by another 20 weeks. What does this incentivize? You can go without work for almost two years. Does the Senate believe that this doesn’t effect peoples behavior? Surely, many people won’t even attempt to look for a job for over a year and a half if they have two years before they are without money. Also, unemployment insurance is insurance. You pay for unemployment insurance in the event of losing your job. Those people who now are going to have checks rolling in for two years did not pay enough in for the two year pay off. So, who pays for this? That’s right. The productive workers of society have to pay to cover the difference. That’s real motivating for those who are producing and keeping this country afloat.

The Senate on Wednesday approved the measure 98-0. The House was expected to pass the measure quickly and send it to President Barack Obama.

I’m sure glad this was unanimous. Goes to show we don’t have one intelligent politician in the bunch.

House Democrats, led by Ways and Means Committee Chairman Charles Rangel, shown in February, still seek a full corporate-tax overhaul.

Hey, let’s have someone write the tax laws who doesn’t even follow the laws himself. Genius!

via Senate Alters Taxes for Big Companies – WSJ.com.

Translation: “We are going to continue to print money in hopes of tricking consumers and businesses into spending money. We know it will create false growth and the possibility for hyperinflation, but we are so smart we can stop it by driving the economy back into recession. Trust us. Look how good we’ve been at this.”

BY JON HILSENRATH

The Federal Reserve affirmed its plan to keep interest rates “exceptionally low” for a long time despite signs of economic recovery. But the Fed began to lay rhetorical groundwork for an eventual shift in its stance, suggesting that when the unemployment rate falls or if expectations of inflation turn up, it could change course.

“Economic activity has continued to pick up,” the Fed said in a statement following a two-day meeting. It noted that consumer spending has improved, housing activity has increased and businesses were retrenching at a slower pace.

Fed officials voted unanimously to maintain their target for the …

via Fed to Keep Rates Low Despite Pickup – WSJ.com.