Wednesday, August 29, 2007

Why You Need Hard Money

Chris Brunner makes some fantastic points regarding Ron Paul's monetary policy and why it is good for everyone. Here's the #1 reason...
1. The Fed would not be causing artificial booms, inevitably followed by a busts Ever wonder where economic bubbles come from? The bubbles of modern times like the Great Depression of the 1930's, Dot-com boom of the late 90's, or the boom that's coming to an end now in the real estate market occur when central banks expand the money supply and dump new money into various sectors of the economy, often in the form of cheap credit. Banks loan the new money to consumers and entrepreneurs, including those who aren't credit worthy. In turn, they spend it or invest it, which causes prices to rise. As people see prices rise, they are drawn to invest, causing prices to rise further. Meanwhile, the Fed continues to inject new money. We've seen this lately in the form of house flipping. Eventually, the market begins to correct itself, and whoever owns the inflated property when the correction begins to occur gets stuck holding the bag. People all over the country are finding themselves in Adjustable Rate Mortgages they cannot afford. Many times this results in a foreclosure, which in turn causes problems for the fractional-reserve banks, who then begin to face insolvency. Insolvency manifests itself in the form of bank runs, and if it gets bad enough, leads to economic collapse. There is much to be explained here, but for now suffice to say that inflation from the Fed creates booms that are inevitably followed by busts. Blog: Top 8 Ways Hard Money Would Change Your Life