Here’s an interesting thought:  If governments could create wealth and solve all our economic ills, why don’t they do it all the time?  Why wait until a financial collapse before taking action?

Could it be because they can’t? 

In my view, it’s all part of their smoke and mirrors ploy.  Unfortunately for John and Sally Public, they often get caught up in the hype and believe that Washington will make them better off. 

This is why we invest a great deal of our time helping people master their emotions so they will be better suited to participate in the investment process while ignoring the spinmeisters on Wall Street and in Washington.   

So here we are stuck in the precarious economic environment where everyone is wondering:  Where can I put my retirement money so that it will be safe?

Since 1971 that has become a difficult question to answer. 

That was the year Richard Nixon added a heavy dose of government to the financial world by removing the final link between the money in your pocket and gold.

Question:  Which do you see as the safer long term investment – a portfolio filled with dollar-denominated investments such as bonds and CDs or a portfolio managed by Bernie Madoff?

Think hard because it isn’t an exaggeration to say the value of both are tied to assets created out of thin air. 

Here’s another thought:

John Dewey (1859-1952) once stated “You can’t make socialists out of individualists.  Children who know how to think for themselves spoil the harmony of the collective society.”

It should be noted that Mr. Dewey, a member of 15 Marxist front organizations, is often labeled the “founder of modern education.”

So what does this have to do with your financial safety?  Sadly, too much.

Growing up most people never taught the basics of managing money and the impact Washington has on our bottom line.  With pensions drying up and the risk of reduced Social Security and Medicare benefits, one then has to rely on individual savings and investing habits.    

Look across your peer age group and you will see that the majority of folks around you are totally baffled when it comes to these issues, including virtually every one of this nation’s elected officials.

Consider the baby boomer presidents we’ve had:  Clinton, Bush and Obama.

In 1990, three years before Clinton took office, there were 1,176 federal subsidies.  Near the end of the Bush administration that number had surged to 1,804.  To put this growth in context there were 1,019 subsidy programs in the 1970 federal budget.   

For those approaching retirement who remain convinced Obama’s hurt-the-rich campaign will benefit them, I feel sad.  Their retirement futures grow bleaker by the day until they begin to understand the consequences of Washington’s actions. 

For those informed it is proving to be an excellent wealth building opportunity.     

The gloom is easing up a bit and we’ve experienced a nice stock market rally but there is still the chance we have not seen the end of this shakeout.

The form of economics taught to most baby boomers in school and to our children today is Keynesian (pronounced Canes-ee-an) which follows the classic big government, interventionist, currency debasement philosophy promoted by statists on both the left and right in Washington for decades. 

The new incoming Presidential Administration ran on the platform of “Change.”  Maybe they will surprise us but my gut tells me that America has been sold the same old bill of goods.  If change were actually in the cards, I would expect to hear the Obama team using similar rhetoric I hear from the Ludwig von Mises Institute or the Cato Institute, which are two of the finest anti-statist organizations out there. 

Recently on Cato’s blog, David Boaz had this to say about the Obama economic philosophy:

President-elect Obama proposes that the federal government “create or save” jobs by spending upwards of $600 billion.  Where would this money come from?  If it comes from taxes, it will be taken out of the more efficient private sector to be spent in the less efficient government sector, and the higher tax rates will discourage work and investment.  If it is borrowed, it will again simply be transferred from market allocation to political allocation, and our debt burden will grow even greater.  And if the money is simply created out of thin air on the balance sheets of the Federal Reserve, then it will surely lead to inflation.

There is no magic road to wealth.  You have to work, save, and invest.  And when the government lures individuals and businesses into making bad investments with cheap money, the malinvestment has to be liquidated.  Avoiding that truth, prolonging the process of adjustment, is a good way to turn a recession into a depression. 

Folks, history repeats.  And with that I don’t expect an economic policy change in Washington any time soon.  This is why I continue making investment decisions based on the model of economics used by early American leaders that transformed a poor group of colonies into the wealthiest nation the world had ever seen. 

Their recipe was simple:  Free markets, low taxes, and sound money.  Back then, those who followed this model were labeled heretics.  Again, we see that same history repeating today. 

So as you and those you care about are making serious decisions about your long term financial decisions, take a good look at the options available to you.  On one hand you can follow the crowd and the same tripe that got us into this present day mess.  Or you can recognize that more of the same probably wouldn’t be of much benefit to you or your bottom line. 

In either case, we are in a historic period of transition and the winners and losers through all this won’t be decided until years later.  It is my hope that you are making the right decisions today that give you the best odds for future prosperity.   

Today’s Wall Street Journal has an interesting editorial about Washington’s potential plan for your 401(k) assets.

So says Russ Roberts over at Cafe Hayek regarding the Freddie-Fannie bailout:

Following its knee-jerk, free-market, Milton Friedman obsessed ideology, the Bush Administration has seized control of Fannie Mae and Freddie Mac. 

Joke.  A bad one, really.  If anything, this is just the latest evidence that it doesn’t matter who’s President.  Is there anything this administration has done lately that reflects a free market philosophy?  Yet because the administration sometimes uses the rhetoric of economic freedom, it allows people to paint the administration’s policies as market-oriented. 

Another thought: 

One of the most depressing things about the current situation is that people will try and find different ways to “fix” the mortgage market when it was the very attempt to “fix” it that brought us to where we are today.  The government should get out of the mortgage market.  Let individual institutions arise that intermediate between home owners and sellers.  Let those that do it well thrive.  Let those that do it badly bear the costs and disappear.

It reminds me of social security.  We don’t have a retirement crisis.  We have a social security crisis.  We have a problem created by a set of government institutions.

Here’s My Take:  This mess has to be cleaned out.  Unfortunately it will take government to remedy the current disaster since government was instrumental in its creation.  When the dust settles, I agree that Freddie and Fannie should be chopped up and privatized.

Staying on the theme of political skepticism, how about implementing privatized retirement accounts?  Allowing Washington to manage the financial security of retirees is a path to financial ruin.  Just look at the recent study by the Consumer Bankruptcy Project showing that bankruptcies among Americans 75 and older have more than quadrupled since 1991.

You’ve heard me go on ad nauseam about real world financial safety but this is just another demonstration of the fact that investing in Washington policies never leads to prosperity for you.