Housing and jobs are the two cornerstones of American middle class wealth. If they can't hold the weight of a building economy, there is little chance of a broad recovery in the United States...or Britain.

"Today, a guy goes into a bank and he says... 'I'd like to talk to you about a loan...' and the banker says to him, 'Great...how much can you lend us?'

Net mortgage lending in Britain is the weakest it has been since they began keeping records in '93. And today's news tells us that the UK economy is shrinking faster than people thought. In the first quarter, the UK GDP fell by 2.49%.

In Britain as in America, the real economy is falling off just as investors, analysts, and commentators think they see a recovery. They think rising stock prices - US stocks are up 40% since March 9th - predict and precede a growing economy. Stocks, they say, "look ahead."

People will believe anything. If stocks had been watching where the economy was going they never would have traded at such high levels in '07. They clearly had no idea what was ahead. Nor do they now.

Ian Mathias reports, "Adios, first half of 2009. Quarters three and four, mucho gusto.

"Although stocks drifted down yesterday, the S&P 500 finished the second quarter of 2009 with a 15.2% gain, its best quarter since 1998. Since March lows, the index is up nearly 35%. For all of 2009, the S&P is just above break-even.

"So the obvious question: Where do we go from here? Was the second quarter a fluke - a simple snapback of oversold stocks? Or a new bull market?

"Heh, let's see: US auto and manufacturing, financials, commercial real estate, retail, insurance and healthcare... all dead, dying, disabled or at least dubious sectors of 2009. Of all the 10 stocks you see above, only Ford is anywhere near a 52-week high. In other words, the leaders of the second quarter were the pariahs of the previous three. Are these the seeds with which market growth is sown?

The S&P 500 has gained no ground whatsoever since May 8, the first trading day after the Federal Reserve triumphantly announced the results of its banking sector 'stress tests.'

"'Second, the BKX Index of financial stocks has DROPPED more than 16% since May 8. As we have noted in prior editions of the Rude Awakening, the finance sector has been leading the overall stock market - both to the upside and downside - for the better part of four years. So the sluggish recent performance of the BKX index is probably not a 'nothing.'

"'Lastly, most gauges of investor sentiment - like the VIX Index of option volatilities - are flashing readings of extreme investor optimism. Typically, as contrary indicators, such readings presage a market sell-off.'"

Americans think they are confronted with a challenge, which...with proper leadership...they will overcome. Madoff has been locked up; now it's just a question of beefing up those regulators so it doesn't happen again. The stimulus packages have been set up; now we just have to wait for them to do their work. The Fed has done its part too; it's just a matter of time until all that money and credit it put into the banking system turns up in the consumer economy.

And Obama...isn't he just like Roosevelt? Isn't he taking advantage of this crisis to help build a stronger...fairer...US economy?

If you read the papers you might think so. In The New York Times, Felix Rohatyn, has written a remarkable essay - remarkable in the sense that he has managed to take up 2/3 of a page without saying anything. To help him do so, he calls on the first Roosevelt, Theodore: "He insisted on government's obligation to regulate the large new business aggregations not so much to address the inequalities of wealth as to police its potential distorting influence...to reinforce the new system, not weaken it."

Mr. Rohatyn goes on to advise Obama:

The work ahead, he says, "will require difficult and painful actions, which can only come from a multi-year, bipartisan plan, led by the president and the Congress, with the support of business and labor."

Blah, blah...blah... What he is urging on the nation is more central planning - with no idea how or why central planners will be better at controlling other peoples' money than people are at controlling their own. And imagine the 'plan' that would have the support of politicians of both parties, business interests and labor; it's bound to be a disaster - like all of Teddy Roosevelt's plans.

But it's the other disastrous Roosevelt that catches most looks. The one on the cover of TIME magazine. This was the Roosevelt who, with the help of Herbert Hoover, turned the correction of the early '30s into the Great Depression. Rather than let the markets quickly correct the mistakes of the '20s, he tried to put them in a straitjacket. And rather than let people sort out their own finances, he set up a huge bureaucracy to bring Mussolini-style central planning to America. That bureaucracy is still with us - including Fannie Mae, which was instrumental in creating the housing bubble...and the SEC, which was instrumental in camouflaging the risks of in the investment markets.

But there's no point in going on about the two Roosevelts. TIME and the nation believe they were great heroes who practically single-handed saved the country from destruction. No use trying to tell them anything different.

So, instead...we will continue our lonely vigil - watching to see what mischief these clowns undertake next...and how we might protect ourselves...

One of the best ways you can protect yourself, dear reader, is go against the crowd, which is not a new idea in these pages. See a new special report about a little-known market that could help you stay on top - while everyone else loses their shirt.

What we see is this: the United States prospered in the 20th century not because of the Roosevelts, but in spite of them. The American economy was expanding... it was still young, strong, competitive and prosperous. The empire grew with economic power.

But the years ahead are not likely to resemble the post-Roosevelt years. America's position relative to the rest of the world is weak and in decline. She is not a creditor, she is a debtor. She is not a low- cost competitor; she is a high-cost competitor. She no longer has a free and flexible economy; she has one freighted with central planners, regulators and busybodies.

The Daily Reckoning PRESENTS: Throughout history, the US government has...how should we put it...not told the entire truth, especially when it comes to facts about the free market. Thomas DiLorenzo explores, below...


Never-Ending Government Lies About Markets
by Thomas DiLorenzo
Baltimore, Maryland


The purpose of government is for those who run it to plunder those who do not. Throughout history, governments have used violence, intimidation, coercion, and mass murder to enforce this system. But governments' first line of "defense" is always a blizzard of lies - about its own alleged benevolence, altruism, heroism, and greatness, along with equally big lies about the "evils" of the civil society, especially the free market.

The current economic crisis, which was instigated by the government's central bank and its boom-and-bust monetary policies, among other interventions, has once again been blamed on "too little regulation" and too much freedom.

Will Americans ever catch on to this biggest of all of government's Big Lies?

When the Pilgrims came to America, they nearly starved to death because they adopted communal agriculture. When William Bradford, leader of the Mayflower expedition, figured this out he reorganized the Massachusetts pilgrims in a regime of private property in land. The incentives created by private property promptly created a dramatic economic turnaround and the rest is history. Most history books ignore this reality, however, and blame the starvation crisis of the Pilgrims on corporate greed on the part of the Mayflower company.

After the American Revolution, it was imperative to build roads and canals so that commerce could expand and the economy thrive. George Washington's Treasury secretary, Alexander Hamilton, declared in his famous Report on Manufactures that private road and canal building would never succeed without government subsidies. President Thomas Jefferson's Treasury secretary, Albert Gallatin, concurred. Meanwhile, private capital markets and the private "turnpike" industry were busy financing thousands of miles of private roads without any governmental assistance. When government did intervene in early-American road building, it was a financial catastrophe almost everywhere, so much so that by 1860 only Missouri and Massachusetts had not amended their state constitutions to prohibit the use of tax dollars for "internal improvements."

Americans have been taught by their government-run schools that the post-1865 Industrial Revolution was bad for the working class, which made government regulation of work and wages, and the creation and prospering of labor unions necessary. In reality, people left the farms for factories because the latter offered far better wages and working conditions. Between 1860 and 1890, real wages increased by 50 percent in America, as myriad new products were invented, and made available to the common working person thanks to low-cost, mass production. It was capital investment that dramatically increased the productivity of labor, allowing hours worked to decline from an average of 61 hours per week in 1870 to 48 hours by 1929.

Higher worker productivity, fueled mostly by capital investment by entrepreneurs and private investors, also made it less necessary for families to force their children to work. Child labor was on the wane for decades before government got around to regulating or outlawing it. And when it did so it was to protect unionized labor from competition, not to protect children from harsh working conditions.

The "robber barons" of the late 19th century robbed no one. Most of them made their money by providing valuable - if not revolutionary - goods and services to the masses at lower and lower prices for decades at a time. John D. Rockefeller, for example, caused the price of refined petroleum to drop from 30 cents per gallon in 1869 to 8 cents in 1885, and continued to drop his prices for many years thereafter. James J. Hill built the most efficient and profitable transcontinental railroad without a dime's worth of government subsidy. In return for their remarkable free-market success the government prosecuted both of these men, kangaroo court style, under the protectionist "antitrust" laws. The real "robbers" were politically connected businessmen like Leland Stanford, a former California governor and senator, who succeeded in getting laws passed that granted his company a monopoly in the California railroad business.

The federal antitrust laws were passed beginning with the Sherman Antitrust Act of 1890 because the government informed Americans that industry was becoming "rampantly cartelized" or monopolized. In reality, prices everywhere were plummeting as new products and services were being invented everywhere. The entire period from 1865 to 1900 was a period of price deflation. As I show in How Capitalism Saved America, all of the industries accused of being monopolies by Congress in 1889- 890 had been dropping their prices for at least a decade thanks to vigorous competition. And it was not a result of the idiotic theory of "predatory pricing." No sane businessperson would intentionally lose money for decades by pricing below cost with the hope that he would somehow frighten away all competition forevermore.

Everyone "knows" that President Herbert Hoover was a staunch advocate of laissez-faire economics, and it was his lack of interventionism that caused the Great Depression. This is the biggest governmental lie in the history of America. Hoover was a "progressive" (as today's socialists, also known as "Democrats," have taken to calling themselves).

Hoover strong-armed corporate executives into raising wages at a time when wages needed to adjust downward in the free market in order to minimize unemployment. He devoted 13% of the federal budget to a failed "stimulus" program of pork-barrel spending and imposed some of the biggest tax increases in history to fund it all. He was a protectionist who signed the notorious Smoot-Hawley Tariff Act, which increased the average tariff rate to nearly 60 percent and spawned a worldwide trade war that shrunk world trade by two-thirds in three years. He cartelized the agricultural industry with "farm boards" that began the insane practice of paying farmers for not growing crops or raising livestock. He pioneered the politicization of capital markets by creating the Reconstruction Finance Corporation. And he ranted and raved against "greedy capitalists" while launching numerous government "investigations" of investors and the stock market. FDR's top domestic advisor, Rexford Tugwell, said that his fellow New Dealers "owed much to Hoover," who began many of the policies that they simply extended.

Every time the price of gasoline goes up significantly, Congress convenes a Nuremburg Trial-style inquisition of oil-company executives. This practice began in the 1970s when the government's own foolish price controls on petroleum products caused massive shortages, and it needed someone to blame. Oil company executives are never praised when gasoline prices fall, as they have in the past year from over $4/gallon to under $2/gallon in many parts of the United States.

Most recently, the current economic crisis is said to be caused by the "excesses" of economic freedom and "too little regulation" of the economy, especially financial markets. This is said by the president and numerous other politicians, with straight faces, despite the facts that there are a dozen executive-branch cabinet departments, over 100 federal agencies, more than 85,000 pages in the Federal Register, and dozens of state and local government agencies that regulate, regiment, tax, and control every aspect of every business in America, and have been doing so for decades.

Laissez-faire run amok in financial markets is said to be a cause of the current crisis. But the Fed alone - a secret government organization that is accountable to no one and which has never been audited - performs hundreds of regulatory functions, in addition to recklessly manipulating the money supply. And it is just one of numerous financial regulatory agencies (the SEC, Comptroller of the Currency, Office of Thrift Supervision, FDIC, and numerous state regulators also exist). In a Fed publication entitled "The Federal Reserve System: Purposes and Functions," it is explained that "The Federal Reserve has supervisory and regulatory authority over a wide range of financial institutions and activities." That's the understatement of the century. Among the Fed's functions are the regulation of

· Bank holding companies

· State-chartered banks

· Foreign branches of member banks

· Edge and agreement corporations

· US state-licensed branches, agencies, and representative offices of foreign banks

· Nonbanking activities of foreign banks

· National banks (with the Comptroller of the Currency)

· Savings banks (with the Office of Thrift Supervision)

· Nonbank subsidiaries of bank holding companies

· Thrift holding companies

· Financial reporting

· Accounting policies of banks

· Business "continuity" in case of an economic emergency

· Consumer-protection laws

· Securities dealings of banks

· Information technology used by banks

· Foreign investments of banks

· Foreign lending by banks

· Branch banking

· Bank mergers and acquisitions

· Who may own a bank

· Capital "adequacy standards"

· Extensions of credit for the purchase of securities

· Equal-opportunity lending

· Mortgage disclosure information

· Reserve requirements

· Electronic-funds transfers

· Interbank liabilities

· Community Reinvestment Act subprime lending requirements

· All international banking operations

· Consumer leasing

· Privacy of consumer financial information

· Payments on demand deposits

· "Fair credit" reporting

· Transactions between member banks and their affiliates

· Truth in lending

· Truth in savings

That's a pretty comprehensive list, the result of 96 years of bureaucratic empire building by Fed bureaucrats. It gives the lie to the notion that there has been "too little regulation" of financial markets. Anyone who makes such an argument is either ignorant of the truth or is lying.

Regards,

Thomas DiLorenzo
for The Daily Reckoning

Editor's Note: Thomas DiLorenzo is a professor of economics at Loyola College in Maryland, a senior faculty member of the Ludwig von Mises Institute, and an affiliated scholar of the research arm of the League of the South and the Abbeville Institute. He holds a PhD in economics from Virginia Tech.