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Considering the Future, Because Somebody Should  
February 20, 2008

Economic actions are moving fast and furiously in Washington.  President Obama railroaded his so called $787 billion “stimulus and “recovery” plan through Congress.  Now, the President is moving quickly to address other issues negatively affecting our economy.  On Wednesday the President announced a new bailout plan for distressed homeowners and began considering further loans to the bankrupt American auto industry.

Of course all of these actions are knee-jerk reactions to a situation that continues to spiral out of control.  Based on politics and not sound economic considerations, the President and Congress continue to spend us into oblivion in an effort to heal our economic ills.  The $12 trillion Uncle Sam has committed or already spent has done nothing to save our sinking ship.  If the consequences of this federal largess were just temporary and carried no future repercussions then we could all sleep more soundly at night.  However, what Washington has already done and is about to do will have enormous negative consequences for many years to come.

By following their political instincts, policymakers in DC aren’t considering the future consequences of their current economic policy actions.  Take their position on the auto industry for instance.  On Tuesday night, GM and Chrysler got back to Washington with a restructuring plan and their hands out looking for $14 billion more.  Of course, the billions already loaned to them by the taxpayer was simply a stop gap measure to prevent them from going belly up on the watch of President Bush.  Now, President Obama faces the same political consideration.  So, forget about whether giving Detroit more money makes any economic sense, they will get it because politicians don’t like to look uncompassionate.

The problem is that whatever amount the President gives them will not be the end of it.  GM and Chrysler’s woes have been building for decades and now they are trying to restructure during the biggest economic downturn since the Great Depression.  If the market doesn’t think the two carmakers are a good investment, then why should the government?  By continuing to finance these failures someday we will face the choice of either losing all of our money or continuing to throw money at them for the sake of the money we already spent.  What a great choice that will be.

Then there is the increased support that Fannie Mae and Freddie Mac will be receiving with the President’s plan to “help” homeowners.  Already slated to receive $66 billion in taxpayer support for projected losses, the two mortgage giants would receive up to an additional $400 billion under Obama’s plan.  Treasury Secretary Geithner was quoted as saying
that the support "will provide forward-looking confidence in the mortgage market and enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners." 

Weren’t Fannie and Freddie big culprits in causing this current mess?  Since nothing has changed including the provisions of the Community Reinvestment Act why should we retool the mortgage giants with hundreds of billions of taxpayer dollars?  What does “ambitious efforts” mean?  Is this another recipe for disaster?

More automaker bailouts and strengthening Fannie and Freddie are troubling propositions to say the least.  But, an even bigger concern is the Federal Reserve’s monetary policies combined with Obama’s plans to stem the tide of foreclosures.  As mentioned earlier, the Fed along with the Congress has pumped in almost one hundred percent of GDP in dollars into our economy in the last year.  The federal funds rate still stands at an artificially low 0 percent.  Of course, the Fed has lowered the rate to this ridiculous percent not because that is what the market called for, but to stimulate the housing market.  However, last week, refinancings made up
74.2 percent of all mortgage applications.  So, instead of stimulating new buying, the policy is encouraging refinancing.  That’s fine, but then President Obama comes along and proposes helping distressed homeowners refinance their homes with hundreds of billions of dollars in subsidies. 

This combination of Fed monetary policies and Obama’s homeowner bailout will lay the foundation for another banking crisis.  As millions of homeowners lock into artificially low rate, long term mortgages this will set the stage for future bank failures.  When consumer prices begin to rise significantly because of Fed monetary policies and Congressional spending, the Fed will have no choice but to raise interest rates to quell inflation.  Banks will experience difficulties because on the one hand they will be taking in much less money through their loans than they have to pay the Fed for new money and they will lose deposits on savings accounts as customers move money to higher yielding money market accounts.  This is what caused the
savings and loan crisis
of the late seventies and it will cause another banking crisis in the future if Washington continues with these reckless economic policies. 

At the end of the day, t
he Fed’s monetary policies and the government’s fiscal program to end this economic crisis are all about politics over sound economic policy.  They represent nothing more than a massive expansion of the socialist welfare state, which has been discredited time and time again.  Our policymakers’ lack of creativity in dealing with this crisis is appalling.  Their neglect in considering the future consequences of their actions is criminal.  

Do Fed Officials Read Fed Publications? They Should!February 13, 2008

It is mindboggling when considering the amount of newly printed money Washington has dumped into our economy in the last ten months or so.  The Federal Reserve, Treasury, and the Congress have poured in over $9 trillion worth of stimulus, loans, stock purchases, and loan guarantee money.  That figure represents about two-thirds of our GDP.  However last night, Treasury Secretary Tim Geithner indicated in an interview on Bloomberg that what has been done so far is “too little too late”.  Thus he proposed a new $2 trillion big bank bailout plan.  The plan coupled with Obama’s stimulus bill will saturate the market with an addition $3 trillion.  The new printing of dollars will bring the total to $12 trillion - if this doesn’t stabilize home prices, increase lending, and create four million jobs then I don’t know what will.

But, the President doesn’t seem convinced all this spending will work.  Speaking in Ft. Myers, Florida, on Tuesday, he stated his belief that his winning a second term in office could depend on whether he can turn the country’s economy around.  The President stated,
“If stuff hasn’t worked, if people don’t feel like I’ve led the country in the right direction then you’ll have a new president”.  If history is any guide then chances are likely we will have a new president in 2013.

At the Federal Reserve Bank of Minneapolis, from 2000 to 2007, Timothy Kehoe, Edward Prescott and a team of 24 economists from around the world studied economic depressions that happened in the Twentieth Century.  Instead of focusing on what caused each severe downturn, their study examined government’s reaction to the downturn and the consequences thereof.

First, they looked at the economic experiences of Chile and Mexico in the 1980s.  Both countries suffered from falling international prices for the commodity they exported – copper for Chile and oil for Mexico.  This in turn exposed a weakness in each country’s banking sector.  In 1982, Chile took control of its banks; it liquidated the insolvent ones and reprivatized
the solvent ones.  It set up a new regulatory structure which allowed the market to dictate interest rates and allocation of credit to business.  The immediate effect was severe pain, but by 1984 the Chilean economy began to grow and is still the fastest growing in Latin America.

Conversely, Mexico pursued policies which nationalized banks,
provided credit at below-market interest rates to some large firms and no credit to others, and provided massive fiscal stimulus schemes to grow employment.  Even though both nations arrived at the same place for the same reasons, it was in how each nation’s government dealt with the crisis that determined their economic futures.  Since 1982, Chile has experienced significant GDP growth while Mexico has languished with a slight GDP growth increase.  See graph on page three: 
http://www.minneapolisfed.org/research/SR/SR421.pdf

The researchers also looked at Japan and Finland in the 1990s.  Both countries experienced economic downturns in the early part of that decade.  Japan pursued similar policies to Mexico’s in the previous decade – massive fiscal stimulus, propping up of insolvent banks, and discriminatory credit allowances.  Japan’s economy is still stagnant to this day.

Finland’s response was more like Chile’s.  Its government paid the price of reform and let the market decide the allotment of credit to the private sector.  The Finnish economy has experienced robust growth since.    

From their seven year study, Kehoe and Prescott have concluded that bad government policies cause depressions.  Specifically, they are convinced that it is the “overreaction” by government which “prolongs” and “deepens” economic downturns.  Based on their research, they believe unproductive firms should be liquidated, including banks and auto makers.  Bailouts which prop up unproductive firms do nothing but “depress productivity” further because they take labor and capital away from productive enterprises that would use them more effectively.  Lastly, they have more faith in markets than the government to make better decisions when it comes to resource allocation.

Their findings have been published in the book Great Depressions of the Twentieth Century, published in 2007 by the Federal Reserve Bank of Minneapolis.  The big question is, have Geithner (former chair of the New York Federal Reserve) and Bernanke (current chair of the Federal Reserve Bank) read it?  How can there be such a disconnect between the Fed’s publication and Geithner and Bernanke’s words and actions?  History does repeat itself.  Perhaps if Geithner and Bernanke in 2007 had read the wise analysis of their colleagues, we wouldn’t be repeating history and well on our way to the next great depression.  Kehoe and Prescott would have to agree that $12 trillion is a hell of an overreaction by government.  Thus, we should expect the mother of all depressions.    

For the whole report go to: http://www.minneapolisfed.org/research/SR/SR421.pdf

Are We Headed for a “Change” in the War on Drugs? 
February 6, 2008

Please excuse the teacher in me for a moment, but let’s review President Obama’s performance so far in bringing “Change” to America. In foreign affairs he has kept Bush’s Secretary of Defense and old time Cold Warrior Robert Gates on.  He has made Hillary “I voted for American aggression in both Serbia and Iraq” Clinton his Secretary of State.  His Chief of Staff, Rahm “Rhambo” Emanuel is a firm supporter of Israel whose dad actually perpetrated terrorist acts in the 1940s to bring about the birth of that nation.  Lastly, it took him all of four days in office to authorize a cross border bombing of Pakistan. 

Economically, his first priority in office has been to outdo George Bush by signing an even bigger “stimulus” (notice the quotation marks) bill than the one signed by “W” in October.  By the way, the current “stimulus” bill is growing as we speak to close to $800 billion and Obama is using the same rhetoric Bush used (if it doesn’t pass we will face catastrophe) to railroad the bill through.  He also made Tim “I have no idea what happened to $350 billion of taxpayer money from the first stimulus bill and several of my own tax returns” Geithner Secretary of the Treasury.  Imagine that; make a tax cheat the boss of the IRS.  Isn’t anything sacred anymore?  Of course, Geithner isn’t the only tax cheat Obama has nominated – Daschle, Richardson, and Killefer make up the remainder of the elite group.  For this record, I give Obama an “F” for “Change”.

But wait, there is one policy area I neglected to mention – social policy.  A part of social policy is the so called “War on Drugs”.  Americans have spent a half a trillion dollars since the 1970s fighting this endless battle.  Over half of all federal prisoners are drug offenders.  The prohibition of illicit drugs in the United States has directly financed, through consequent high prices for the rebels’ product, the longest running civil war in the world in Columbia.  The violence that has resulted because of the renewed fight against illegal drugs by the government in Mexico is destabilizing our border with that country and threatening to spill over into American cities in the Southwest.

Against this backdrop, given the political capital he possesses, Obama has the opportunity to do something about this.  In fact, in a March 2008 interview, candidate Obama stated, "If it's an issue of doctors prescribing medical marijuana as a treatment for glaucoma or as a cancer treatment, I think that should be appropriate because there really is no difference between that and a doctor prescribing morphine or anything else".  He went on to say, "what I'm not going to be doing is using Justice Department resources to try to circumvent state laws on this issue".  These words gave encouragement to civil libertarians and medical marijuana proponents that an Obama Administration would change the direction of at least some parts of the War on Drugs.

Then on Tuesday of this past week, the Drug Enforcement Agency, a part of the Justice Department, raided four medical marijuana facilities in the Los Angeles area.  Agents seized over 400 lbs of the drug and $10,000 in cash.  When questioned about the raids in light of candidate Obama’s campaign remarks, DEA spokeswoman and special agent Sarah Pullen answered that, "There has been no direction as to a change in how we ... enforce federal law".  The key word in the quote of course is “change”.

It is certainly disappointing that the Obama Administration hasn’t yet put a halt to one of the most uncompassionate things the federal government does – deny medication to those in pain.  Indeed the new president is preoccupied with two other wars he inherited and an economy headed for depression.  Maybe he just hasn’t gotten around to addressing drug policy.  For that possible reason I am willing to give him an “incomplete” on “change” in regards to the War on Drugs.  However, my patience is running thin.    

“Change” Has Come to America?                                                 January 30, 2008

The current financial meltdown has its origins in a presidential act that took place in 1971.  In that year, through presidential directive, the United States defaulted on its obligations under the Bretton Woods system.  Because the Vietnam War and LBJ’s Great Society required large expenditures on the part of Uncle Sam, inflation and a devalued U.S. dollar resulted.  The problem for the U.S. at the time was that foreign countries could demand gold in exchange for devalued dollars.  Naturally, this is exactly what they did.  Fearing a complete depletion of U.S. gold reserves, Richard Nixon closed the gold window and began the age of the fiat dollar.

With the Gold Standard out of the way, the federal government could monetize even larger amounts of debt.  In 1971 the national debt of the United States was $425 billion.  At the end of 2008, the national debt exceeded $10 trillion – a 2252 percent increase in 38 years!  Naturally, this mammoth increase in debt did come at a cost to our economy.  For one thing, every dollar in debt the government monetized was one dollar less that could be used by industry to grow the economy.  Another cost was inflation – the erosion of savings and purchasing power.  From 1792 to 1971, the average yearly inflation rate was .7 percent.  From 1972 to 2008, the super monetized debt era, the average yearly inflation rate was 4.66 percent.  This increase in inflation contributed to the ballooning of household debt during this time period.  If things cost more money and savings isn’t worth as much debt is likely to increase.  In 1971 U.S. household debt was about $500 billion.  In 2008 the number ballooned to about $14 trillion – a 2700 percent increase in 38 years!

Spending sprees, whether personal or governmental, can’t last forever.  The depression we are heading into is the hangover for our binging.  Taking the debt numbers from above into account, we are headed for the mother of all depressions. 

The funny thing is that Washington has tried very hard to avoid depression.  It has done it through, you guessed it, more monetized debt.  It is like policymakers at the Federal Reserve, Executive Branch, and in Congress have no creativity or memory.  They have spent trillions of dollars to stimulate the economy out of the current financial crisis.  What we have to show for it is a record number of Americans receiving jobless benefits, many well-known brand names on the brink of bankruptcy, and an assets market that has already lost trillions in value continuing to flounder.

Then on January 20, 2009, Barack Obama, the man that promised us “Change We Can Believe In”, was sworn in (well, sort of) as president.  What was one of his first priorities? - to monetize over $800 billion in new debt to stimulate the economy.  This is the same exact thing we have been doing for the last 38 years.  Isn’t one definition of insanity to repeat the same action over and over again expecting a different result?  But, it gets worst.  Obama’s stimulus bill is packed with spending that doesn’t have anything to do with economic recovery.  Washington can’t even make it look good anymore.  The spending proposals include:  $420 million to battle avian flu, $335 million for programs to combat AIDS, VD, and TB, $2 billion for Head Start, $10 billion for science facilities, and $6 billion to bring high-speed Internet to rural and underserved areas.  If this is change then I am a communist.

We do need change in America.  We need to change our political leadership and install statesmen that can think outside the Keynesian box.  We need to change our expectations of what government can and should do.  We must return to the limitations placed on Washington’s power found in the Constitution.  We need to change our monetary system.  The Fed should be abolished and our currency should be backed by a scarce commodity.  We need to change our personal habits.  Many Americans need to learn there is no such thing as a free lunch.  The bills eventually come due as is being proven through this impending depression.  Finally, we need to change our economic system.  We need to reject the statism, socialism, fascism or whatever ism you want to call it of at least the last 38 years and reinstitute a free market system.  That free market system would pay its bills, reward merit, and penalize misbehavior.  If President Obama genuinely wants to fulfill his campaign pledge to “Change” America then he can start with this blueprint.


Boycott the Banking Cartel, Join a Credit Union              
January 24, 2008

It is no secret that this author detests the Federal Reserve Bank and believes it should be abolished in favor of a sound monetary system.  However, the chances of that happening any time soon are about as good as former president Bush being appointed Secretary of State in a future administration.  So, is there anything Americans can do to hurt the cartelized system and potentially bring it to its knees?  Besides electing anti-Fed representatives and senators to Congress, Americans have the ability to take their banking business elsewhere – to non-Federal Reserve credit unions.

For first time readers of this column, I will briefly review the reasons for my disdain of the Fed.  In 1913, at the urging of big bankers, Congress created the Federal Reserve System.  The system essentially set up a banking cartel in the United States whereby through Fed policies big banks could reap huge profits while the little guy had his purchasing power and savings stolen from him.  This was done through interest rate adjustments, a fractional reserve banking scheme and the printing press.  Since 1913 Fed policies have been responsible for a
95 percent loss in the purchasing power of the dollar.  Of course the Fed had
accomplices in committing this grand larceny of epic proportions.  On April 5, 1933 Roosevelt ended the Gold Standard for domestic holders and in 1971Nixon permanently closed the Gold window for foreigners.  Because the supply of money was no longer restricted to the amount of gold in circulation, the Fed could now increase the money supply arbitrarily.  And that is exactly what it did.

As a related consequence, today, our national debt is $11 trillion and according to President Obama Americans need to get used to budget deficits over $1 trillion a year into the future.  Many will say, “well, the national debt doesn’t matter”.  Many pundits and politicians alike seem unfazed by all the spending.  But, the debt does matter.  Like individuals and businesses, when Uncle Sam’s credit runs out and the bills come due Washington will be faced with a choice between default or raising taxes and cutting spending.  In light of the current spending spree and Washington’s aversion to spending cuts, tax hikes will be hefty and will certainly lead to economic disaster.

Then there are all the bailouts of Fed member banks.  These banks and most Americans know who they are, have made horrible lending decisions in the recent past, but through their buddies at the Fed are not suffering the consequences of those decisions.  Bernanke pressured the Congress to appropriate money we didn’t have to the tune of $850 trillion to bail the banks out.  Congress, going against the wishes of 90 percent of the American people, acquiesced.  The Fed printed the money.  What did we get for our involuntary generosity?  No progress toward solving our economic woes and no accountability from the Fed on where the money went.

So, let’s get back to our discussion of credit unions.  Because of their status they have many advantages for consumers.  They are not-for-profit and therefore unconcerned about stockholder equity and exempted from most state and federal taxes.  Consequently, credit unions, compared to traditional banks, return their profits to their customers, who are the owners, in the form of lower rate loans and services and higher rate savings accounts.

But, beyond the advantages of using credit unions as a consumer, using them would contribute to hurting the Fed sponsored cartelized banking system and perhaps perpetuate its eventual downfall.  First, credit unions are not regulated by the Fed.  Second, Fed banks rely on our deposits to make loans.  By rechanneling our deposits into safer, more responsible credit unions we take away their ability to make profit (and bad loans).  The question then arises, how much further bailout money would the American people tolerate for these failing Fed banks before calling for the Federal Reserve system’s abolition?

Third, with less deposits in Fed banks the fractional reserve scheme is tempered in its ability to artificially increase the money supply.  It is true that credit unions are held to reserve requirements, but to the best of my knowledge these are minimum requirements.  Thus the democratically elected boards of credit unions could keep their reserves at percentages much higher than required by the Fed.

Credit unions, like the rest of us, are feeling the effects of the financial crisis.  However, they are not running to Congress looking for handouts from taxpayers.  They exist to serve their members and not irresponsible Wall Street fat cats.  Many did not participate in sub-prime lending.  By transferring the national savings to them and away from Federal Reserve banks, Americans can put a significant hurt on the Federal Reserve system and eventually bring about its demise.  For more information about joining a credit union go to: http.www.creditunion.coop/how_to_join.html.

Keynes’ Prophetic Words                                      January 16, 2008

"By this means [printing money] government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft." John Maynard Keynes (1883-1946), British economist.

How true Keynes’ words have been.  Since its inception in 1913 the Federal Reserve Bank of the United States has perpetrated policies that have devalued the U.S. dollar by over 90 percent.  It has done this by increasing the money supply arbitrarily through fractional-reserve banking, interest rate adjustments and yes as the context of Keynes’ statement indicates through the printing of money out of thin air.  For the most part, almost all Americans have been oblivious to this grand larceny of epic proportions.  Many realize that they cannot buy as much as days gone by, but they don’t know exactly why.  Many realize that they will have to save/invest a lot more for a better retirement than their grandparents, but again many do not know why.  I remember a history teacher of mine bemoaning the fact that unlike his father of a generation earlier he could not afford to buy a new automobile each year.  He made more money than his father did, but that just didn’t convert into a new car per annum.  The irony was that my history teacher, like many, loved Franklin Roosevelt, who was of course the very scoundrel responsible for taking us off the Gold Standard and allowing the Fed through our elected officials to print money at will and debase our currency. 

What is truly amazing is that today given the consequences of fiat money and all the trillions of dollars the Fed has already printed for “economic recovery” there is still a large clamoring for more artificial dollar production to “thaw” credit markets.  Most pundits, journalists, and economists are badgering the incoming Obama Administration and Congress to do more.  Well, their wish is about to come true.

Congress is considering an $825 billion “economic recovery plan”.  The plan would do everything from making homes more energy efficient to, if you can believe it, infusing cash into money-losing companies to help them stay afloat.  It’s the old, the government can solve all of our problems with no costs mentality.  Of course, for those of us that understand why we have to save more for retirement and why most of us no longer can buy a new car every year it is more of the same – the Federal Reserve counterfeiting our currency and thereby devaluing it based on false economic theory that was discredited long ago.

The facts speak for themselves.  Uncle Sam has already injected over $2 trillion to thaw credit markets and stimulate the economy.  What do we have to show for it – a surging unemployment rate, the lowest consumer confidence in a long time, and still no pick up in banks loaning money again.  As of the week ending December 17, 2008, the cash reserves of banks in the U.S. increased to $774.4 billion from $604.7 billion in November and an incredible $2.39 billion in December 2007.  In December the yearly rate of growth of commercial bank loans fell to 3.55 from 4.8% in November and a hearty 10.2% in December 2007.  Remember how we were told by the Paulson/Bernanke/Bush Crime Syndicate that if Congress didn’t appropriate $700 billion in October the world would come to an end?  Their scare tactics were based on phony economics then and consideration of even more spending now is based on equally phony economic assumptions.

Make no mistake about it, even though the Fed has pumped trillions of dollars into the economy prices continue to fall.  That’s because consumers, banks, and other businesses have not bought into the government’s phony recovery scheme and are saving their cash for harder economic times to come.  Those times will come and be accompanied by the realization of most Americans that the dollar has been devalued enormously and they better spend theirs before it is too late.  At that point, the resulting inflation and lack of goods to buy from all the spending will send us into an economic ice age.  Unfortunately, even then, Keynes words will be prophetic.  I am sure the Fed’s printing press activities will not be blamed for our disaster.  Like now, the blame will fall on capitalism.  

Why the Hell Are We Allied with Israel?               January 4, 2008

Abu Gleg was an elderly Bedouin, father of 30.  Eight years ago he donated land for an American international school to build its facilities.  Within the walls of that facility, an American curriculum and the noble goals of tolerance and peace were taught to the students.  Over the weekend, the benevolent Bedouin and the institution he gave birth to were killed and demolished by Israeli bombers.

As an international American teacher this story hit home.  The fact that a school would be demolished and its night watchman killed in a combat action is hard to believe.  I am not na´ve enough to believe that it couldn’t happen.  But I didn’t expect it to happen as a result of the actions of a major ally of the United States. 

The latest violence in the Middle East has gotten me to question once again, why is Israel a major ally of the United States?  The one lesson I learned from my college foreign policy classes was that countries act to preserve their survival, period.  Nation-states are not people.  They do not have altruism.  They do not sacrifice the well-being of their people for high principles or ideals.  As a matter of fact, this stance would ultimately put at least a portion of a country’s population at risk.  Pacifist leaning countries do go to war all the time to ensure their survival.  The United States did not sign the Kyoto Agreement on the environment because it would have harmed at least a portion of our economy and therefore our citizenry to do so.

So what is it that Israel gives us that makes it indispensable to our national interest?  Does it have a natural resource that we need for economic or military reasons?  No, as a matter of fact the direct opposite is true - those countries that are Israel’s sworn enemies have oil.  Being friends with Israel has placed the lifeblood of our economy at risk many times throughout the years, yet we continue to support Israel with aid, both military and economic, votes in the United Nations, and rhetorically through our leaders.

Does Israel’s location provide us with security of a trade route or a convenient military outpost?  Again the answer is no.  In the Middle East it is other states, some not friendly with Israel, that control or are near strategic trade routes.  Egypt owns the Suez Canal.  Iran and the United Arab Emirates surround the Straits of Hormuz.  As far as military outposts are concerned, the United States has fought two gulf wars in the last twenty years and has never used Israeli soil to encamp or to launch an attack.  Bases in Turkey, Qatar, and Saudi Arabia were used with great success.

Lastly, one could ask, does Israel produce some good or service that Americans need to warrant the cozy relationship between them and us?  I can’t think of any.  Certainly our countries trade with each other, but that might continue even if we were not necessarily allies.  Didn’t the United States and the former Soviet Union trade with each other?

As far as I can understand from our leaders, the reason the United States and Israel are such close allies is because Israel is the only democracy in the Middle East.  This view is a throwback to Woodrow Wilson’s idea that the United States is ultimately responsible for “making the world safe for democracy”.  Under this mindset, the United States must support Israel unconditionally to ensure its survival and help spread the ideals of representative government throughout the Middle East.  This of course runs counter to what I learned in college about the pragmatic actions of nation-states.  Why would the United States support a country on high principle and at the same time jeopardize its own well-being? 

The answer to the above question is, it wouldn’t.  The real reason our government has close ties with Israel is because our shameless politicians love to be reelected.  There are two groups in America that support Israel with all their might, American Jews and Evangelical Christians.  These two groups are vociferous, politically well organized, capable of raising large amounts of money and they vote all the time.  Why else would the mayor of New York, Michael Bloomberg, be in Israel right now to show his support for its actions?  Doesn’t he have enough to worry about at home with the financial crisis on Wall Street?

Now, this is not a criticism of Israel.  As a sovereign nation it has a right to defend itself.  This is a criticism of our politicians for placing their interests ahead of our country’s interests.  We support Israel to our detriment.  Why have so many Middle Easterners trained to be terrorists to strike American targets?  Why is the supply of oil and its price so unstable?  Why are some Arabs threatening revenge against both Israel and the United States over the current violence in Gaza.  The answer to all of these questions is because we support Israel.  By not supporting Israel the United States would be safer and oil would probably flow more freely.  We would be promoting our national interests and perhaps no more American international schools would get blown up as well.

More Money Does Not Necessarily Equal More Wealth                      

December 20, 2008 


I am a billionaire. Well, I would be if I lived a little farther south in Zimbabwe.  You could be as well if you moved to the south-central African nation.  Once known as the breadbasket of the region, Zim. (as it is affectionately called in southern Africa) is on track to be the country in the world with the highest billionaire rate.  You see, through government mismanagement of the economy and extensive exercising of the printing press by the central bank in the country, inflation is in the millions of percent.  The central planners answer, well, continue to print more money in larger and larger denominations so people can have the currency to buy things like bread and beans.  Of course, as all Austrian economists know more money means even more inflation – prices double about every day in the capital Harare.  Unbelievably, the most recent note issued was a $100 billion bill – equal to about $20 USD on the black market.  The problem is that through the policies of its central economic planners Zim. is becoming the poorest country on earth.  This is proof that more money in the economy does not necessarily translate into more wealth.

This would be a lesson that our economic central planners should learn.  Now to be sure, our Federal Reserve Bank is not increasing our money supply anywhere near the rate of increase that Zim’s central bank has imposed on that economy.  After all, Zim’s central bank is more like Bernanke on speed.  But, Uncle Sam is spending a lot of money He doesn’t have on programs that are not working to reinvigorate the economy.  Take the $161 billion stimulus package passed earlier this year by Congress.  It hasn’t achieved its intended goal – consumer spending to induce economic recovery in the United States.  Maybe it didn’t work because Americans spend 61 percent of their consumer goods dollars on imports.  Or maybe it didn’t work because the American people are smarter than their leaders.  They simply saved the money for the impending rainy day that is sure to come.

Then there is the $700 billion bank bailout bill hurriedly passed by Congress in October.  In November over one million workers lost their jobs.  Housing prices are still going down and Americans are still not buying from the Big Three automakers.  The Administration can’t even decide on a definite plan to use the money.  First it was to buy bad assets from financial institutions, then to liquidate banks balance sheets, then to buy bad paper from corporations, and now it is to bailout the automotive industry.  Since, oil has plunged to below $34 a barrel maybe the petroleum companies could use some taxpayer funds to tide them over for a while.

Speaking of the automakers, Bush once again showed exactly what kind of a weasel he is – the worst kind.  He essentially threw $17.4 billion dollars of money we don’t have down the drain so that Chrysler and GM would not collapse on his watch.  The automakers belong in bankruptcy court.  They have no chance of restructuring into something that is economically viable.  The President has given them 3 months to shape up.  Give me a break.  The UAW has already rejected even the mention of wage and benefit concessions that would allow the Big Three to be more competitive against foreign car makers.  Even though he has run GM into the ground, Rick Wagoner has been allowed to stay on as CEO.  Lastly, there is an impression among American consumers, rightly or wrongly, that American automakers produce junk vehicles.  By simply changing car designs, this impression of quality will not change and sales will not improve.  The Big Three will eventually fail or they will become like many banks have become, wards of the state.  The Big Three bailout is just the latest example of policies that will not even bailout the recipients of the money let alone reinvigorate the economy.

To come will be President Obama’s stimulus package.  It will be huge, probably in the neighborhood of $700 billion.  It will include all of the things FDR was revered for – public works, welfare payments, and other Keynesian spending.  Just like the Great Depression, this spending will not work today either.

Zim’s problems began when President Robert Mugabe confiscated farms and handed them over to his non-farming cronies.  Scarce resources were stolen from productive users and given to incompetent recipients.  The U.S. government is doing the same thing right now.  It is taking scarce resources away from productive individuals and businesses who are efficient and valuable to our economy, and giving them to banks, automakers and other corporations who through their performance are a drag on our economy and therefore must be liquidated.  As Uncle Sam continues to spend money it doesn’t have on programs that will not improve our economy like Zimbabwe the United States will be poorer for it.  The only question is how poor?

 

Will Obama “Change” U.S. Foreign Policy?  Part II                              

December 15, 2008

As noted in this column on November 8, Barack Obama’s first two presidential acts were not encouraging for those who believed him during the campaign when he said his administration would bring “Change We Can Believe In”.   The appointment of Democratic neo-cons, Joe Biden as vice-president and Rahm Emanuel as chief of staff raised serious questions as to Obama’s commitment to “change” U.S. foreign policy.  But, even this writer was willing to give the president-elect the benefit of the doubt until such time as he made more appointments.  Well, that time has come.  Obama has made three more foreign policy appointments.    Each of those appointments indicates no change in direction, but a continuance of failed past policies.

First of all, Robert Gates will stay on as Secretary of Defense.  Gates, a career CIA guy has been a vocal critic of Obama’s Iraq withdrawal plan.  He supported the invasion of Iraq and bought into the fraudulent excuses for attacking.  Additionally, at a time when Russo-American relations need repairing, Obama is keeping a veteran Cold Warrior as head of defense.  Lastly, Gates is no Rumsfeld, but he still is connected with the Bush regime and its reign of terror around the world.  At the end of the day, Gates is nothing more than an establishment choice for the important position at Defense.

Another Obama appointment was Marine general James Jones as national security advisor.  Jones is a good friend of John McCain’s and served as an outside advisor to him on national security issues.  As a matter of fact, McCain would have appointed Jones to a similar post in his administration.  Clearly the two are like minded, which calls into question why Obama would want Jones around.

Lastly, there is the appointment of Hillary Clinton as Secretary of State.  During the campaign, the biggest and perhaps only substantive issue that she and Obama differed on was Iraq policy.  She voted to give the president the authority to invade and was slow to call for withdraw.  This was not the first time her hawkish inclination reared its ugly head.  In a 1999 interview with Talk magazine, the former first lady was quoted as saying she urged her husband to use NATO to bomb Serb targets to halt ethnic cleansing in Kosovo.  “I urged him to bomb….What do we have NATO for if not to defend our way of life?”  The actions and verbiage of Mrs. Clinton seem more like those of a Bush appointee, which doesn’t bode well for the idea that there will be change in foreign policy from the new administration.

No, it is clear from Obama’s appointments that U.S. foreign policy will not change much from the Bush years.  It is telling that not a single top official of Obama's foreign policy/national security team opposed the war with Iraq--or the fraudulent claims leading up to it.  He has chosen establishment figures that have the approval of the ruling elite.  Recently, Senator Lieberman, a big supporter of McCain during the campaign was quoted as saying, "Everything that President-elect Obama has done since election night has been just about perfect, both in terms of a tone and also in terms of the strength of the names that have either been announced or are being discussed to fill his administration".  With an endorsement like that we can be assured that on the last Election Day the American people voted to replace one belligerent administration with another.


 

Russo-Georgian War Revisited                                                               

December 5, 2008

On August 17, 2008, I published  a blog that decried the reporting of the Russo-Georgian War by the American “mainstream” media.  In that piece, I accused our media of disinformation, ignoring the facts and downright lying in its coverage of the conflict.  Specifically, my condemnation centered on the impression our media gave that the conflict was all Russia’s fault.  We were led to believe that Russia had invaded Georgia unprovoked and Georgia’s enlightened democratic president Mikhail Saakashvili was a victim of the big bad bear from the north.

Of course, I took a lot of abuse for my siding with the bad guys (Russia) in this event.  It was indicative of the “you are either with us or against us” mentality that our esteemed president has instilled into our cultural norms.  Some of the comments I received for that blog included, “Are you getting your news from TASS”; “I suggest that from your perch in Zambia, you need better binoculars to see the action”; and my favorite, “do cue me as to when I start playing the Russian national anthem on the violin here…  I also received hate e-mail from a woman of Georgian descent. 

Now, I am a big boy and can take the abuse, even the e-mail that condemned me to eternity in hell.  And as a big boy I can also boast and say I told you so. On November 26, Georgia’s former ambassador to Russia Erosi Kitsmarishvili, told a Georgian parliamentary commission that Georgian President Mikheil Saakashvili was “itching” to do battle over South Ossetia.  Kitsmarishvili labeled Georgia the aggressor in the conflict and said that Georgian officials told him President Bush gave his blessing for such a use of force when he met the Georgian president in Washington in March. 

Vindication is sweet, but I am sure that the same detractors will respond to this blog by saying Kitsmarishvili is suffering from 
Stockholm Syndrome
Or they will say he is really a Russian parading around as a Georgian ambassador.  Or that he is lying because he is a communist.  In any event, these detractors will probably still not face reality that their media and president have lied to them again.  They will still have faith in the man who chewed on his tie in front of live TV cameras.

But, this blog is not just about saying I told you so.  It is a reminder that we shouldn’t believe everything the media in America tells us.  Their perspective on most things is skewed.  They have been socialized by the public schools, their college professors, and the underlying persuasion in this country that the U.S. government can do little wrong.  Most journalists have sold out to their corporate employers who in turn are more interested in pleasing the politicians so they can get the interview or the special favor than in doing their jobs – holding elected official accountable.  With the advent of the Internet we do have more choices when it comes to media outlets.  Here’s hoping more Americans will overcome their socialized belief that if ABC, NBC, CBS, CNN, and Fox said it then it must be true.



Congress Has Reached New Depths of Stupidity                    November 28, 2008

This week the government reported several statistics that indicate that the $7 trillion Uncle Sam has committed to economic stabilization is having little real effect.  On Wednesday, the Labor Department reported that the four-week average of initial requests for unemployment benefits was at its highest level since January 1983.  The Commerce Department reported that consumer spending plunged by 1 percent in October.  Commerce also reported that orders for big ticket manufactured goods plunged in October by the largest amount in two years.  Orders for durable goods dropped by 6.2 percent which was more than double the decline economists expected.  Lastly, the unemployment rate hit a 14 year high of 6.5 percent.

So, with all of this grave news and the seemingly ineffectiveness of the government to spend our way out of depression, unbelievably Washington with an increased Democratic majority in Congress and a Democratic president-elect is planning a bevy of new pro-union measures when they take office in January.  It is unbelievable because the last thing we need right now, other than a tax increase, is for Washington to increase costs on business.  After all, it is business that is being relied upon to supply the jobs that will eventually lead us to recovery.

What are the measures the new administration is considering imposing on business?  They are essentially the same old left-wing schemes that have been pushed for years.  They include:  mandatory paid sick leave, ergonomics regulations, and expansion of the Family and Medical Leave Act.

These measures that the president-elect and his socialist buddies in the Congress are considering are of course unconstitutional.  This blogger is going to sound like a broken record, but Congress has no authority under Article 1 Section 8 of the U.S. Constitution to legislate benefit packages for workers of private business.  There is a good reason for this.  The founders realized the only way for a people to be truly free was by guaranteeing their economic freedom.  It works both ways – freedom of individuals to use private property as they see fit and freedom of workers to use their labor as they see fit.  Forced regulation puts business at a competitive disadvantage because it usurps the power of the market to make the most efficient decisions possible.  These measures seem just, but how does Congress know what the ramifications will be for the health of American business?  They don’t and remember again that we are relying on business to reinvigorate the economy with jobs.

One thing is certain each of the measures will increase the costs of doing business.  Cost estimates for the ergonomics regulations alone
total about $100 billion a year to implement.  The proposal to expand the Family and Medical Leave Act includes small firms and applies to events such as parents attending school conferences with their child’s teacher.  It is na´ve to think that businesses can or will simply absorb the increased costs of production due to government regulations.  These costs will be passed on to workers through less job growth and higher prices for products and services.  If Washington truly believes that consumer spending will get us out of our current economic mess then policies that increase business costs will be counterproductive to that effort.

The cornerstone of the pro-union, anti-business measures is the card-check legislation.  Card-check is Obama’s reward to his union supporters like the Department of Education was Jimmy Carter’s reward to the National Education Association’s for their support in 1976.   It would force companies to recognize a union if a majority of its workers signed cards.  This is different from today’s law which requires a month-long campaign ending in a secret vote and would make unionization of a business much easier to attain.  Government meddling in this matter is ridiculously unconstitutional.  Beyond that obvious fact, why is government still supporting a dinosaur whose historical record is filled with hooliganism, and putting whole industries out of business in the U.S. (see steel and automobiles)?  Has Congress learned nothing from its recent study of how the UAW has contributed to the collapse of the Big Three?

It is illegal for Congress to enact the above measures anytime, but is particularly irresponsible for them to do it now while we are headed for a depression.  Having already committed close to $7 trillion of money we do not have to fix our economic problems, now they want to compound our difficulties by placing unreasonable regulations on the sector that is charged with reviving our economy.  Congress has reached new depths of stupidity.       





Bankruptcy over Bailout                                                                            
November 21, 2008

Congress is getting so much pressure and hearing so many tall tales these days that it’s akin to unscrupulous telemarketers battering the simple minded to buy their product.  It is getting to the point where Congress will need to pass legislation to protect itself from money grubbing shysters.  First, it was the Paulson/Bernanke Crime Syndicate (their specialty is counterfeiting) that told Congress they needed a cool $700 billion or the sky would collapse on the United States.  Now, it is the poor automobile industry (that just got $25 billion from Congress in October) that needs another $25 billion lest the unemployment rolls in this country will swell by 13 million or 4 million (they haven’t decided on a number yet).  Next month, Congress will probably hear from the airline industry and how it needs billions.  After that, look for the agriculture sector to weigh in and then who knows, cigarette companies?

The fact is, soon there will be no end in sight to the steady stream of industries and groups that will lobby Congress for federal largess unless they put an immediate halt to the giveaways.  Congress has a golden opportunity to do just that right now by saying no to the automobile industry.  No matter what the costs, Congress must say in the words of Roberto Duran “no mas” to billions in bailouts for Detroit. 

For one thing, all of these bailouts are unconstitutional and thus illegal.  Article 1 Section 8 of the U.S. Constitution clearly specifies the powers delegated to Congress.  Nowhere in those roughly 17 powers is Congress given the authority to transfer money from one constituency to another.  Nowhere in there does it say Congress can use the federal Treasury to prevent corporate bankruptcies.  Critics of this position will say, “but what about the general welfare clause in the same section?”   The answer is, if the general welfare clause gives the Congress the power to bailout corporations with taxpayer funds then why did the authors of the Constitution not delineate that power among the 17 powers in that section of the Constitution?  Why did they delineate any powers at all if the general welfare clause includes any power?  According to the general welfare clause logic of the statists, the Congress can do whatever it wants under that one clause.  That is why we are in the mess we are in.

Another reason Congress must put an end to its handouts is because it is investing in losing propositions.  The Big Three automakers are a perfect example.  Their stock has plummeted by 75 percent since the beginning of the year and all three are on the brink of bankruptcy.  If investors are bailing on the Big Three in droves and each has one foot in bankruptcy court and the other on a banana peel, why in the world would our elected representatives even consider putting billions of dollars in them.  Would you?

Of course there is a good reason why the carmakers are collapsing.  Like other industries that have disappeared from the American landscape, the automobile companies have been the victims of collective bargaining laws passed by Washington and the State of Michigan.  It has been estimated that the average GM worker makes $81.80 an hour in wages and benefits.  In comparison, non-union Toyota pays $48 per hour in wages and benefits. The legalized extortion that the UAW is allowed to hold over GM puts the company at a competitive disadvantage costs wise by about $1000 per vehicle produced.

So, if Congress should not bail out these broke companies, then what should be done?  The same fate should befall the automakers that should have befallen the failing banks.  They should be allowed to go bankrupt.  “But they are too big to fail.”  “Many people will lose their jobs, their homes, and their healthcare.”  The bottom line is that the Congress cannot solve our economic problems by throwing good money into unsustainable enterprises.  The more than $2 trillion the government has already injected into the economy has proven that.  Besides, at the right price, entrepreneurs will buy the assets of the bankrupt firms and start a new American auto industry.  There is a market for cars in the U.S. and it is only a matter of time before some American(s) fills that market need.  Then the millions of workers who lost their jobs with the Big Three bankruptcies will have an opportunity to work for a competitive company.



Paulson: Liar or  Misfit?
November 14, 2008

Hank Paulson is a dirty rotten liar.  In July, along with Fed chairman Bernanke, he assured Congress that Fannie Mae and Freddie Mac were not in danger of failing.  His testimony before Congress was instrumental in getting Congress to approve Treasury Department and Federal Reserve proposals to make sweeping changes to the relationship between the two institutions and the government.  Within 7 weeks, Uncle Sam took over the mortgage giants preventing their inevitable collapse.  Then at the beginning of October, the dynamic duo was swindling Congress again.  This time Paulson and his banker buddy Bernanke told Congress that it had to act quickly and approve a $700 billion package to buy the bad assets (mortgages) of failing Wall Street firms otherwise  America faced calamity – civil unrest, economic collapse, and extinction of our blessed (debt ridden) lifestyle.  This past week Paulson announced that he would use the taxpayer assets not to buy troubled assets as he told Congress in October, but to inject capital into struggling banks by acquiring equity stakes in them.   
 

Now, perhaps calling Paulson a liar is harsh.  Maybe he just doesn’t know what he is doing.  For instance, in a recent interview on National Public Radio, Paulson said, “I believe the banking system has been stabilized.”  Oh really.  Just this week, Citi Group, one of the biggest financial services companies in the country, indicated that it would cut at least 10,000 jobs.  In October, foreclosures grew 25 percent nationally over the same month in 2007.   Yet to come is the impending auto loan, student loan, and credit card crisis.  Given his track record and the current circumstances it is amazing that anyone even listens to Paulson anymore.

But, there is more.  In his “I changed my mind about how to use the taxpayers $700 billion” speech this week, Paulson indicated that the economy was in better shape than it was two weeks ago.  Again, the facts tell a different story.  The Labor Department reported this week that the number of newly laid-off workers seeking unemployment benefits increased to a seven-year high.  The big three automakers are on the verge of bankruptcy and the mayors of 3 American cities petitioned the federal government to use a portion of the $700 billion Wall Street bailout plan to assist cities with pension costs and cash flow problems.  This news indicates that we are headed in the opposite direction of Paulson’s analysis.

Naturally, through his comments, Paulson is trying to justify his actions in handling the economic crisis to this point.  Here is a summary of Treasury actions since March:

  • $29 billion for Bear Stearns
  • $143.8 billion for AIG (and growing)
  • $100 billion for Fannie Mac
  • $100 billion for Freddie Mac
  • $700 billion for Wall Street, including: Bank of America (Merrill Lynch), Citi Group, JP Morgan (WaMu), Wells Fargo (Wachovia), Morgan Stanley, Goldman Sachs, and others
  • $25 billion for the Big Three in Detroit
  • $8 billion for Indy Mac
  • $150 billion for stimulus package (January)
  • $50 billion for money market funds
  • $138 billion for Lehman Bros. (post bankruptcy through JP Morgan)
  • $620 billion for general currency swaps from the Fed

Rough total: $2,063,800,000,000 - Two trillion and still spending!!

When will the madness end?  The federal government ran a deficit of $237 billion just in the month of October.  It is well on its way to the unthinkable $1 trillion budget deficit by the end of the fiscal year.  All of this money, created out of thin air by the Treasury Department and Federal Reserve with the blessings of Congress, is not stabilizing the markets as Paulson suggests.  It is simply throwing good money at companies that deserve to go bankrupt.  The current economic crisis is proof that debt does matter.  At some point, it has to be paid back.  The U.S. government is bankrupt, but it continues to spend money like a gambling addict in a casino.  Months from now, when the economy is in even more of a mess and we are laden with even more debt, think back to the comments of Hank Paulson.  At that point, it still might be hard to decide if he was lying or simply just didn’t know what he was doing.      

Will Obama “Change” U.S. Foreign Policy?                                          
November 8, 2008          
                
                       
The national sham, better known as the 2008 U.S. Presidential Election, is behind us.  24 months and more than $2 billion later, Barack Obama is our new leader.  He ran on a platform of “change”.  To be precise his campaign theme was “Change We Can Believe In”.  Clearly, after eight years of the Bush Administration this mantra appealed to many Americans and with good reason.  But before we get too excited, like many Americans have, about the “change” he will bring to America, let’s look at his first two presidential appointments.  They should certainly put a damper on the idea that things will be different in terms of foreign policy from the new administration.

In his first presidential act, over the summer, Obama chose Senator Joe Biden to be his vice-presidential running mate.  This is the same Joe Biden who had to withdraw from the 1988 presidential race after it was revealed he plagiarized a speech from British Labor party leader Neil Kinnock.  That was a long time ago and everyone is entitled to redemption for past sins.  However, Biden’s most recent positions on foreign policy issues are what is really concerning and perhaps an indication that Obama did not mean change in terms of current U.S. foreign policy.

A quick review of Biden’s foreign policy record in the last ten years reveals that he is as hawkish as some well known Republicans.  In 1999, he joined forces with one such Republican, John McCain (funny how politics does make for strange bedfellows), in the Senate to sponsor the resolution authorizing NATO aggression against Yugoslavia.  This aggression included an 11 week bombardment against Serbia and Montenegro.

Then in 2003, Biden not only voted to give the president authorization to invade Iraq, but he vigorously supported the president’s false claims about WMDs and Saddam’s ties to Osama bin Laden.  As Senate Foreign Relations Committee chairman, he suppressed antiwar testimony to the committee leading up to the attack.

Last year, Biden was a cosponsor (with Senators McCain and Lieberman) of a Senate resolution that called for U.S. support for the independence of the autonomous Serbian region of Kosovo.  He showed his hypocrisy a short time later by lambasting Russia for its liberation of South Ossetia after Georgian troops invaded the autonomous region of Georgia and attacked Russian peacekeepers.  His sharp rebuke of Russia was reminiscent of Cold War days.  In terms of foreign policy, it is ironic that Biden found himself on Obama’s ticket and not McCain’s.  Or perhaps it is a sign that Obama will continue with the failed foreign policy of the Bush Administration.

Obama’s second presidential appointment came just a day after his election victory, with his appointment of Rahm Emanuel as chief of staff.  Rahmbo, as he is known, is also a hawk when it comes to war issues.  Out of nine Democratic members of Congress from Illinois, he was the only one to vote to give the president authorization to invade Iraq.  He has voted for unconditional funding of the war and voted against efforts to set a timetable for U.S. withdraw from Iraq.  His record on the Iraq War is comparable to John McCain’s.

Beyond Iraq, Rahmbo would also like to see action taken against Iran.  He has voted against measures to prevent Bush from attacking that country and even joined the administration in launching inflammatory remarks about Iran’s nuclear threat.

His strong positions toward attacking Arab countries clearly come from his love of Israel.  After all, his father, Benjamin, was a member of the terrorist/freedom fighter (depending on your perspective) group Irgun which launched attacks against Palestinian and British civilians in Palestine in the 1940s.  Rahm himself has been critical of the Bush Administration for criticizing Israel’s assassination policies and human rights abuses.  He was a leading proponent of Israel’s invasion of Lebanon in 2006 and questioned Amnesty International’s motives in reporting Israeli violations of international humanitarian law.

Now, many will say that these appointments by President-elect Obama are political and do not necessarily indicate a direction that his administration will take in foreign affairs.  But, the old axiom is true, “you judge a man by the company he keeps”.  Modern vice presidents do play a large role as confidants and advisors to the president.  As Dick Cheney has proven, they are very influential partners to presidents who lack the foreign policy experience they possess.  And let’s not forget that vice presidents are one heartbeat away from the top job.

As the chief of staff, Rahm Emanuel will be President Obama’s gatekeeper.  He will in large part determine who has the president’s ear.  He will also have more influence on the president than others in the administration by virtue of his position and close friendship with Obama. 

There is no question that president-elect Obama’s first two appointments call into question his commitment to change as far as U.S. foreign policy is concerned.  By choosing two Democratic neo-cons as vice president and chief of staff, he not only validated the belief that there was not a quarter’s (adjusted for inflation) worth of difference between him and McCain, he has alarmed many of his progressive supporters on the left.  At some point in the near future, perhaps with his selection of defense secretary, it will be clearer whether Obama will change U.S. foreign policy or continue the failed policies of the Bush Administration.  My hunch is that those Americans, who are paying attention, will have their excitement zapped from them as they realize that they have replaced one belligerent administration with another.


Potholes Ahead for  Main Street                        
November 1, 2008

Congress, the Administration, and Federal Reserve Chairman have repeatedly told us that they are working hard to fix the economy for the American people.  They claim that every action they have taken has been done with the best interests of Main Street not Wall Street in mind.  Whether their intentions can be believed is questionable.  After all they are politicians.  One thing is certain; the ramifications of their actions at least in the short term have not benefited Main Street.

As we all know by now, the goal of Washington’s gross intervention in the economy is to unfreeze the credit markets with injections of massive amounts of liquidity.  This unfreezing will allow financial institutions to resume regular lending thereby putting us on the road to recovery.  In other words, the same device (debt) that got us into this mess will get us out of it.  That argument aside, as was reported in this column a couple of weeks ago, the best laid plans of Washington are once again going astray.  In that column, I reported that instead of unfreezing the credit markets allowing for a freer flow of capital and lower lending rates, the government’s actions so far have actually resulted in higher mortgage rates and consequently less borrowing.  This is a result of more government debt pushing up the yields on Treasury notes which in turn raises mortgage rates. 
Additionally, because Uncle Sam is guaranteeing bank debt, it is becoming more attractive for investors and creating more competition for his own firms - Fannie and Freddie, when they seek to sell their securities.  To compete for investors, the nationalized companies must raise their own yields and then charge borrowers higher rates for mortgages.  As a matter of fact, mortgage rates are higher now than they were before the Fannie/Freddie bailout was launched. 

Higher mortgage rates are an old problem, as this week two other concerns were voiced from Washington over the effectiveness of government measures to fix the economy.  It seems that nine Wall Street banks have been asked by Congress to justify billions of dollars in pay and bonuses after they accepted nearly $125 billion of taxpayer funded bailout money.  The nine banks include the usual suspects:  
Bank of America, Bank of New York, Mellon, JPMorgan, Chase & Co., Merrill Lynch & Co., Morgan Stanley, Goldman Sachs Group, and Wells Fargo & Co.

Then there was the revelation from the White House this week that banks receiving taxpayer money were “hoarding” the funds and not making new loans.  Apparently, t
he London Interbank Offered Rate (LIBOR), a key indicator of international lending, remains at elevated levels.  Not good.  But in all fairness to the banks, at least one of them will not be hoarding their federal largess.  It has been reported that the government has approved PNC Financial Services Group Inc. to receive $7.7 billion of taxpayer funds and to use $5.58 billion of it to purchase National City Corp - so much for the funds being used to unclog the markets.  The problem ultimately is that the government should not be doing what it is doing in the first place.  But beyond that, the capital infusion program has very few strings attached to it.  It was felt that too many strings would discourage bank participation.  Undoubtedly, too few strings are allowing the banks to take full advantage of the taxpayer.  The bottom line is that we are giving hundreds of billions if not trillions of dollars of our money to banks that got us into this mess in the first place with virtually no restrictions with the hope that they won’t do it to us again?  How stupid or corrupt is that?  Here’s hoping that the banks continue to hoard our money.

Beyond the reported ill effects on Main Street of the government’s actions to fix the economy, there are other hidden bad consequences as well.  Because the Federal Reserve has decreased interest rates to artificially low levels over the last nine months to stimulate lending (by the way this hasn’t worked either) the earnings of many small community banks have been adversely affected.  Many of these banks were responsible and took no part in subprime lending.  These institutions are important to millions of Americans on Main Street who rely on them for loans and savings accounts.  One of the last things we need is a crisis in the community banking industry.  Current government policy is already making it hard for these institutions to succeed.

Lastly, another hidden bad consequence of the government’s actions is a lowering of the yields on money market and savings accounts.  Again, as the Fed lowers interest rates artificially, savings and money market rates also decline.  Go online or check your next bank statement to notice that your savings rate has gone done.  With more people on Main Street hurting, especially pensioners and those on fixed incomes, the last thing they need is for their last safe haven to be upended by government policy.  But that is what is happening.

We could take Washington at its word that it is doing its best to help Main Street through this crisis.  The consequences of its actions speak otherwise.  Then again, maybe Washington is doing its best; because when it does its best, we are at our worst.

Hoovernomics Revisited                                                                       October 24, 2008


Herbert Hoover is recognized as one of the worst presidents in American history.  The historical depiction of his non-handling of the Great Depression is legendary.  We have all been taught that he was a do-nothing executive who let the country’s economy fall apart at his feet.  Further, if Franklin Roosevelt had not thumped him in the presidential election of 1932 the United States would have eventually been reduced to a fifth world cesspool.  This historical account taught to millions of American public school students each year cannot be farther from the truth.  In fact, Hoover’s activist policies during the Great Depression are the real reason he was a horrible president and it’s a shame our current leaders learned nothing from his folly during the early 1930s.  

The goal of Hoover’s economic policies after the onset of depression was to re-inflate prices back to pre-depression levels.  He sought to achieve this through two mechanisms – government spending and credit expansion.  Sound familiar?  First of all, he instituted a federally financed program of public works.  The concept was supposed to put money in peoples’ pockets so they could spend their way to recovery.  By 1932, this scheme nearly doubled federal construction projects from 1929 levels.  The program was very expensive by 1930s standards - $1200 per aided family.  The biggest problem with federal public works, as far as Hoover was concerned, was that the program was unavailable to those hurting in remote parts of the country and to those folks unable to perform such labor.  Of course, the real problem, economically speaking, with make work schemes, is that they do not work in stimulating a beaten down economy.  

Instead of continuing the program, his administration increased federal relief aid to the states so they could carry out projects that would aid displaced workers.  The increase in aid was phenomenal in such a short period of time.  In 1929, aid to the states totaled $33 million.  By 1931, the figure rose to $173 million.  By 1932, aid was $308 million, which represented an astronomical amount at the time. 

Then there was Hoover’s Reconstruction Finance Corporation (RFC) which was approved by Congress in 1932.   In that year, the RFC made $2.3 billion in loans to banks, railroads, and farmers.  Most of the money went to paying off debts, supposedly to ensure the solvency of the credit markets.  Still more money flowed from the RFC to the states to further finance make work schemes.  In addition, $25 million was allocated to the Treasury Department so it could invest in the stock of the 12 newly created Federal Home Loan Banks.

It was the Federal Home Loan Bank Act (FHLBA) which showed the enormous interest Hoover had in interfering in the market in a way that no previous administration ever had.  He wanted ultimately to build a huge mortgage discount banking system that included all financial institutions in America.  He wanted mortgages to be discounted by these institutions up to 80 percent of the value.  Thwarted in his efforts, he settled for a system that forced building and loan associations to discount mortgages to 50 percent of value.    

So, contrary to popular belief, Herbert Hoover, for his time period, was a radical government spender and interventionist in the economy.  Indeed, this article has only represented a few of the more egregious measures of his administration.  Without question, Roosevelt’s New Deal was much larger and more comprehensive a program. But, what is important to understand is that both Hoover and Roosevelt’s policies are what put the “Great” in Great Depression by prolonging the recovery by about 15 years.  The increased government spending of the time, like this year’s stimulus package, did nothing to spur recovery.  The expansion of credit through the RFC and FHLBA was as effective as current Fed and Administration policies will be in restoring faith in the banks and getting the economy moving again.  Tighten your belts, because If Bush is our Hoover and Obama is going to be our Roosevelt, then we are in for many years of economic despair.  

The Best Laid Plans of Mice & Governments Often Go Astray
October 18, 2008

The founders of the United States were brilliant human beings who developed and left us a framework for existence that we continue to ignore to our detriment.  The framework I am talking about, of course, is the Constitution.  In the current economic crisis, the regime in D.C. is ignoring it by devising new ways to “stabilize” our economy.  The harmful effects of which are already appearing.   

According to Bankrate.com, average mortgage rates on 30-year fixed home loans have increased more than one half a percentage point to 6.74 percent in the last week. 
This represents the largest weekly increase since April 1987, when the 30-year rate rose 0.84 points.  For the average borrower with a $200,000 loan, this means they will pay $1,296 a month – an increase of $100 more a month and $1,200 more a year than the same loan would have cost just a few weeks ago.

But, weren’t the policies enacted by the Bush Administration, Federal Reserve, and Congress supposed to “unfreeze” the credit markets and relieve the pressure on our financial system so that it could work again?  The answer is yes, but once again, the unintended consequences of federal actions have prevailed.  You see, in order to fund Washington’s rescue of the economy and the new government debt guarantees, the Treasury is selling a bundle of new Treasury bills to raise money (more debt).  Treasury has to offer higher interest rates to sell these debt assets and since mortgage rates move in step with 10-year Treasury yields they have risen with the actions of Paulson, et al.

Additionally, because Uncle Sam is guaranteeing bank debt, it is becoming more attractive for investors and creating more competition for his own firms - Fannie and Freddie, when they seek to sell their securities.  To compete for investors, the nationalized companies must raise their own yields and then charge borrowers higher rates for mortgages.  As a matter of fact, mortgage rates are higher now than they were before the Fannie/Freddie bailout was launched.  Naturally, this was not the government’s intention, just the consequence of its actions.

Rates are expected to decline as credit availability increases due to the liquidity added by the feds.  This won’t help those homeowners whose adjustable rate loans are due for adjustment in the near term.  And before we get too excited about easy money again, let’s not forget that in the long term the Federal Reserve will have to raise rates, probably significantly, to fight the inflation that will emerge as a result of the Treasury’s spending right now.  What this situation will mean for the foreclosure rate in this country is clear – it will go through the roof.

If only our leaders would read the Constitution before they take an oath to it.  They would learn that it does not allow the federal government to transfer wealth, bailout industry, or own banks.  The founders knew that to give this authority to the politicians would infringe on the rights of citizens and screw up the economy.  Recently, while reassuring the American people that the United States was not fundamentally changing its economic system through all of this government intervention, President Bush said, “democratic capitalism is the greatest system ever devised.”  I suggest the President heed his own words and let our free market system fix itself.


Congress is a Rotten, Stinking Corpse            
October 12, 2008

At the end of August, Rasmussen Reports released data from a poll it conducted on the approval rating of Congress.  The poll found that an incredibly anemic 9 percent of Americans surveyed felt that Congress was doing an excellent or fair job.  You heard right – only 9 percent of Americans approve of the way Congress is doing its job!  This is the lowest approval rating of any Congress since the statistic was first kept track of in the 1970s; and it was taken before Congress passed Bush’s Big Bank Bailout Boondoggle so does not reflect probably an even lower view of Congress today.

With these poll numbers most Americans agree that Congress is not doing its job.  But, let’s be honest; the current Congress is a rotten, stinking corpse.  It has worked against the will of the American people, legislated against the best interests of our country, and totally abdicated its sacred responsibilities by giving the President, Treasury Secretary, and Federal Reserve chief carte blanche in further ruining our economy all in the name of political expediency and campaign contributions.

Take the $800 bailout package for instance.  Congress passed this measure in the face of at least 70 percent opposition from the American people.  Whatever happened to representative government?  It was discarded for campaign contributions.  The Washington watchdog group, Center for Responsive Politics, reported that the senators who voted for the bailout have received on average contributions to their campaigns totaling $3,986,723 since 1989 – this is 139 percent more than was received by those senators opposing the bailout over the same time period.  To give a specific example, Sen. Joe Lieberman of Connecticut supported the bailout while receiving nearly $10 million from the finance sector over his career; Sen. Bernie Sanders of Vermont opposed the bailout while receiving just $167,045 while in Congress.

The behavior of House members is better, probably owing to the fact that all members are up for reelection this November, but still a correlation exists between contributions from Wall Street and voting for the bailout.  House members who voted for the corporate welfare to Wall Street received an average of $833,077 from the finance sector since 1989 as opposed to $589,417 for members who opposed the scheme.

Of course, we were told by our “leaders” that the measure was necessary to “unclog” the credit markets, thereby saving the economy from total collapse, and consequently protecting the assets of ordinary Americans.  Nonsense!  The bailout will do no such thing.  During the Great Depression, the government instituted similar measures to revive the economy; this included government spending to increase aggregate demand (stimulus package anyone?) and injections of government debt to stabilize prices and the banking industry.  Sound familiar?  These measures in the 1930s prolonged the recovery all the way to 1939.  They will also delay a recovery today.  One of the following three things is true about our “leaders”: they don’t know history; they think it will be different this time, or they care more about their political futures than the constituents they have sworn an oath to serve.  You decide.  In any case, all three are good reasons to throw the bums out this November.

But, perhaps the biggest outrage from Congress’s behavior over the last 10 months is its abdication of Constitutional responsibility.  It has allowed the Fed and Treasury chiefs to bailout Bear Stearns and AIG, nationalize Fannie Mae and Freddie Mac, and potentially buy up vast sums of corporate debt - all without a Congressional vote.  With passage of the bailout scheme, the Fed and Treasury are now authorized to invest capital into financial institutions and get ownership in return.  Paulson and Bernanke have effectively become the nation’s stockbrokers.  Additionally under the bailout scheme, foreign banks doing business in the U.S. are eligible for Treasury payments, which means Uncle Sam will be borrowing more from foreigners to bail foreigners out.  Not only has Congress violated the constitutional principle of separation of powers by giving authority both directly and through acquiescence to unelected officials in another branch of government to do what they are not constitutionally authorized to do, it has also condemned us and future generations of Americans to more debt and a lower standard of living.    

This November 4th Americans all over the country will have an opportunity to vote for every representative in the House and at least a third of the Senate.  With some rare exceptions, they should vote their members out of Congress and not replace them with a reasonable facsimile thereof from the other major party.  Americans should vote for minor party candidates because America desperately needs a multiparty system like the ones we have fought for in other countries - most notable Iraq.  Only then can the will of the American people, not the narrow interests of Wall Street be heard.  Only then can the best interests of our country be served; and only then can we have a representative legislative body that will be less apt to abdicate its sacred responsibilities to the people.  Yes, Congress is a rotten, stinking corpse.  With its job approval rating at 9 percent, maybe the time is right for giving it a proper burial.    

Congress Has Sold Us Out to the Big Banks    
October 3, 2008

Ronald Reagan said, “Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it”.  Even before Bush’s Big Bank Bailout Bill was passed by Congress we were in the “subsidize it” phase of the cycle.  We have been told by our “leaders” that more subsidizing through the bailout legislation is in the best interest of the millions of Americans in the middle class.  It was done to preserve our savings accounts, education and retirement funds and to help small business in securing the necessary loans they need to survive.  It was done to rescue us from economic calamity.

In fact, the $700 billion bailout (ignoring the pork and tax breaks which make the legislation worth more than $800 billion) will only do harm to the middle class.  First of all, this $700 billion dollars is in addition to nearly $1 trillion that the Federal Reserve has already pumped into the economy in just the last month.  Secondly, where will the Treasury get the money called for in the bailout package? Answer: it will borrow the money from the banks.  But, I thought the banks had no money, hence the need for the bailout.  They don’t, so they will create the money through a system called fractional reserve.  In addition, because the banks are a cartel headed by the Federal Reserve they can also fire up the printing press to produce dollars.  The banks will loan these new dollars to us, with interest, so we can then give the money back to them.  The nearly $1 trillion already pumped into the economy by the Fed and the new funds called for by the bailout package are an artificial increase in dollars.  Of course, the banks will get to use the new money first before inflation sets in and then the rest of us can borrow the money back (again) from banks at higher rates because of the inflation.  The banks can’t lose.  If you think this is a good deal for middle class Americans then you probably own one of the subprime mortgages that got us into this mess in the first place.

In addition to the government using our money to get us into an insane financial arrangement with the banking industry, the bailout will not solve our economic problems and indeed make them worst.  How does throwing borrowed money at bad assets make any sense?  It is equivalent to borrowing money and then flushing it down the toilet.  If the bad loans that the bailout is going to purchase had any value they would have been bought on the open market at some price.  They have not been bought so it is safe to assume that they lack any value.  Consequently, the bailout will simply relieve the banks of the ramifications of their bad behavior and leave taxpayers holding a bag of worthless assets.  When the Treasury writes off these assets, the loss to the federal treasury will be well over a trillion dollars (this includes bureaucratic costs, opportunity costs and interest costs on the $700 billion).  Folks, Uncle Sam already owes over $9 trillion dollars with at least another $50 trillion of future obligations through entitlements.  It is only a matter of time before these debt obligations have to be met.  Because foreigners will be unwilling to lend us any more money and the Federal Reserve will be unable to print more because of hyperinflation, the politicians will have to raise taxes.  High taxes in recessionary times will be the death knell for our economy.

And don’t think that future misallocations of resources won’t be encouraged by this federal largess.  It has already begun to happen.  Bank of America probably bought Merrill Lynch with its bad assets to ensure that it was “too big to fail”.  Citigroup and Wells Fargo will fight to the death for the right to buy Wachovia and its $74 billion of bad assets because they both know that the Treasury will now offload those bad assets onto the taxpayer.  Once these bad assets are removed from the balance sheets of the banks what guarantees are there that they won’t turn around and make more high risk, bad loans?  Aren’t the banks still under the federal mandate through the Community Reinvestment Act to make loans to high risk debtors?  By passing the bailout package hasn’t Congress shown that it will be there for the banks when they fail?

The bailout package will prove to be harmful for the middle class.  It will cause inflation, burden taxpayers with hundreds of billions of dollars in bad assets, and encourage irresponsible economic decisions.  Someone also once said, “the more you subsidize something, you more you get of it”.  By subsidizing the bad decisions of Wall Street we can only expect more of the same bad decisions.   

A Call to Arms   
September 28, 2008

America, we have reached the point of no return!  The government of the United States is about to embark on a course that will prove to be ruinous for our country.  This morning, Congress is jubilantly announcing a tentative agreement on the Wall Street bailout plan.  The plan, if approved this week by the full Congress and signed by the President, is a betrayal of the constitutional oath taken by our leaders.  It is a violation of the public trust and an extreme abuse of the fiduciary responsibilities that each member of Congress and the President has to the American people.  In short, any member of Congress who votes for the measure is guilty of treason and should be dealt with accordingly.

Why is voting for the plan a treasonable offense?  One reason is because it gives enormous power to the Treasury Secretary, who is an unelected official.  He will have power to buy deeply distressed mortgage-backed securities and other bad debts held by banks and investment firms with taxpayer money.  This includes bad debts held by foreign banks that do business in the U.S.  So essentially, by approving the plan the Congress will be handing over $700 billion of taxpayer money to an unelected official and an imperial president.

The whole thing reeks of fascism.  In all of the debate over the bailout plan, no one (except Ron Paul) has questioned whether the move is constitutional.  Congressional leaders are ignoring the will of the people where polls indicate that only thirty percent of Americans approve of the legislation.  The Treasury Secretary and the President are being given extraordinary new powers to act as economic dictators.  And the federal government through the plan is again turning to public debt to stimulate the economy to presumably put us back on sound economic footing.  As this government induced crisis worsens, Washington is acting more and more like Italy under Mussolini than America under Jefferson.

Without question, it is a government induced crisis.  For nearly twenty years, Alan Greenspan as chairman of the Fed embarked on a policy of easy money – low interest rates and expanding money supply.  He became the parent who just couldn’t say no to the American people.  His policies as Fed chairman led to the dot com bubble and bust in the late 90s.  To stimulate the economy after 911 he lowered the federal funds rate to an unbelievable one percent!  The rate stayed there for a year and was increased slowly for the next three years after that.  Rates were low enough for a long enough period of time to cause severe misallocations in the economy.  Thus, the housing bubble was born.  Of course, it also took the absolute stupidity of many Americans to get into debts that they could not afford - a concept that seems to be an implied right of American citizenship which is expressed through laws like the Community Redevelopment Act.  Lastly, by sprinkling in some fraud by lenders and borrowers alike you have the recipe for the disaster that looms over us today.

So, what do our esteemed leaders propose to get out of this mess?  They are proposing more of the same things that got us into this mess.  Passing a $700 billion bailout package is easy money to the politicians and says to the stupid and fraudulent that any mistakes or criminal actions you may have committed will be remedied by the deep pockets of the American taxpayer.  Congress will appropriate this money as if there will be no repercussions down the road.  This sounds very familiar to the mindset of Fed governors when they lowered rates to one percent.

Congress is also being as stupid as those Americans who got themselves into debt that they couldn’t afford.  The U.S. government doesn’t have $700 billion dollars to spend.  Hell, it doesn’t have $10.  It has $9 trillion in debt on the books with at least another $50 trillion in future obligations like Social Security.  At some point soon, foreign countries will stop loaning the U.S. money.  Our currency will become worthless and our standard of living will deteriorate.  Yes, debt does matter whether you are a business, a family, or a huge government.

Lastly, fraud is a component part of our leaders’ proposal to get us out of this mess.  We are being told that this “rescue” plan is for Main Street not Wall Street.  We are being told that somehow putting up huge sums of taxpayer money to buy bad assets is the best answer to get out of the mess that deregulation of the financial industry caused.  The lies go on and on.  Make no mistake about it, the politicians will pass this plan to help their benefactors on Wall Street - those that have helped them get elected.  It is a fraudulent use of taxpayer money.

If not the politicians’ plan than what should be done to remedy the crisis?  Immediately, the government should cease intervening in the crisis.  Let the market determine its own equilibrium.  Former private assets like Fannie and Freddie should be liquidated.  Government spending, especially military spending, should be reduced.  The budget should be balanced, taxes cut and regulations on businesses eliminated.  Any protectionist measures enacted by Uncle Sam should immediately be repealed. 

In the area of foreign affairs, the U.S. should bring troops home from bases around the globe and stop riling up hostilities with Pakistan, Iran, North Korea, Russia, and Venezuela.  These moves would free up funds to be used at home where they are needed and not on high-risk, no gain military adventures.

In conclusion, any member of Congress who votes for the bailout package is betraying their constitutional oath, violating the public trust and abusing their fiduciary responsibility to the American people.  On November 4th they should be thrown out of
office and not replaced with a clone from the other major party.  Instead, minor party candidates should be elected to return our government to “We the People”.  I urge all Americans to write letters to the editor, talk to community groups, friends and family, become involved in minor party candidate campaigns and vote your conscience.  The vicious cycle perpetrated on us by the politicians in Washington must end.  But it cannot end without the efforts of all of us.

In Defense of Capitalism 
September 20, 2008

The economy of the United States is not a pure capitalist system.  We operate economically under what economists like to call a “mixed system”.   This is a system that combines elements of a market economy with elements of a planned economy.  It is because of this mixed economic approach that Treasury Secretary Paulson and Federal Reserve Chairman Ben Bernanke determined that it was within their authority to nationalize Freddie, Fannie, and AIG in the name of stabilizing the financial markets.  In a purely capitalist system, these bailouts would have been impossible.  Quite frankly, the crisis that caused those bailouts to happen in the first place would not have happened if we were a pure capitalist country.

That is not to say that capitalism is perfect.  But, in the current environment we must brace ourselves against the endless onslaught against the system which has made our country number one economically for some time now.  You see the politicians are really just poor sports that have never grown up and never like to admit fault for anything.  McCain, Obama, members of Congress, and the Administration will babble on about how the greed and unbridled actions of others are the culprits for the subprime crisis.  They will talk tough about how they are going to go after the bad guys and bring them to justice.  They will propose new regulations to prevent this from ever happening again.  In short, they will attempt to socialize us to believe that only a capitalist system with the ruling elite (themselves) in charge is good for the country.  They are all liars and are hereby permanently banned from the shrine of Free Market Economics.

Throwing out accusations and speaking in vague generalities is easy.  That is what the politicians do all the time.  So instead, let’s look at some examples of where capitalism has been blamed for a crisis that the politicians actually started.  We have all heard about the greed and lack of regulations that caused the savings and loan crisis of the 1980s.  But, it is never mentioned by the politicians how the crisis came to be in the first place.  For that we go back to the year of my birth, 1964.  Lyndon Johnson, the patron saint of the welfare/ warfare state, had just begun to rebuild that institution on our shores.  With the passage of his so called “Great Society” and increased funding for a military conflict in Southeast Asia, the United States government, through the Federal Reserve Bank, printed money over and above the limit mandated by the gold reserves held by the government at the time.  By the late 1960s, foreign holders of U.S. dollars realizing that their asset would soon be worth much less, demanded, as they were entitled to, an exchange of their devalued dollars for American gold.  The hemorrhaging of U.S. gold reserves that ensued was so great that Richard Nixon closed the gold window in 1971 to prevent a default.  He effectively opened the door to future wild spending by Uncle Sam. 

These actions by our leaders: increased spending and lifting the last vestige of the gold standard would set the stage for the savings and loan crisis.  Little did policy makers know at the time, that printing money to monetize debt was addictive and would eventually lead to inflation.  This was probably because most of them had never heard of the Austrian School of Economics and because some years later Richard Nixon declared that “we are all Keynesians now”.  Nonetheless, savings and loan banks through the 1970s played by the rules paying interest on savings accounts and providing mortgages to borrowers.  The problem came in the late 1970s when faced with high inflation from the spending binge the Fed had to increase interest rates to 21 percent in an attempt to control rising prices.  This hurt the savings and loan banks in two ways.  First, a government regulation that placed a ceiling on the interest rates savings and loans could offer to their depositors caused a transfer of funds from low rate savings and loan savings accounts to new higher rate money market accounts in other banks.   Second, savings and loan banks had much of their money tied up in low, fixed rate, long term mortgages.  As the Fed increased interest rates it made these mortgage backed assets virtually worth nothing.  Thus, government spending which forced the Fed to raise interest rates ultimately caused the savings and loan crisis.  By 1980, before deregulation, many savings and loans were already insolvent.  Politicians are disingenuous when they say the savings and loan crisis was caused by the greed of the bankers; it was caused by the misguided policies of the politicians of the time.

Now, flip the calendar forward a decade to the 1990s.  Through the decade, the “Maestro” Fed chairman Alan Greenspan, had kept interest rates artificially low while continuing to pump more dollars into the economy to keep the good times rolling.  By the end of the decade, we had the dot.com bubble.  Of course, we were told by Washington that this was the fault of greedy techies who were corrupt and had unbridled behavior.  At the end of the day, I didn’t expect Washington to come clean and admit culpability, but I did expect them to learn from their mistake so it wouldn’t happen again.

Then, it did happen again.  The “Maestro” lowered interest rates to one percent to stimulate the economy after 911.   In the meantime, Congress revised the Community Reinvestment Act, which cajoled community banks to make loans to bad risk borrowers.  With an implicit guarantee from Uncle Sam, Fannie and Freddie took on more and more mortgage loans.  With more money in the pipeline, laws forcing banks to make at least some bad loans, and moral hazard, the federal government had tied and given the noose to the financial community to hang itself. 

Again, like in the 80s and the 90s, the cause of the crisis according to the ruling elite is with those greedy bankers.  Again they are being disingenuous.  In the 1980s, Congress instituted the Resolution Trust Corporation to liquidate the bad assets of the insolvent savings and loans.  In the end it cost the taxpayers $150 billion.  Today, Congress is considering a similar approach to liquidate the bad assets of the insolvent financial institutions.  This time the costs will be in the trillions. 

The capitalist system is not perfect, but it is eons better than the bastardized economic system Washington has given us.  History has proven that the price of money is better determined by the market than a central bank.  History has also proven that a commodity backed currency not the political whims of politicians and financial bureaucrats is the best way to rein in the size of government, protect purchasing power and asset value, and in the end avoid catastrophes like the one we are about to encounter.     

Fascism in America
September 14, 2008

Folks, we have real problems in this country.  You are probably thinking that I am going to talk about the endless wars we are fighting, the high incarceration rate of our citizenry or the economic collapse that is just around the corner.  Instead of discussing these issues directly, I would like to address the underlying cause of these problems - America’s slow but sure movement to fascism.

In 1944, the great journalist, John T. Flynn published the book “As We Go Marching”.  In the book, Flynn sought to nail down exactly what characteristics make up a fascist system.  He dissected Mussolini’s “state capitalism” and Hitler’s “national socialism” and found commonalities between the two systems - commonalities which together he used to form his definition for fascism.  There were many commonalities but in the interest of brevity the seven most important will be mentioned here.  Thus, according to Flynn fascism as it was practiced in Italy and Germany was a system where:  1. the
government had powers which were unrestrained; 2. a leader, who was the dictator, had absolute power; 3. the characteristics of
capitalism were allowed to operate; 4. it was the government’s responsibility to ensure that the capitalist system functioned at top capacity;  5. government used public debt to stimulate the economy; 6. the economy operated through the principle of syndicalism; 7. militarism and imperialism were imbedded in the system as a necessary means to employ the masses and further the goals of the state.  He concluded that ironically the United States had actually adopted these same practices to fight the scourge of fascism found in Italy and Germany.  An analysis of the modus operandi of the U.S. government today would yield the same conclusion. 

Beginning with the concept that our government has powers which are unrestrained, it is true that we have a Constitution that is supposed to rein in the power of all levels of government in the U.S.  But, when was the last time you heard any politician (besides Ron Paul) in this country mention the Constitution before government action?  Where is the Constitutional authority for the feds to take over Fannie and Freddie, broker the deal which sold Bear Stearns to J.P. Morgan, and wiretap without a court’s approval the phone lines of citizens?  Many times the Constitution takes a back seat to what the politicians believe are good intentions.  Good intentions are the problem; unrestrained power is the consequence.

George Bush more than any other president, except FDR, has built an imperial presidency.  He is in many respects a leader who has absolute power.  This absolute power has been granted not through military dominance but through political acquiescence.  In the name of homeland security
through the so-called Patriot Act” he has been allowed to expand the federal government's ability to use wiretaps without judicial oversight; has made it far easier for the government to monitor private internet usage; has authorized “sneak and peek” warrants enabling federal authorities to search a person’s home, office, or personal property without that person’s knowledge; and has required libraries and bookstores to turn over records of books read by their patrons.  He has also been allowed to perpetrate an illegal war started under false pretenses.  The Democrats, who took back Congress on the pledge to end the war, are not even talking about it anymore.  More recently, the president exercised unconstitutional unilateral power by giving the Treasury Department the go ahead to nationalize Fannie and Freddie without even a congressional vote.  Does the move set a precedent for future nationalizations of private companies? 

No one can argue that the characteristics of capitalism do not exist in the United States.  Examples include the means of production and property being held in private hands.  It is also true that since FDR’s New Deal, the
government has assumed responsibility for ensuring that our capitalist system functions at top capacity.  Of course this author would dispute that the government has been successful at this endeavor, but the point is that through the Federal Reserve Bank’s regulating the money supply, bureaucratic regulation, and the ability to bailout and nationalize private firms to protect the economy the U.S. government has acted in accordance with fascist doctrine to guarantee smooth functioning of our markets.

The fifth tenet of fascism mentioned above is government using public debt to stimulate the economy.  Currently, the national debt of the United States is $9 trillion.  This is a result of military spending, which we will get to in a moment, but also spending on social programs and projects to stimulate the economy.  This spending includes welfare programs, both individual and corporate, old-age pensions, earmarks to congressional districts, and stimulus checks.  Uncle Sam has wrongly adopted the view like the Italian and German fascist of the early Twentieth Century, that spending is the key to economic success.  Instead, like the Italian and German fascist states, it will prove to be the undoing of the economy.  Nevertheless, the fifth tenet of fascism is met.

Syndicalism is trickier to pinpoint in the United States, but it can be done.  Mussolini’s syndicalism involved the owners of business and their workers coming together in guilds to decide the issues of production, distribution, labor, and credit for their industry.  The closest we have come to this in America is probably through FDR’s National Recovery Administration (NRA) of the 1930s.  Businesses, which included both the owners and employees, were rewarded for compliance with NRA benchmarks by receiving a “Blue Eagle” which they could “proudly” display in their establishments.  The system was voluntary, but non-compliance could have resulted in government organized boycotts of firms.

Currently, syndicalism in the U.S. is a bastardized form of the traditional model of Mussolini’s.  Right now, at this very moment, company executives from Goldman Sachs, JPMorgan Chase, Morgan Stanley, Citigroup and Merrill Lynch are meeting with Federal Reserve and Treasury Department officials to decide how best to dispense with the troubled Lehman Brothers firm.  It is all being done behind closed doors and in the absence of employees.  Even though these two important facets of syndicalism are absent, the government appointed financial industry guild will decide this matter.  This is syndicalism nevertheless albeit American style.

Finally, tenet number 7 – militarism and imperialism are being used in the United States to employ the masses and further the ends of the state.  In 2007, U.S. military spending accounted for 45 percent of the world’s total!  Military expenditures have increased by 59 percent in real terms since 2001.  We are currently spending the largest amount of money on defense than at any other time since World War II
.
 Why has all this happened?  Certainly, the Administration would blame the so called “War on Terrorism”.  But it also believes like most administrations since the end of World War II that healthy military spending means a healthy economy - the more people that are working the more money that will be spent to sustain the economy.  Military spending is another reference to tenets 4 and 5 which say jointly that the government is responsible for sustaining the capitalist system through public debt.

Not unlike the militarism of fascist Italy and Germany, all of this military spending has to find a way to be used.  Imperialism is the natural outlet.  The United States has military bases in at least 60 countries.  She is fighting wars in two (Iraq and Afghanistan), threatening one (Iran), and carrying out extensive military operations in another (Pakistan).  All is done in the name of American security (an end of the state).  Really it is done for other ends of our state like to perpetuate an American Empire, punish states we do not like, and secure the flow of oil.  This imperialism represents the ends of our state because we have leaders who are ethnocentric, self-righteous, and greedy.

Without question, it is difficult to come to the conclusion that your country is perhaps no less fascist than Mussolini’s Italy and Hitler’s Germany.  It is historical fact that Mussolini killed endless opponents of his regime and Hitler sought to exterminate whole races of people.  Is the U.S. any less guilty for the deaths of over 1.5 million Iraqis because they were collateral damage of a war?  To rationalize ignoring the facts, some may even ask, besides genocide what is so bad about fascism?  The answer to that would be:  because it is not the government laid out in our Constitution; because a truly capitalist system rewards good decisions, punishes bad decisions and is for the good of the people not the state; because a small government with a balanced budget is the best way to ensure the rights of citizens and the value of its currency; and because militarism and imperialism are inherently immoral, wasteful, and historically have more often than not been one of the main causes of empire collapse.      


A Government Bailout that is No Joking Matter
September 6, 2008

Will Rogers once said, “I don't make jokes, I just watch the government and report the facts.”  Spoken in the 1920s, his words are still true today.  Indications out of Washington this week are that Uncle Sam is about to do something that if it weren’t so serious would be an absolutely hilarious joke.  Of course, I am referring to the planned taxpayer bailout of Fannie Mae and Freddie Mac.

First of all, in a related story, Federal Reserve Chairman Ben Bernanke should be investigated for perjuring himself before Congress.  In testimony given before the House Financial Services Committee on July 16 Bernanke confidently told members of Congress that the beleaguered mortgage giants Fannie Mae and Freddie Mac were in “no danger of failing”.  His testimony was instrumental in getting Congress to approve
Treasury Department and Federal Reserve proposals to make sweeping changes to the relationship between the two institutions and the government.  The changes included making funds available to the firms to ease the credit crunch and allowing the government to purchase shares of stock in both firms.  Just seven weeks later, news breaks that the government is moving in to take control of both institutions to save them from collapse.  With the data available to Bernanke, he either lied to Congress to get his way or he doesn’t know what he is doing. 

In any event, the point is that now the American taxpayer is going to be left holding the tab for these federal boondoggles.  The problem is that no one knows how big the tab is going to be?
Combined, both institutions own or have guaranteed $5.1 trillion in mortgage debt.  Perhaps Treasury Secretary Henry Paulson’s request to Congress in July for essentially a blank check to help Fannie and Freddie was prophetic?  Only time will tell.   

But, besides the direct cost of the bailout, greater dangers exist in two other areas.  The first is the harm it could do to the government’s credit rating.  What if the economy experiences a prolonged recession?  What kind of pressure will an unknown debt amount for Fannie and Freddie coupled with customary Keynesian spending put on the credit rating of the U.S. government?  In other words, how much longer will lenders be willing to loan us money in the future for debts that essentially have no end.  Secondly, the Fed always could and will print the money needed to pay the bills.  With current debt levels and future obligations (e.g. Medicare) projected to be in the trillions of dollars, how much money would have to be printed and how much inflation would result?

Of course, Washington believes that without Fannie and Freddie the mortgage market would be left with a deficiency of funds to conduct business hurting the ability of millions of Americans to own their own homes.  Therefore, the politicians are going to do whatever it takes to save them, apparently even if it means bankrupting the country.  In fact, it is because of Fannie and Freddie that we are in this mess in the first place.  They have interfered with the free market’s mechanism of sifting out unworthy borrowers by purchasing bad loans from smaller banks and guaranteeing them with taxpayer money.  Both firms knew all along that they would not have to suffer the consequences of their risky actions.  Ironic how the very institutions Washington wants to save in order to prevent a credit crunch in the mortgage market are the ones that caused the credit crunch in the mortgage market in the first place.  If Will Rogers were around today he could use that line in one of his monologues.

"A little rebellion now and then is a good thing." - Thomas Jefferson