In the present system, the more unrestricted the banks are, the more money they can generate “out of thin air,” and the more damage they can inflict upon the wealth-generation process. FULL ARTICLE by Frank Shostak
Does It Make Sense to Resurrect the Glass-Steagall Act?
A Growing List Of One Term Presidents, A Moral Question - Not A Political One, A Shareholder-Not Just a "Stakeholder", A State of Distress, A Time To Repent, AIG and all that....., Audit the auditors?, “the Greenspan doctrine”, Back to the basics, Bank Failures, Banks - Crisis Discussion, Collateral Damage, Consumption Ran the Old Economy, Coup d'etat in America, Figures don't lie but Liars can figure, Negative Cash Flow, No Bank Is Indispensable, Our phony middle class, PANDEMIC, Regulation - the Discussion, Regulatory Failures, The Consequences of Greed, The Democrats Blew It Again, The excellent adventures of Ben Bernanke, The Financial Elite, The Geithner Resignation Watch, The Importance of Strategic Planning, The Joy of Being A Bank
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Feb 202010
Sic transit America?
A Growing List Of One Term Presidents, A State of Distress, A Time To Repent, AIG and all that....., “the Greenspan doctrine”, Back to the basics, Collateral Damage, Coming Social Unrest, Commercial Real Estate Bust, Consumption Ran the Old Economy, Coup d'etat in America, Death of the Dollar, Deflation-Inflation-Stagflation, Devaluation, Dismal Science-Ignorant Scientists?, Even the Terminator Can't Help California, Federal Reserve-Discussion, Figures don't lie but Liars can figure, Integrity and Responsibility, Is The Market Rally Real?, It Is Nice To Be Part of the Elite!, It starts with a foundation, IT'S ALL ABOUT POWER AND MONEY, Monetary Policy - Discussion, Our phony middle class, Patience is a virtue...Delusion is a vice, Political Chaos, Politicians, Prostitutes and Pimps All Rhyme, Small Business-Bedrock of America, Sub-Prime anytime, TARP fruit loops, The Arrogance of Power, The Consequences of Greed, The Democrats Blew It Again, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Global Economy, The Habits of Hedge Funds, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, The New American Socialism, The Sorry State Of American Manufacturing, Time For A New Third Party, Truth In Charity, Unemployment Catastrophe, US Trade Imbalance, USA Is the New Japan, We Are All Cooked, We Are All Guilty, We Have Become Beggars To The World
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Jan 162010
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| Flagging: a US sailor stands on the flight deck of the aircraft carrier USS George Washington |
If a week is a long time in politics, a decade is starting to look like an age in geopolitics. Comparing the America that began the 21st century with the America of today is to witness a country that has in some ways quite radically altered its view of itself and its relationship to the world.
In short, the metallic rust of decline has crept into the American soul. “You could argue that the first decade of the 21st century was the last decade of the American century,” says David Rothkopf, a former Clinton administration official and student of US foreign policy. “We are now entering the multipolar century.”
Self-doubt tarnishes Brand America
Oct 242009
Strategerizing: Military intellectuals envision a 50-year “Long War” against al Qaeda consisting of counterinsurgency operations spanning Iraq, Afghanistan, Pakistan, the Horn of Africa, the Philippines and beyond, Tom Hayden discusses in The Nation. “Comparing al Qaeda in AfPak to al Qaeda in Iraq . . . illustrates both the pros and cons of building U.S. strategy in South Asia around a counterinsurgency campaign in Afghanistan,” Brian Fishman suggests in Foreign Policy. If Obama submits to Veep Joe Biden’s campaign to shift the focus from the Taliban in Afghanistan to al Qaeda in Pakistan, “as I suspect he will, is there any reason to think America won’t simply preside over the rebirth of al Qaeda? Probably not,” Thomas P.M. Barnett blogs for Esquire Magazine. “Al Qaeda is implementing its game plan in the South Asian war theater as a part of its broader campaign against American global hegemony that began with [9/11],” the organization’s “guerilla chief” tells Asia Times.
Washington Post Crashed-and-Burned-and-Smoking Watch: …[The Washington Posts's] Fred Hiatt this morning:
Re-Stimulating. Unemployment is bad. More fiscal debt might be worse: At 9.8 percent, the unemployment rate is higher than it has been since it hit 10.1 percent in June 1983. Since the recession began 21 months ago, the economy has shed nearly 7 million jobs. Whole industries — cars, housing, finance — have been devastated and may never recover fully. Nevertheless, White House economists reported in September that “employment is estimated to be between 600,000 and 1.1 million higher than it would otherwise have been” because of the Obama administration’s stimulus plan and other government policies, especially the Fed’s monetary expansion. While no one can prove or disprove that — much less apportion credit between fiscal and monetary policy — basic economics suggests that things might have been even worse if the government had done nothing…
It does not necessarily follow, however, that the economy needs more stimulus now. Government has managed to blunt the recession, but at a cost — a higher national debt burden, which future Americans must pay off by working harder and saving more than they otherwise would have…
Ummm…
So far the stimulus spendout has been some $160 billion. The midpoint estimate by Christy Romer and company is that GDP is now 1% higher than it would have been otherwise. That higher level of production and employment than we would have seen otherwise is going to lead to the collection of an extra $80 billion in tax revenues. That means that the net effect of the $160 billion we have pushed out the door has been to raise the national debt by $80 billion. The Treasury can now borrow through its TIPS program for 20 years at an interest rate of 2% plus inflation. That means that taxes in the future have to be higher by $1.6 billion per year–by $5 per person per year.
Thus the stimulus package so far:
- Incur an extra forward-looking tax burden per person of 1.3 cents per day…
- Get an extra 800,000 people productively at work–and get all the stuff they make and do–this year…
That looks like a very good deal: buying an extra productive job for an American today at a cost of $2000 per year in higher taxes looking forward–particularly when you think that some of those extra jobs build up our productive capacity to make us richer in the future as well.
The stimulus arithmetic suggests we should be doing more of it. The benefit-cost ratio at current stimulus spending levels is very good…
But nobody on Fred Hiatt’s staff realized this. For nobody on Fred Hiatt’s staff thinks that doing any arithmetic is part of their job description. Indeed, nobody on Fred Hiatt’s staff is capable of doing any arithmetic at all.
Goldman’s Pre-emptive Influence
Coup d'etat in America, Integrity and Responsibility, Is Goldman Sachs Evil?, It Is Nice To Be Part of the Elite!, IT'S ALL ABOUT POWER AND MONEY, Obama's Hypocrisy, Our phony middle class, Political Implications, Regulatory Failures, TARP fruit loops, The Arrogance of Power, The Democrats Blew It Again, The Financial Elite, The Geithner Resignation Watch, The Suffering Poor, Time For A New Third Party, Truth In Charity, Unemployment Catastrophe, Unindicted Co-Conspiritors, We Are All Cooked, We Are All Guilty, We Have Become Beggars To The World, Who Guarantees the Guarantor?-You Do!, Who owns Congress-Still!
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Oct 032009
An Inside Look at How Goldman Sachs Lobbies the Senate, by Matt Taibbi: …Later on this week I have a story coming out in Rolling Stone that looks at the history of the Bear Stearns and Lehman Brothers collapses. The story ends up being more about naked short-selling and the role it played in those incidents than I had originally planned…, but it turns out that there’s no way to talk about Bear and Lehman without going into the weeds of naked short-selling…
It’s the conspicuousness … that is the issue here, and the degree to which the SEC and the other financial regulators have proven themselves completely incapable of addressing the issue seriously, constantly giving in to the demands of the major banks to pare back (or shelf altogether) planned regulatory actions. There probably isn’t a better example of “regulatory capture” … than this issue.
In that vein, starting tomorrow, the SEC is holding a public “round table” on the naked short-selling issue. What’s interesting about this round table is that virtually none of the invited speakers represent shareholders or companies that might be targets of naked short-selling, or indeed any activists of any kind in favor of tougher rules against the practice. Instead, all of the invitees are either banks, financial firms, or companies that sell stuff to the first two groups.
In particular, there are very few panelists — in fact only one, from what I understand — who are in favor of a simple reform called “pre-borrowing.” Pre-borrowing is what it sounds like; it forces short-sellers to actually possess shares before they sell them.
It’s been proven to work, as last summer the SEC, concerned about predatory naked short-selling of big companies in the wake of the Bear Stearns wipeout, instituted a temporary pre-borrow requirement…
The lack of pre-borrow voices invited to this panel is analogous to the Max Baucus health care round table last spring, when no single-payer advocates were invited. So who will get to speak? Two guys from Goldman Sachs, plus reps from Citigroup, Citadel (a hedge fund that has done the occasional short sale, to put it gently), Credit Suisse, NYSE Euronext, and so on.
In advance of this panel and in advance of proposed changes to the financial regulatory system, these players have been stepping up their lobbying efforts… Goldman Sachs in particular has been making its presence felt.
Last Friday I got a call from a Senate staffer who said that Goldman had just been in his boss’s office, lobbying against restrictions on naked short-selling. The aide said Goldman had passed out a fact sheet about the issue that was so ridiculous that one of the other staffers immediately thought to send it to me. When I went to actually get the document, though, the aide had had a change of heart.
Which was weird, and I thought the matter had ended there. But the exact same situation then repeated itself with another congressional staffer, who then actually passed me Goldman’s fact sheet.
Now, the mere fact that two different congressional aides were so disgusted by Goldman’s performance that they both called me on the same day — and I don’t have a relationship with either of these people — tells you how nauseated they were.
I would later hear that Senate aides between themselves had discussed Goldman’s lobbying efforts and concluded that it was one of the most shameless performances they’d ever seen from any group of lobbyists, and that the “fact sheet” … was, to quote one person familiar with the situation, “disgraceful” and “hilarious.” …
Aug 122009
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.
srael has become one of the most important economies in the world, and is second only to the United States in its pioneering of technologies benefitting human life, prosperity, and peace.
Like the Jews throughout history, Israel poses a test to the world. In particular, it is a test for any people that lusts for the fruits of capitalism without submitting to capitalism’s imperious moral code. Because capitalism, like the biblical faith from which it largely arises, remorselessly condemns to darkness and death those who resent the achievements of others.
At the heart of anti-Semitism is resentment of Jewish achievement. Today that achievement is concentrated in Israel. Obscured by the usual media coverage of the “war-torn” Middle East, Israel has become one of the most important economies in the world, second only to the United States in its pioneering of technologies benefitting human life, prosperity, and peace.
But so it has always been. Israel, like the Jews throughout history, is hated not for her vices but her virtues. Israel is hated, as the United States is hated, because Israel is successful, because Israel is free, and because Israel is good.
As Maxim Gorky put it: “Whatever nonsense the anti-Semites may talk, they dislike the Jew only because he is obviously better, more adroit, and more capable of work than they are.” Whether driven by culture or genes—or like most behavior, an inextricable mix—the fact of Jewish genius is demonstrable. It can be gainsaid only by people who do not expect to be believed.
Charles Murray distilled the evidence in Commentary magazine in April 2007. The Jewish mean intelligence quotient is 110, ten points above the norm. This strikingly higher average intelligence, however, is not the decisive factor in overall Jewish achievement.
The three-tenths of 1 percent of the world population that is Jewish has contributed some 25 percent of notable human intellectual accomplishment in the modern period.
What matters in human accomplishment is not the average performance but the treatment of exceptional performance and the cultivation of genius. The commanding lesson of Jewish accomplishment is that genius trumps everything else. Whatever the cause of high IQ, as Murray explains, “the key indicator for predicting exceptional accomplishment (like winning a Nobel Prize) is the incidence of exceptional intelligence… The proportion of Jews with IQs of 140 or higher is somewhere around six times the proportion of everyone else” and rises at still higher IQs.
The great error of contemporary social thought is that poverty must result from “discrimination” or “exploitation.” Because Jews tend to be overrepresented at the pinnacles of excellence, a dogmatic belief that nature favors equal outcomes fosters hostility to capitalism and leads inexorably to anti-Semitism.
The socialists and anti-Semites have it backwards. Poverty needs little explanation. It has been the usual condition of nearly all human beings throughout all history. What is precious and in need of explanation and nurture is the special configuration of cultural and intellectual aptitudes and practices—the differences, the inequalities—that under some rare and miraculous conditions have produced wealth for the world. Inequality is the answer, not the problem.
Israel is hated, as the United States is hated, because Israel is successful, because Israel is free, and because Israel is good.
In his book Human Accomplishment Murray focused on the fact that the three-tenths of 1 percent of the world population that is Jewish has contributed some 25 percent of notable human intellectual accomplishment in the modern period. Murray cites the historical record:
In the first half of the twentieth century, despite pervasive and continuing social discrimination against Jews throughout the Western world, despite the retraction of legal rights, and despite the Holocaust, Jews won 14 percent of Nobel Prizes in literature, chemistry, physics, and medicine/physiology.
He then proceeds to more recent data:
In the second half of the twentieth century, when Nobel Prizes began to be awarded to people from all over the world, that figure [of Jews awarded Nobel Prizes] rose to 29 percent. So far in the twenty-first century, it has been 32 percent.
The achievements of modern science are heavily the expression of Jewish genius and ingenuity. If 26 percent of Nobel Prizes do not suffice to make the case, it is confirmed by 51 percent of Wolf Prizes in Physics, 28 percent of the Max Planck Medailles, 38 percent of the Dirac Medals, 37 percent of the Heineman Prizes for Mathematical Physics, and 53 percent of the Enrico Fermi Awards.
Jews are not only superior in abstruse intellectual pursuits, such as quantum physics and nuclear science, however. They are also heavily overrepresented among entrepreneurs of the technology businesses that lead and leaven the global economy. Social psychologist David McClelland, author of The Achieving Society, found that entrepreneurs are identified by a greater “need for achievement” than are other groups. “There is little doubt,” he concluded, explaining the disproportionate representation of Jews among entrepreneurs, that in the United States, “the average need for achievement among Jews is higher than for the general population.”
Because Jews tend to be overrepresented at the pinnacles of excellence, a dogmatic belief that nature favors equal outcomes fosters hostility to capitalism and leads inexorably to anti-Semitism.
“Need for achievement” alone, however, will not enable a person to start and run a successful technological company. That takes a combination of technological mastery, business prowess, and leadership skills that is not evenly distributed even among elite scientists and engineers. Edward B. Roberts of Massachusetts Institute of Technology’s Sloan School compared MIT graduates who launched new technological companies with a control group of graduates who pursued other careers. The largest factor in predicting an entrepreneurial career in technology was an entrepreneurial father. Controlling for this factor, he discovered that Jews were five times more likely to start technological enterprises than other MIT graduates.
For all its special features and extreme manifestations, anti-Semitism is a reflection of the hatred toward successful middlemen, entrepreneurs, shopkeepers, lenders, bankers, financiers, and other capitalists that is visible everywhere whenever an identifiable set of outsiders outperforms the rest of the population in the economy. This is true whether the offending excellence comes from the Kikuyu in Kenya; the Ibo and the Yoruba in Nigeria; the overseas Indians and whites in Uganda and Zimbabwe; the Lebanese in West Africa, South America, and around the world; the Parsis in India; the Indian Gujaratis in South and East Africa; the Armenians in the Ottoman Empire; and above all the more than 30 million overseas Chinese in Indonesia, Malaysia, and elsewhere in Southeast Asia.
Thomas Sowell of the Hoover Institution reports that in Indonesia the Chinese were 5 percent of the population, but they controlled 70 percent of private domestic capital and ran three-quarters of the nation’s top 200 businesses. Their economic dominance—and their repeated victimization in ghastly massacres—prompts Sowell to comment: “Although the overseas Chinese have long been known as the ‘Jews of Southeast Asia,’ perhaps Jews might more aptly be called the overseas Chinese of Europe.”
Judaism favors capitalist activity and provides a rigorous moral framework for it.
As Sowell writes, these “middlemen minorities,” their “wealth inexplicable, their superiority intolerable,” typically arouse hatred from competing intellectuals. “It is not usually the masses of the people who most resent the more productive people in their midst. More commonly, it is the intelligentsia, who may with sufficiently sustained effort spread their own resentments to others.”
Capitalism overthrows theories of zero-sum economics and dog-eat-cat survival of the fittest. Thus, as in the United States (outside the academic arena), anti-Semitism withers in wealthy capitalist countries. It waxes in socialist regimes where Jews may arouse resentment by their agility in finding economic niches among the interstices of bureaucracies, tax collections, political pork fests, and crony capitalism.
Socialist or feudal systems, particularly when oil-rich and politically controlled, favor a conspiratorial view of history and economics. Anti-Semitism is chiefly a zero-sum disease.
As Walter Lippmann eloquently explained in The Good Society, capitalism opened a vista of mutually enriching enterprise with the good fortune of others creating opportunities for all. The Golden Rule was transformed from an idealistic vision of heaven into a practical agenda. From Poor Richard’s Almanack to rich Andrew Carnegie’s autobiographical parables, all were rediscovering the edifying insights of the author of Proverbs.
Judaism, perhaps more than any other religion, favors capitalist activity and provides a rigorous moral framework for it. It is based on a monotheistic affirmation that God is good and will prevail through transcending envy and hatred and zero-sum fantasies. Judaism can be plausibly interpreted as affirming the possibilities of creativity and collaboration on the frontiers of a capitalist economy.
The incontestable facts of Jewish excellence constitute a universal test not only for anti-Semitism but also for liberty and the justice of the civil order. The success or failure of Jews in a given country is the best index of its freedoms. In any free society, Jews will tend to be represented disproportionately in the highest ranks of both its culture and its commerce. Americans should celebrate the triumphs of Jews on our shores as evidence of the superior freedoms of the U.S. economy and culture.
The real case for Israel is as the leader of human civilization, technological progress, and scientific advance.
In a dangerous world, faced with an array of perils, the Israel test asks whether the world can suppress envy and recognize its dependence on the outstanding performance of relatively few men and women. The world does not subsist on zero-sum legal niceties. It subsists on hard and possibly reversible accomplishments in technology, pharmacology, science, engineering, and enterprise. It thrives not on reallocating land and resources but on releasing human creativity in a way that exploits land and resources most productively. The survival of humanity depends on recognizing excellence wherever it appears and nurturing it until it prevails. It relies on a vanguard of visionary creators on the frontiers of knowledge and truth. It depends on passing the Israel test.
Israel is the pivot, the axis, the litmus, the trial. Are you for civilization or barbarism, life or death, wealth or envy? Are you an exponent of excellence and accomplishment or of a leveling creed of frenzy and hatred?
This essay is based on George Gilder’s new book, The Israel Test.
George Gilder is author of 15 books, including the best seller Wealth and Poverty. He is a contributing writer for Wired and Forbes magazines.
Why Israel’s Economy Is So Important – George Gilder, The American
Jul 092009
A few weeks back, at the dawn of the Obama Administration, I was at dinner with a very bright woman of middle years who called herself an independent. She found the new president very engaging, but she was alarmed by the music in the air: a government takeover of Detroit, a $700 billion government bailout of the banks, a $787 billion stimulus bill, a cap and trade bill that will add perhaps $800-$2,000 to every family’s tax bill, a massive healthcare reform now estimated to cost $1 trillion over the next decade. For the past thirty years, most of them good economic years, the federal bite into our GDP has been just under 20%. Calculating the cost of Obama’s spending it will be 28.1% this fiscal year, a peacetime record!
My dinner companion was alarmed. She was not simply alarmed by the bills our president and his Democratic colleagues were ringing up on the Hill. My friend, the independent, was alarmed by something much more important, the cost to our freedoms. As I believe she put it, “the question here is our liberty.” Increasingly, thoughtful Americans understand the Obama era in these terms. With the government suddenly looming so large in the life of every American, it is time for us to consider what is a singularly American possession, individual liberty. The Founding Fathers created a government that was uniquely solicitous about individual liberty. With the federal government so deeply involved in our healthcare, our banking, our manufacturing, and the many targets of its $787 billion stimulus program, it is time to think about your liberty vis-a-vis the government bureaucrats who are about to minister to you.
Ronald Reagan’s modern conservative movement began thinking about the loss of individual liberty to government encroachment half a century ago thanks in part to the wake up call from Friedrich Hayek, delivered in his indispensable book The Road to Serfdom. Hayek believed government was a threat to freedom, enterprise, and the rule of law. Later another vigilant advocate of personal liberty, Frank Meyer, came along and became a major figure for American conservatives, propounding the exhilarating argument that freedom is essential to mankind. Freedom, he wrote, is the “essence of [man's] being,” for without it a citizen cannot be moral, by which he meant cannot choose good over evil. Meyer believed freedom was at our essence because God put it there. God gave us freedom to choose, good over evil, art over schlock, a knee replacement over a Botox treatment.
Personal liberty makes each American citizen a creature of dignity. Obama overlooks this. Though in presenting Congress a $3.9 trillion budget on February 24 he insisted that “I’m not” for big government, he is. Consider the vastness of the budget, its far-reaching domestic policies, and much of his background as a community organizer. Clearly he is a big government guy. No other American president has been so committed to big government.
Historically most of our experiences with big government have been unhappy. Big government is expensive, inefficient, and once corrupted very difficult to clean up. Moreover, once a government bureaucracy has made its judgment on you, whom do you appeal to? With Obamacare, government will decide when and if you can get that knee replacement. From the clear utterances of the president’s healthcare advisers, namely, Drs. Ezekiel Emanuel and David Blumenthal, that knee replacement will depend on such factors as your age and your overall health. If you are too old or decrepit, government will have a more economical place to spend its money. In other words, your health will not be decided by what you want to pay for it but by government policy. That test you wanted for colon cancer might be denied. You might just be too old. Such decisions are made by the nationalized British system all the time.
Almost any service the government provides can be more efficiently and effectively provided by private enterprise. The most striking example is the inefficiency of the money-losing U.S. Postal Service that has been swept aside by the internet and by such private carriers as UPS and FedEx. Government is not even very effective in its efforts at regulation. Consider the recent failures of Fannie Mae and Freddie Mac and at the Securities and Exchange Commission.
There is another unappreciated failing of government. It politicizes everything that it touches, including the simplest human relations. Agreements that ought to be arrived at voluntarily or through the rule of law are arrived at by lobbyists or thanks to the political power of your group — ethnic, economic, or otherwise.
One of the little noted projects of the government healthcare reforms being considered on Capitol Hill today is the channeling of healthcare money away from the elderly and toward community services and drug or alcohol rehabilitation. Equal rights before the law is all well and good, but it is political favor and political power that matter when big government is making your decisions for you.
That is why so many Americans have opted for freedom from government. We recognize that the free society is the most humane…and the most productive.
Obama is Costing Us More than Money – Emmett Tyrell, American Spectator
Jul 072009
President Obama’s visit to Moscow this week may turn out to be a very good thing. Forget all this jibber-jabber about nuclear disarmament.
There is no better reminder than the former Soviet Union for how the fantasies of a few collectivist zealots can turn into unending nightmares for its people — and for how a state-run economy ends up with no economy at all.
If we’re lucky, a little Russian history on this trip will turn into a welcome wake-up call for Mr. Obama.
It’s not that Mr. Obama is some radical who carries a warm nostalgia for the Soviet Union from his university days. He’s way too young and too smart for that.
But the president believes in the state, certainly more than any other recent American president. He believes the state must actively intervene in the economy and that the state can bring about a better future. And it seems he believes it is his destiny to lead the state to that future.
In that way — and others — Obama reminds me of Vladimir Lenin, the founder of the Soviet state.
CNBC’s Jim Cramer made the Obama-Lenin comparison back in February. And the more I’ve thought about it, the more it holds.
Associated Press
A painting made during the Russian Revolution, showing Vladimir Lenin surrounded by revolutionaries, date unknown.
Of course, Obama is a reformer, not a revolutionary. And he’s certainly no communist.
But just like Lenin, Obama is a supremely self-confident leader — an intellectual heavyweight and a clever political tactician — an elitist moralizer and a populist champion. And just like Lenin, Obama carries the true-believers’ righteous fervor for “change.”
I was thinking of Lenin as I watched the president’s Rose Garden remarks on energy and innovation last Thursday.
After his eight minutes in front of the teleprompter, the president turned to walk away, and a reporter blurted out a question, “Mr. President, do you have a message for the small businesses on health and economy?”
The president should have just walked away. But it was as if he couldn’t stop himself as he launched into a rambling, haughty answer that I found…well, a bit scary.
It was scary because it demonstrated that Mr. Obama — almost half a year in office — still has no grasp of the everyday realities faced by America’s small businessmen. They can’t make payroll, but the president is directing them to buy LED lightbulbs and urging them to contact “clean energy” CEOs.
And it was scary because it showed that the president is still possessed by an unshakable conviction in the power of the state over the individual and of the future over the past.
As he put it in the Rose Garden, we have to change the health-care system. We have to change how we use energy. We have to change how we “train our young people.” “We are not folks who are scared of the future or look backwards. We always meet the challenges by moving forward.”
Political clichés? Of course.
But the president seems to actually believe his clichés. And some of his Rose Garden remarks could have been lifted from Lenin’s speeches circa 1918 – the same hectoring tone and the same mockery of opponents who long for the “status quo”.
Even Mr. Obama’s call to move “forward.” “Forward!” in fact was one of the Soviets’ favorite slogans.
The good news for those of us who are a little freaked out by Mr. Obama is that even Lenin did an about-face after the utter failure of his initial hard-left economic policies.
By early 1921, faced with the ruin and famine wrought by nationalization of the economy, the Bolsheviks re-instituted a quasi-capitalist economy with its New Economic Policy. Ironically, the NEP was aimed to help small businessmen — the very same people that the Obama economy so desperately needs nowadays.
Lenin called the NEP taking “one step backward to take two steps forward.” While he’s in Moscow, President Obama may want to ask someone at the Kremlin, just what Lenin meant by that.
Editor’s Note: Mr. Newmark was a student in Moscow in 1984, worked with George Soros on Russian economic reform in 1988-89 and ran the Goldman Sachs Moscow office from 1992-1994.
Why Barack Obama Is Like Vladimir Lenin – Evan Newmark, Deal Journal
Jun 172009
COMMENTARY:
The threat of politicization hangs over the Federal Reserve Board like the Sword of Damocles. It’s Capitol Hill’s response to the Fed’s proliferation of new programs to unglue credit markets. The Fed’s innovations threaten to create enough acronyms to tax the limits of the alphabet.
Rep. Barney Frank, Massachusetts Democrat and chairman of the House Financial Services Committee, which oversees the Federal Reserve, has warned, “There is a problem with too much power going to an entity that is not subject to democratic powers.” The Fed should be “accountable to voters.”
Rep. Ron Paul, Texas Republican, has authored a Fed transparency bill calling for Fed audits. The bill has more than 200 co-sponsors, and the number is rising daily. It’s just a “first step,” Mr. Paul says.
Sen. Christopher J. Dodd, Connecticut Democrat and chairman of the Senate Banking Committee, which shares oversight responsibilities for the Federal Reserve System, also wants more Fed transparency as well as an evaluation and closer scrutiny of regional Federal Reserve banks.
Questions have been raised about the location of the regional banks and whether they should be more evenly distributed around the country and whether Senate confirmation should be required of Federal Reserve Bank presidents. Some in Congress are angry because the Fed won’t name the companies participating in its programs. And if the Fed gets new regulatory powers over the financial economy, that will inspire yet more attacks on its independence.
Some observers say the Fed already has slipped over the edge politically. The innuendo in German Chancellor Angela Merkel’s recent remarks was telling when she said, “We must return together to an independent central-bank policy.”
The Fed’s political conundrum has become deadly serious, and the stakes are high. Fed Chairman Ben S. Bernanke knew the risks when he and his colleagues on the Federal Open Market Committee (FOMC) embarked upon a bold new scheme to unlock credit flows, but they believed the risks were unavoidable. Financial markets were frozen, the economy was in deep trouble, and the Fed policymakers became convinced that bold new programs were essential to provide liquidity and stimulate economic growth.
Almost overnight, the macroeconomic Fed became the microeconomic manager, involving itself in the destinies of individual businesses, such as Bear Stearns Cos. Inc., Merrill Lynch & Co. Inc., American International Group Inc. and Citigroup Inc. Did the Fed go too far? Some analysts say yes and argue that at least part of the Fed’s cleanup work could have been handled by the Treasury Department.
There’s no question: Politicization of our nation’s central bank will seriously damage the effectiveness of monetary policy, the very heart and soul of the Fed’s mission.
Members of Congress and presidents are elected for relatively short terms and thus have short time horizons, but Fed policy of necessity is also based on long-term trends and goals. Imagine what would happen if greater political control over the Fed led to suspicions that the central bank was being prodded to push up inflation to cheapen the dollar in order to ease an unsustainable rise in the federal debt. Suspicion that the debt was being monetized because of political pressures would trigger a flight from the dollar and a sharp loss in its value, among other negative outcomes. The fallout would be disastrous.
Mr. Bernanke has clearly said the Fed will not monetize the debt. That’s believable as long as he remains Fed chairman. But his very declaration may have provoked some in Congress to step up their campaign to limit the Fed’s discretion and independence.
From what is not being said, one senses the Obama administration understands the risks of Fed politicization, or even its appearance, and will stay clear of making inroads into the Fed’s authority. Indeed, the questions being asked about the motives of legislators seeking to constrain the Fed and where it might lead are raising a specter that, ironically, puts pressure on the president to reappoint Mr. Bernanke – the image of independence – as chairman when his term expires in January.
Confidence in the future is a great asset that adds strength to the argument that the Fed should adopt a policy of explicit inflation targeting, which Mr. Bernanke favors. In addition to its economic merits, long-term targeting would be self-protecting.
Honest arithmetic tells us expected economic growth in the next decade will be insufficient to bring projected ratios of debt to gross domestic product down to acceptable levels, so taxes will have to be raised and entitlement programs cut back. Taxes alone can’t be raised enough to reduce the debt ratio without doing serious injury to the economy. Members of Congress know this. Thus, a partial backdoor solution, via the hidden tax of higher inflation – if it could be blamed on the Fed – might seem to them an attractive choice.
How the Fed fares in the months and years ahead will depend very much on whether its new programs and policies prove effective. If they help save the day, there’s a good chance the Fed’s independence will remain intact. Let’s hope so.
Alfred Tella is former Georgetown University research professor of economics.
Politics and the Federal Reserve – Alfred Tella, Washington Times
Jun 112009
President Obama has officially begun the era of bigger big government by proposing to go on a multitrillion dollar borrowing spree that risks doing to the “full faith and credit of the United States” what excessive borrowing during the housing bubble did to private credit.
Under his budget plan for America’s future, spending will average 23.7% of GDP for at least a decade (a whopping 20% higher than in 2000-08).
Near-record deficits increasing at record rates will push the public debt of the U.S. beyond the economy’s plausible capacity to pay — 70% of GDP by 2012, heading quickly to 82% of GDP in 2019 and on pace to be astronomically higher soon thereafter.
The Avalanche
American families over the last year have already lost 8% of their net worth — in part as a result of inept government meddling, past and present. For many of the same reasons, they are also buried under a mountain of mortgages and private-sector debts gone bad. On top of that, if the president has his way, they will soon be hit with more than a 100% increase in public debt (from $8 trillion this year to $17.3 trillion in 2019).
Furthermore, the Treasury (and taxpayers) will soon have to begin repaying to Social Security more than $5 trillion in payroll tax revenues that the government had taken from the trust fund and spent for earmarks and other purposes.
Even without the Obama surge in debt — and taxes to pay it off — taxpayers face the prospect of 60% to 70% income-tax rates in the future to pay for $48 trillion in unfunded liabilities under existing entitlement programs. Now the president plans to burden the economy’s limited taxpaying capacity with a universal health care entitlement.
Foreigners purchased two-thirds of the Treasury debt sold during 2004-08 — and now own 50% of U.S. public debt.
Scholars at the Peterson Institute for International Economics warn that the “net foreign debt” position of the U.S. is becoming unsustainable.
Even if the bond rating of Treasury obligations is not formally downgraded for risk, foreign investors may start to resist buying more U.S. debt and, if the situation gets worse, may start withdrawing from the U.S. economy the trillions of dollars of capital they have already lent us. Then what?
The current level of private saving in the U.S. is grossly insufficient to make up the shortfall. In fact, Washington is doing nearly everything possible to prevent Americans from adding to their savings.
In theory, the U.S. government can always pay its debts by increasing taxes, but the problem with taxes — and ultimately with big-spending government — is that tax increases harm the economy disproportionately and quickly reduce the economy’s taxpaying capacity.
Before she became the chairman of the president’s Council of Economic Advisors, Christina Romer demonstrated in a research paper prepared for the National Science Foundation in 2007 that it costs the private-sector economy $4 ($1 of tax and nearly $3 of economic damage) to provide the government with $1 to spend.
In a research paper published by the National Bureau of Economic Research in 2006, former CEA Chairman Martin Feldstein concluded that the private-sector cost of an additional dollar of income-tax revenues for the government is $2.50 ($1 of tax and $1.50 of economic damage).
Paying off Obama’s 10-year string of deficits that add up to $9.3 trillion with income tax increases of $9.3 trillion over 10 years would cost the private sector $23 trillion (Feldstein) to $37 trillion (Romer).
In effect, American families would over time lose an amount greater than an entire year of GDP — a blow far more severe than the damage being done to them by the current recession.
Dubious Direction
It is irresponsible stewardship for Obama and Congress to go on a borrowing spree that puts America in the same unsustainable position as an overstretched boomer with too much debt and too little income and whose only option is to refinance at higher costs just to pay the interest.
The responsible alternative is for Washington to spend less — a lot less. Otherwise, the next Washington-created bubble to burst may be the full faith and credit of the United States.
Christian and Robbins are, respectively, the executive director and the chief economist of the Center for Strategic Tax Reform (cstr.org) in Washington, D.C.
Obama’s Plan For a Debt-Ridden Future – E. Christian & G. Robbins, IBD
Public Trust has Economic Consequences