The Debt Dilemma Is Only a Symptom of the Real Problem

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Rep. Ron Paul (R-Texas)

Why do politicians believe they can finance anything they may choose to, welfare, war, or whatever may come to mind, regardless of the cost? The availability of easy money created out of thin air is just too tempting, and the power associated with the ability to create money this way is also too tempting, for those in power to resist for long. Thus we have the Federal Reserve masterminding all sorts of crony-benefiting bailouts, highly secret deals with foreign central banks, and deluding the public (and themselves?) that they are providing a valuable service to the public, when in fact they are mainly protecting powerful banks, corporations, and politicians.

Therefore, we experience constant inflation, prolonged booms and busts, and illusions of prosperity, resulting in bad investments, minimal savings, and the transfer of wealth from the poor and middle classes to the wealthy. Ron Paul’s excellent book End the Fed [1] describes and documents these phenomena plainly and convincingly. As Paul points out, there is a growing movement to transition away from the Federal Reserve and their power to create money and control interest rates.

A degree of secrecy far more than found in any government agency prevails at the Fed, and no one breaks their barrier or forces any transparency. Congress has the authority to control the Fed, but up to now, little will to do so. There are several aspects which Ron Paul and others have noted about the disadvantages and dangers of the Fed, showing that their (the Fed's) work creates tremendous danger to the country. The Fed was the main factor in causing the Great Depression, which the Federal Government wasted no time in prolonging and deepening through bad, and often ridiculous, economic policies. The Fed is also the main culprit behind today’s economic crisis, which is being made far worse by the economic policies of the Obama Administration.

Austrian School economists predicted the housing bust and described the dangers of the Fed’s actions:

As adherents to Austrian economics know, the Federal Reserve-induced economic boom must turn to bust. People who have lived high, yet have truly earned nothing, will not fare well in the coming bust. Such cash-strapped and indebted families will head toward financial collapse and thus will turn to the state for welfare and credit relief. As to welfare, parent and child become virtual wards of the state….

The loan markets are profoundly distorted due to the nature of fiat money machinations. Because of this intervention, lending is now dramatically different. It is no longer necessary to know your borrowers. The bank – sustained by its cat-and-mouse scheme of fractional-reserve banking — has a huge incentive to fund the loan, and then sell the loan off to intermediaries who package the loans into mortgage-backed securities. In turn, this toxic junk is sold to mutual funds, insurance companies and other institutions starved for yield. The debt-o-rama grabs hold, and as for the borrowers, there is no longer a fear of debt….

Is it possible that the two-thousandaire is merely a precursor to the "new man" (a pliant, unthinking being) Mao and Lenin attempted to socially engineer via central planning? It would seem that the communists had it backwards thinking that banning money was integral to transforming mankind. For it certainly appears that easy money and credit do the trick in eroding the human spirit, morality, and basic decency, along with intellectual and financial independence. [2]

Constant Inflation

The monetarists argue that a top-down central bank guarantees monetary stability. Well, sure if your definition of stability is a grinding erosion of value through incessant inflation: today's dollar is worth $0.19 in 1971 dollars (the year the United States officially dropped any pretense of abiding by a gold standard) and worth only a nickel in 1913 dollars (the year the Federal Reserve was voted into existence). [3]

Moral Hazard
As has frequently been pointed out, numerous large bailouts have brought attention to moral hazard, that is, knowing that if a bank or company is considered “too big to fail,” it will be bailed out if it gets into trouble; therefore their management will likely be less cautious and willing to take more risks than would otherwise be the case. The other moral hazard, or more properly, moral failure, is that a monopoly on money, along with the unlimited power to create it at will, must lead to abuse and serious economic trouble and finally, collapse.

Political Connections
While the Fed is often thought of as non-political, it has usually tried to help the incumbent president politically. Ben Bernanke risked criticism by supporting (concocting?) President Barack Obama’s (and Treasury Secretary Timothy Geithner’s) politically unpopular auto bailouts and the Bush TARP bailouts which Obama also supported.

Tom Dilorenzo gives another example in this paragraph from a 2000 article:

As long as [President Bill] Clinton was fearful of impeachment, [Fed Chairman Alan] Greenspan kept the monetary spigots wide open, even while voicing "concern" about an "irrationally exuberant" economy. With Clinton out of the woods and the presidential race in full swing, Greenspan is attempting to reverse the irreversible economic forces that he set in motion over the past two and a half years. [4]

There is no easy answer to the current crisis. Even after something passes and everyone breathes a sigh of relief, we will still have this enormous debt and the longer-term problem unsolved. The conservative consensus, which I have supported, is that the Republicans must avoid caving to the Democrats in this situation, which, I think, could be politically damaging to the GOP. But if politics would allow it, Ron Paul offers, perhaps, the best approach, and that involves not paying the debt of the U.S. to the Fed (via Tulsa Change):



Over the years, the Fed has forestalled quick recoveries by preventing the corrections from taking place at times when the least amount of damage could have been sustained. Eliminating the Fed would put a lot of currency and economic troubles behind us, and ultimately lead to increased personal liberty and national prosperity.


[1] Ron Paul, End the Fed, New York: Grand Central Publishing, 2009. This is important reading for anyone interested in the U.S. economy and the Federal Reserve. I highly recommend it.

[2] Karen De Coster and Eric Englund, “Will the Federal Reserve Create the New Socialist Man?” 06/26/2006, Mises.org.


[3] Stephen Mauzy, “Don’t Blame the Federal Reserve,” 12/15/2009, Mises.org.


[4] Tom Dilorenzo, “The Federal Reserve and Political Corruption,” May 2000, Mises.org.

Related articles

• The Morality of Gold (lewrockwell.com)
• Debt Ceiling Debate Bolsters Ron Paul and the Gold Standard (usnews.com)
• Ron Paul: Default Now, Or Suffer A More Expensive Crisis Later. Start by canceling out the debt held by the Federal Reserve. (politicalmetals.com)

Time for a Tea Party: the most fiscally irresponsible President in history blasts Congress, saying it 'should be responsible and do its job'

Time for a Tea Party: the most fiscally irresponsible President in history blasts Congress, saying it 'should be responsible and do its job'
(Link to Doug Ross @ Journal, showing the arrogance and incompetence of the regime)

Krauthammer On Target about 2012 Budget Cuts; Will Obama Allow Default?

U.S. Treasury Dept. building (Dreamstime.com)

Where are we on the debt-ceiling negotiations? Do we need to raise the debt ceiling? What if there is a default? Will the military get paid? Will Social Security and disability checks, and veterans’ benefit checks go out?

We are faced with a weird combination of actual danger and fear mongering. There are some facts to be considered when following the “negotiations,” which increasingly look like a stalemated process, but which, as August 2 nears, are likely to end in some kind of agreement to raise the debt ceiling. Conservatives can only hope that the GOP leaders can manage to assert their House majority power and hold firm on (1) real cuts and (2) no tax increases.

One way of addressing this is the “cut, cap and balance” legislation the House Republicans are uniting behind. It addresses the issues of the day and offers a mechanism to bring spending under control for the longer term.

I think GOP should consider the advice of Charles Krauthammer, and require substantial cuts in the 2012 fiscal year. The president wants everything to happen after the 2012 elections, giving him an election-year pass on these issues. Also, Mr. Krauthammer suggests, wisely, I think, that the GOP should point out the president’s way of framing all his arguments, that only he is the one trying to resolve the issue, while his opponents are only seeking to help billionaires and special interests, and further their own political interests. If the president is so serious about budget cuts, where was he in the last two years? Along with the congressional Democrats, who presented no budget at all, he was very busy not presenting a budget that might cut spending, knowing full well that a serious, extended agreement on the debt ceiling was needed. Now, he’s suddenly the hero of the hour?


Social Security checks’ status in the event of default represents a curious issue. Mr. Obama, cynically using seniors’ and veterans’ checks as a bargaining chip in the negotiations, says August checks may not go out if default happens. This contradicts his Office of Management and Budget Director’s statement that the Social Security Trust Fund is solvent through 2037, so no discussion is needed. However, this is untrue. As pointed out, again by Charles Krauthammer, as well as others (Gary North, for example), the Social Security Trust Fund has no tangible assets. It has been raided and spent by the politicians for decades. What it has are non-negotiable government bonds (IOU’s). It’s not only not solvent through 2037, it’s barely, if at all, solvent now.

In fact, the big three programs, Social Security, Medicare, and Medicaid, are a ticking financial time bomb, representing unfunded obligations of tens of trillions of dollars. Yet the Democrats have no desire to deal with this.

It has been said that military and Social Security checks, etc. for August will go out unless either President Obama or Treasury Secretary Timothy Geithner issues orders to stop them. If there is any real possibility of them not going out, then the Administration needs to get its priorities in order. And they ought to apologize for lying to us about the solvency of the Social Security Trust Fund. Rep. Allen West views Obama’s threat as “sad, pathetic, and fear mongering” (video via CNS News):



Of course there are other consequences if default happens: Markets will respond negatively, America’s creditors may be ready to cash in, etc. The world’s safest investments, U.S. Treasury bonds, may be seen as not so safe after all. Anyway, a default would be bad. How bad, we’ll have to wait and see, if it happens.

A few points to remember:

1. Even though G. W. Bush over-spent, his deficits pale in comparison to what the Obama regime has added to our debt.


2. Obama has never been serious, and is not now serious about spending cuts. He still wants a trillion-dollar tax increase (in addition to what we’re scheduled to get under Obamacare). He wants any spending cuts that are agreed to, to happen in the out years, well past election day.


3. He constantly says the Republicans are only interested in political posturing, when what they are trying to do is the thing they were elected to do. Obama is the one who wants smooth sailing into the 2012 elections. He wants to blame the GOP for anything that goes wrong, and he steadfastly refuses to show actual leadership on anything to do with the debt or budget. He threatens to veto “cut, cap and balance” if the Congress passes it. His strategy is to stir up class warfare.


4. As has been pointed out numerous times, even if Obama could take all the money from all the rich, it wouldn’t even begin to solve the problem.

If “cut, cap, and balance” somehow passes both houses of Congress and lands on Obama’s desk, the GOP should not offer any further deals. In fact, they shouldn’t anyway. Let Obama deal with the default. It will be his choice. Sen. Mitch McConnell is right about one thing: these problems cannot be adequately dealt with while Obama is still in office. But Republicans need to stand strong if they are serious about spending cuts. Otherwise, it’s just more of the same tax-and-spend and the Republicans will be weakened as a result of caving.

Related articles

• Social Security benefits, the trust fund and why the federal budget and deficit matter (quinnscommentary.com)
• Obama officially threatens to veto 'Cut, Cap and Balance' (thehill.com)
• Call Obama's bluff? YES! (thedaleygator.wordpress.com)

Unemployment Up! What a Surprise! But Why Is It Surprising?

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Economists were reportedly taken by surprise when the June unemployment figures showed 9.2 per cent unemployment, with only 18,000 jobs added. May’s figures were revised downward from 54,000 jobs added to only 25,000. Bureau of Labor Statistics figures show 14.1 million people unemployed, including 6.3 million unemployed for 27 weeks or more, and 982,000 discouraged workers among 2.7 million “marginally attached” to the labor force, people who wanted and were available for work, but not counted as unemployed because they had not looked for work in the 4 weeks preceding the BLS survey. Another 8.6 million were working part time when they would prefer to work full-time.


For an article on comparatively rosy expectations, see this.


The New York Times reports as follows:

Economists were stunned. They had been expecting job growth to strengthen in June as oil prices eased and supply disruptions caused by the Japanese tsunami and earthquake receded. Instead, the government’s monthly snapshot of the labor market showed that several industries, including construction, finance and temporary services, shrank. At the same time, leading indicators like wages and the length of the average workweek, which tend to grow before employers begin adding more jobs, actually contracted. [1]

Of course, these days, analysts always seem surprised at unfavorable economic news, perhaps still waiting for good results from Obama’s “stimulus,” and when the results don’t come, some complain that it’s because the stimulus was too small. Anyway, they don’t want us to cut spending any time soon.

The reasons for the unfavorable unemployment picture and its continuation are not that difficult to understand. The Heritage Foundation’s Morning Bell blog article of July 8 sums it pretty well. Mike Brownfield explains that in order to keep up with population growth, 100,000 to 125,000 new jobs are needed each month. Also, he quotes Rep. Paul Ryan and comments as follows:

“Investors and businesses make decisions on a forward-looking basis. They know that today’s large debt levels are simply tomorrow’s tax hikes, interest rate increases, or inflation – and they act accordingly.” [– Ryan]

It is this “debt overhang,” and the President’s threatened tax hikes, Obamacare, his incessant meddling in business (whether through the EPA or the NLRB) and the uncertainty those actions generate that are weighing on U.S. growth, investment and job creation today. [2]

The article contains some interesting insights, and I recommend reading the whole piece.

At best, business is risky, and when government adds threats of higher taxes, publishes new and invasive, costly regulations, and takes on ever-increasing debt, these things add to the already substantial market risks and can hardly help but slow things down. Everything we buy has been produced and sold by businesses, who have seen to it that we have stores (or website warehouses) filled with merchandise. Merchants are trying to put on the market the things that people want, in spite of all government’s efforts to stop innovation, competition, and profitability, and punish success. We should appreciate the fact that in order to have job growth, there must be profits and expansion. For some good information on the nature of business, see this.


The result of Obama’s economic activities will be to further slow or reverse economic growth unless serious changes are made. The Administration shows no inclination toward a pro-growth approach, but instead wants more spending and more taxes.


[1] Motoko Rich, “Job Growth Falters Badly, Clouding Hope for Recovery,” 07/08/2011, The New York Times.


[2] Mike Brownfield, “Morning Bell: An Economy in Panic,” 07/08/2011, The Foundry blog at The Heritage Foundation.

Related articles

• Job Growth Dismal, Unemployment Hits 9.2 Percent in June (usnews.com)
• More Than 25 Million Americans Are Unemployed Or Can't Find Full Time Work (npr.org)
• The Great Jobs Drought (growthology.org)

RINO Alert: Jon Huntsman

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Ambassador Jon Huntsman, official portrait

Is Republican-in-Name-Only Jon Huntsman serious about the GOP presidential nomination? He seems to be following in the footsteps of John McCain. The media likes him because he criticizes Republicans, agrees with Obama on major issues, and tries to project “civility.” He, like McCain, will be reluctant to criticize the president, whom he considers a “remarkable leader.”

Most conservatives consider Obama a poor leader, if a leader at all. His own staff member said his strategy is to “lead from behind.” That’s leadership? No, that’s why we have confused policies on Afghanistan, Libya, energy, the budget, and many other things.

Also, the policies Mr. Obama has supported have made our country worse, not better. So Republicans have every right and even obligation to criticize the president sternly and often over his policies, and to emphasize the contrast between their views and his.

Civility
“Civility” means that Republicans are supposed to politely accept what the White House and congressional Democrats are selling. Maybe a few questions would be allowed if they are sufficiently deferential. If nominated, Mr. Huntsman would basically be the second coming of John McCain, and would get about as far in the general election as McCain did.

Conservatives who actually want a conservative president would be well advised to support someone who articulates a conservative viewpoint and is willing to boldly criticize the president and his administration. There are so many areas where this is needed, it might be impossible to get to them all in during the campaign, but there should be a focus on some of the main issues: spending, defense, the free market, low taxes, and the number one item: jobs.

Cap and Trade
Mr. Huntsman has enthusiastically supported cap and trade. Not so much today:

Republican White House hopeful Jon Huntsman has found a way to explain his embrace of cap-and-trade when he was governor of Utah: Everyone was doing it. [1]

Huntsman seems to think that the economy won’t allow that approach at this time, but it seems clear that he has no fundamental philosophical problem with it.

The Economy
Another concern about Huntsman: He was apparently right in step with Administration economic policy while serving as Ambassador to China, according to David Axelrod, Obama’s chief advisor:

A senior strategist to the president's reelection campaign, Axelrod said in an interview aired Sunday on CNN's “State of the Union” that Huntsman's recent criticism of Obama's “failed” economic policy is “in conflict with what he communicated to us in 2009.” [2]

Health Care

“He was encouraging on health care. He was encouraging on the whole range of issues,” Axelrod said. [3]

Etc.
Steve Benen at a Washington Monthly political blog summarizes Huntsman the candidate thusly:

So, what are we left with? A Republican presidential candidate who believes health care is a right, supported an individual health care mandate, wanted a bigger stimulus in 2009 with fewer tax cuts, expressed support for the Affordable Care Act, wanted to combat climate change with either a carbon tax or a cap-and-trade system, and has endorsed civil unions, TARP, and a pathway to citizenship for immigrants who entered the country illegally. [4]

Oh, and Jimmy Carter likes him. What more could he want?

Huntsman resists being called a “conservative” (actually, for good reason), preferring instead to be thought of as a pragmatic problem-solver. But if pragmatism is really his core philosophy, that leaves much to be desired in terms of principle. It indicates more opportunism than principled leadership. Huntsman is simply in the wrong party. If conservatives support him, there remains little reason why the GOP and the Democratic Party don’t just merge into one big socialist entity.

Fortunately, the GOP has several good candidates that are not in the RINO category.


[1] Ben Geman, “Huntsman on past cap-and-trade support: Everyone was doing it,” 06/22/2011, The Hill.


[2] Andy Barr, “Axelrod: Huntsman’s views on economy changed,” 06/19/2011, Politico.


[3] Ibid.

[4] Steve Benen, “Calling Out a RINO,” 05/26/2011, Washington Monthly.

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• No Huntsman Here! (murraymsilveresq.wordpress.com)

The Endangered Rule of Law

Image via WikipediaGovernments at all levels routinely violate the principles of the rule of law. The concept of the rule of law is supposed to protect citizens’ equality before the law, but this equality is not too often held in high regard by government, and especially not by the federal government as we have it today.

The clearest examples of violations of the principles of the rule of law come in the form of various kinds of crony capitalism. The government interferes with individuals’ rights, and the free market, by granting some special privilege to some favored group at the expense of other citizens. This is done through various kinds of corporate welfare, including bailouts, monopolies, tax incentives, subsides, etc.

Today we have liberals calling for the abolition of special tax breaks for oil companies, which, in fact have minimal percentage effect on oil companies’ profits. I agree that they are not needed. However, the same liberals in government want to subsidize alternative energy development at taxpayer expense. Alternative energy sources should be developed in the free market, and if they can be made profitable, entrepreneurs and investors will reap the appropriate rewards for their own efforts, not from the confiscation of money from taxpayers.

Similarly, mandates and subsidies for ethanol are also unjust, as are agricultural subsidies and government control of industry in general. Also, the principles of the rule of law are violated when government enforces advantages for unions beyond what the free market would permit.

These things have been happening for generations. In my home city of Fort Worth, the city currently has a huge debt of unfunded pension obligations, and is having to cut various services to try to balance the budget. Yet not long ago, the city invested substantially in the construction of a new downtown hotel, and various private commercial projects. It seems inappropriate that the city can’t maintain public swimming pools and recreation centers that have operated for decades, but they seem to have the means to invest in “private” business, even to the point of being on the hook should these businesses not succeed.

But perhaps the big prize for present-day destruction of the rule of law should go to the Obama Administration and Congress for such things as Obamacare exemptions that were granted in exchange for support during the legislative process, and now that the law has been passed, waivers from the law, notably to entities in Rep. Nancy Pelosi’s congressional district. It helps to be politically connected.

The rule of law is a casualty of attacks on the free market through government interference. Some so-called “capitalist” executives have no problem with trying to persuade government to side with them against their competitors or even their customers. Whatever material gain they can get through government (as opposed to competition) is quite acceptable. This is the true robber baron mentality. Government participation happens through, if not direct bribery, then some kind of political help or support, or else a reward for past political support. What else could explain the bizarre lawsuit against Boeing over their plans to build airplanes in South Carolina, for example? Could it be a matter of rewarding unions and thus appealing to part of the liberal base?

In a free market, the market, not government, picks winners and losers. There are no bailouts, and entrepreneurs are willing to take a risk because they believe that have a product or service that can compete in the market on its merits, not on some central-planning bureaucrat’s idea of what needs to be offered. If the entrepreneur fails, this provides a lesson to others to avoid the same mistakes. This is fairly simple. It certainly is not rocket science.

The rule of law suffers and eventually dies when government tries too often and too forcefully to step outside its proper functions and take control of things it shouldn’t. Barack Obama didn’t invent this. But he is one of the worst offenders. When the rule of law is replaced by the arbitrary decrees of the ruling elite, it is difficult to restore, and it places citizens in danger of great financial loss, abusive punishment for political purposes, and tyrannical rule. When the government lacks accountability to the law, the result is a lawless government. In some respects, we’re already there.

Fear Not, GOP, You Have the Initiative on the Budget

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President Barack Obama, after dissing Israel and Prime Minister Netanyahu, only to put himself in the position of receiving a stern and well-deserved lecture from said prime minister, is spending time traveling and seemingly trying to ignore the national debt and deficits.

It is to be hoped that Republican congressional leaders will stand firm on the idea of serious budget cuts, but this is far from certain. The best way forward, in my view, is to unite behind the Paul Ryan plan and not accept anything else, other than minor (and I mean minor) tweaking. This will require more political courage than some have seemed willing to show. And the Democrats are feverishly working to advance their weak position. Can the GOP rise to the challenge?

First, of course, the Democrats are already attacking the Medicare provisions of Ryan’s plan. Never mind that these provisions fall into the out years and won’t affect anyone who is now over 55 years of age. Even then, it will be a more efficient and means-tested plan that assures the likelihood that Medicare will still be around. If nothing is done, it will surprisingly soon be extremely difficult to fund Medicare and Social Security. The liberals would rather demagogue the issue and try to scare the recipients of these benefits, than face up to their responsibility to deal with reality.

The Democrats’ actions should be seen as a good political opportunity for the Republicans, assuming that the GOP doesn’t cower in fear of political risks. Whenever such challenges present themselves, there is going to be substantial risk to any person or group that attempts to responsibly take them on. Remember G. W. Bush’s Social Security proposals? He took extreme heat from the opposition, who couldn’t be bothered to suggest anything of their own. Here are some suggestions for the Republicans (which mostly they’ve already thought of, I hope).

1. Don’t fear a government shutdown. This may very well be the only way to effectively assert majority power in the House of Representatives, where the GOP has control of the purse strings.

2. Counter the Democrats’ fear tactics with the facts on the unsustainability of Medicare if changes aren’t made. The right changes will preserve it.

3. Understand that up to now there has been no serious proposal to effectively cut spending, other than Paul Ryan’s plan. Rep. Ryan seems to be the best defender of his work. GOP leaders should understand what he is proposing. They would do well to support it if they are actually serious about the deficit. Cutting a trillion dollars over ten years won’t help much when the debt is increasing well over $1 trillion per year. Someone should be doing the math.

4. Don’t allow any tax increases. This would stop the recovery. Point out the absurdity of raising taxes on the “rich” who earn $250,000 a year and still struggle to stay in business because of government over-regulation. Tax increases on the “rich” would hurt everyone.

5. Be aware that the Democrats want to increase the number of Americans who pay no income tax (currently about half), then count on them to support increasing taxes on everyone else. If possible, they will try to promote the entitlement mentality and encourage Wisconsin-type demonstrations by anyone who fears there may be a reduction in government benefits.

6. Help people to understand the problem: If serious measures aren’t undertaken now, there probably won’t be any, this side of a serious collapse that would make 2008’s financial crisis look like a minor downturn.

7. Understand the weakness of the Democrats’ position. They have offered little to nothing outside of demagoguery and scare tactics. But they can’t deny that there are serious fiscal problems.

It’s still possible to get on top of this debt problem. But it ultimately must include serious reform of entitlements if these programs are to be preserved at all. Paul Ryan has offered a credible approach. Certainly no Democrat has done that. The Democratic leadership sees no need to submit a budget proposal at all. They just demand tax increases.

Related articles

• Senate Shoots Down Paul Ryan Budget (blogs.abcnews.com)
• Paul Ryan Hits Back While Gaining An Unlikely Ally (virginiavirtucon.wordpress.com)