Politics vs. Economics

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Politics vs. Economics

By Thomas Sowell

www.JewishWorldReview.com |

They say "all politics is local." But economic decisions impact the whole economy and reverberate internationally. That is why politicians' meddling with the economy creates so many disasters.

The time horizon of politics seldom reaches beyond the next election. But, in economics, when an oil company invests in oil explorations today, the oil they eventually find and process may not make its way to market and earn a profit until it is sold as gasoline a decade from now.

In short, the focus of politicians is extremely limited in both space and time — and all the repercussions that lie beyond those limits carry little, if any, weight in political decisions.

At one time, many state banking laws forbad a bank from having multiple branches. The goal was limited and local — namely, to prevent big, nationally known banks from setting up branches that many locally owned banks could not successfully compete against.

But, limited and local as such state banking laws were, their impact was both national and catastrophic, when thousands of American banks failed during the Great Depression of the 1930s. The vast majority of the banks that failed were in states that had laws against branch banking.

Why? Because, when there is a single bank in a single place, the fate of both its depositors and its borrowers depends on what happens there. If it is a wheat-growing region, a drop in the price of wheat means people deposit less money in the bank at the same time when more borrowers are unable to repay their loans.

Banks caught in that kind of crossfire went under on a scale that shrank the total amount of credit in the country and helped plunge the national economy into depression. In Canada, where banks were free to have branches all across the country, not one bank failed during the same years when thousands of American banks failed — and Canada did not yet have deposit insurance until 1967.

A Canadian bank with branches in all sorts of places across the country — with all sorts of different industry, commerce and agriculture — had their risks spread, instead of being concentrated, as in the United States. Problems in a place where one branch was located would not collapse the whole bank.

Our own more recent housing boom and bust began when local politicians in various places began severely restricting the building of houses, in the name of "open space," "smart growth" or whatever other political slogans were in vogue.

As housing prices skyrocketed in such places as coastal California, both renters and home buyers in these particular places often had to pay half their monthly income just to put a roof over their heads. This in turn led to Washington politicians declaring a need for nationwide laws and policies to create "affordable housing," even though people in most of the country were paying a lower share of their income for housing than in previous years.

This political crusade for "affordable housing" was at the heart of laws, regulations and even threats from the Department of Justice, against mortgage lenders who failed to lend to as many low-income and minority borrowers as the politicians wanted them to.

Regardless of the additional problems that occurred as these mortgages were bought by Fannie Mae and Freddie Mac, or were later bundled into securities sold by Wall Street, the fundamental problem was that many people simply stopped making their mortgage payments — as was perfectly predictable when lending standards were forced down by the government.

The politicians and bureaucrats who forced lenders to lower their standards had limited goals in mind — namely affordable housing and more minority home ownership. But the repercussions when the housing markets collapsed spread all across the American economy and led to financial crises overseas, where financial securities based on American mortgages were widely sold.

All politics may be local but the repercussions reach around the world, and even extend to generations yet unborn, who will be left to cope with the national debts resulting from this debacle.

Quick fixes for the economy now are unlikely to get investors to make job-creating investments, which depend on long-term factors ignored by politicians who are focused on the 2012 elections.

[philunderwood]

Profits Are for People

By Walter Williams

www.JewishWorldReview.com |

The Occupy Wall Street demonstrators are demanding "people before profits" — as if profit motivation were the source of mankind's troubles — when it's often the absence of profit motivation that's the true villain.

First, let's get both the definition and magnitude of profits out of the way. Profits represent the residual claim earned by entrepreneurs. They're what are left after other production costs — such as wages, rent and interest — have been paid. Profits are the payment for risk taking, innovation and decision-making. As such, they are a cost of business just as are wages, rent and interest. If those payments are not made, labor, land and capital will not offer their services. Similarly, if profit is not paid, entrepreneurs won't offer theirs. Historically, corporate profits range between 5 and 8 cents of each dollar, and wages range between 50 and 60 cents of each dollar.

Far more important than simple statistics about the magnitude of profits is the role played by profits, namely that of forcing producers to cater to the wants and desires of the common man. When's the last time we've heard widespread complaints about our clothing stores, supermarkets, computer stores or appliance stores? We are far likelier to hear people complaining about services they receive from the post office, motor vehicle and police departments, boards of education and other government agencies. The fundamental difference between the areas of general satisfaction and dissatisfaction is the pursuit of profits is present in one and not the other.

The pursuit of profits forces producers to be attentive to the will of their customers, simply because the customer of, say, a supermarket can fire it on the spot by taking his business elsewhere. If a state motor vehicle department or post office provides unsatisfactory services, it's not so easy for dissatisfied customers to take action against it. If a private business had as many dissatisfied customers as our government schools have, it would have long ago been out of business.

Free market capitalism is unforgiving. Producers please customers, in a cost-minimizing fashion, and make a profit, or they face losses or go bankrupt. It's this market discipline that some businesses seek to avoid. That's why they descend upon Washington calling for crony capitalism — government bailouts, subsidies and special privileges. They wish to reduce the power of consumers and stockholders, who hold little sympathy for blunders and will give them the ax on a moment's notice.

Having Congress on their side means business can be less attentive to the will of consumers. Congress can keep them afloat with bailouts, as it did in the cases of General Motors and Chrysler, with the justification that such companies are "too big to fail." Nonsense! If General Motors and Chrysler had been allowed to go bankrupt, it wouldn't have meant that their productive assets, such as assembly lines and tools, would have gone poof and disappeared into thin air. Bankruptcy would have led to a change in ownership of those assets by someone who might have managed them better. The bailout enabled them to avoid the full consequences of their blunders.

By the way, we often hear people say, with a tone of saintliness, "We're a nonprofit organization," as if that alone translates into decency, objectivity and selflessness. They want us to think they're in it for the good of society and not for those "evil" profits. If we gave it just a little thought and asked what kind of organization throughout mankind's history has accounted for his greatest grief, the answer wouldn't be a free market, private, profit-making enterprise; it would be government, the largest nonprofit organization.

The Occupy Wall Street protesters are following the path predicted by the great philosopher-economist Frederic Bastiat, who said in "The Law" that "instead of rooting out the injustices found in society, they make these injustices general." In other words, the protesters don't want to end crony capitalism, with its handouts and government favoritism; they want to participate in it.

[philunderwood]

Ignorance Exploited

By Walter Williams

www.JewishWorldReview.com |

Many Wall Street occupiers are echoing the Communist Party USA's call to "Save the nation! Tax corporations! Tax the rich!" There are other Americans, on both the left and the right — for example, President Barack Obama and House Speaker John Boehner — who call for reductions in corporate taxes. But the University of California, Berkeley's pretend economist Robert Reich disagrees, saying, "The economy needs two whopping corporate tax cuts right now as much as someone with a serious heart condition needs Botox." Let's look at corporate taxes and ask, "Who pays them?"

Virginia has a car tax. Does the car pay the tax? In most political jurisdictions, there's a property tax. Does property pay the tax? You say: "Williams, that's lunacy. Neither a car nor property pays taxes. Only flesh-and-blood people pay taxes!" What about a corporation? As it turns out, a corporation is an artificial creation of the legal system and, as such, a legal fiction. A corporation is not a person and therefore cannot pay taxes. When tax is levied on a corporation, who pays it?

There's an entire subject area in economics, known as tax incidence, that investigates who bears the burden of a tax. It turns out that the burden of a tax is not necessarily borne by the party or entity upon whom it is levied. For example, if a sales tax is levied on a cigarette retailer, the retailer does not bear the full burden of the tax. Part of it will be shifted forward to customers in the form of higher product prices. The exact amount of the shifting depends upon market supply and demand conditions.

What about raising taxes on corporations as a means to get them to pay their "rightful share of government"? If a tax is levied on a corporation and if it is to survive, it will have one of several responses or some combination thereof. One response is to raise the price of its product, so customers share part of the burden. Another response is to lower dividends, so shareholders share a part of the burden. And a considerable portion of reduced dividend burden falls on ordinary non-rich people. According to the Tax Foundation, 19 percent of federal tax returns report dividend income but 42 percent of taxpayers older than 65 report dividend income. Therefore, it is people, not some legal fiction called a corporation, who bear the burden of the tax. Because corporations have these responses to the imposition of a tax, they are merely government tax collectors.

The largest burden of corporate taxes is borne by workers. We discover that by asking a simple question, such as: Which workers on a road construction project earn the higher pay, those employed moving dirt with shovels and wheelbarrows or those doing the same atop giant earthmovers? You'd guess the guys operating the earthmovers, but why? It's not because they're unionized or because construction contractors have a fondness for earthmover operators. It's because those workers have more capital (tools) to work with and are thereby more productive. Higher productivity translates into higher wages.

Tax policies that raise the cost of capital formation — such as capital gains taxes, low depreciation allowances and corporate taxes — reduce capital formation. As a result, workers have less capital, lower productivity and lower wage growth. In 1980, Joseph Stiglitz, now a Nobel laureate, said that workers share the highest corporate tax burden in the form of lower wages. A number of economic studies, including that of the Congressional Budget Office, show that workers bear anywhere from 45 to 75 percent of the corporate tax burden. Adding to the burden is the fact that capital has the kind of mobility that labor doesn't. Corporate capital can flee to other countries easily, but workers cannot.

Politicians and leftist elite get away with corporate tax demagoguery because economists haven't done well in making our subject understandable to ordinary people, not to mention that we have derelict news media people with little understanding.

[philunderwood]

Poverty in America?

By Walter Williams

www.JewishWorldReview.com |

According to CBS News, "the number of people in the U.S. living in poverty in 2010 rose for the fourth year in a row, representing the largest number of Americans in poverty in the 52 years since such estimates have been published by the U.S. Census Bureau." MSNBC said, "The U.S. poverty rate remains among the highest in the developed world." Let's look at a few poverty facts.

Heritage Foundation researchers Dr. Robert Rector and Rachel Sheffield laid out some facts about the poor in their report "Understanding Poverty in the United States: Surprising Facts About America's Poor" (9/13/2011). Eighty percent of poor households have air conditioning. Nearly three-fourths have a car or truck, and 31 percent have two or more. Two-thirds have cable or satellite TV. Half have one or more computers. Forty-two percent own their homes. The average poor American has more living space than the typical non-poor person in Sweden, France or the U.K. Ninety-six percent of poor parents stated that their children were never hungry during the year because they couldn't afford food.

"The Material Well-Being of the Poor and the Middle Class Since 1980" (10/25/2011) is a research paper by professor Bruce D. Meyer of the University of Chicago and The National Bureau of Economic Research and professor James X. Sullivan of the University of Notre Dame. In it they report: "Our results show evidence of considerable improvement in material well-being for both the middle class and the poor over the past three decades. Median income and consumption both rose by more than 50 percent in real terms between 1980 and 2009. In addition, the middle 20 percent of the income distribution experienced noticeable improvements in housing characteristics: living units became bigger and much more likely to have air conditioning and other features. The quality of the cars these families own also improved considerably. Similarly, we find strong evidence of improvement in the material well-being of poor families."

The grim official measures of poverty or income stagnation reported are the result of a number of biases that understate well-being, such as relying exclusively on narrow income measures that do not reflect all the resources available to the household for consumption. Income measures fail to capture important components of economic well-being, such as wealth and the ownership of durables, e.g., houses and cars. For example, official measures would consider a retired couple who owned their car and mortgage-free $700,000 home and lived on $20,000 savings to be poor. Clearly, their income does not reflect their material well-being.

"Income Mobility in the U.S. from 1996 to 2005" (11/13/2007) is a report by the U.S. Department of the Treasury that shows considerable income mobility of individuals in the U.S. economy. "Roughly half of taxpayers who began in the bottom income quintile in 1996 moved up to a higher income group by 2005. Among those with the very highest incomes in 1996 — the top 1/100 of 1 percent — only 25 percent remained in this group in 2005. Moreover, the median real income of these top taxpayers declined over the study period." These findings confirm previous studies dating back to the 1960s reaching the same conclusion, namely: At different periods of time, different people occupy different income groups, but the overall trend is upward.

What about the concentration of wealth? In 1918, John D. Rockefeller's fortune accounted for more than half of 1 percent of total private wealth. To compile the same half of 1 percent of the total private wealth in the United States today, you'd have to combine the fortunes of Microsoft's Bill Gates ($59 billion) and New York Mayor Michael Bloomberg ($19 billion), but with 10 other multibillionaires in between.

Our congressionally caused recession has indeed caused needless hardship for many Americans, but the big poverty and income stagnation hype is part and parcel of an agenda to make us more accepting of politicians getting their hands deeper into our pocketbooks in the name of helping the poor.

[philunderwood]

www.qando.net/?tag=ethanol

How can government help the economy? End the corn ethanol subsidy

Published November 25, 2011 | By Bruce McQuain

The fixation of government on “alternate fuels” and its use of taxpayer money to subsidize some of them is, at least in one case, having a very negative effect on markets. Again we have government market intrusion to hold responsible for rising food prices in an era of high unemployment and economic turmoil.

Again, this is Econ 101 stuff. For a government so full of experts who feel they have the right (based one assumes, in their superior intellect … or something) to decide what we should be using for fuel rather than letting markets decide, they sure have screwed this one up.

Corn is a major food crop. And, for the most part, markets have kept corn relatively cheap and plentiful. Enter government and the mandate that ethanol be produced and mixed with gasoline in an effort, one supposes, to reduce the amount of oil consumed.

The result, however, has been to drive up the price of corn and the price of other commodity foods instead.

Here’s how it works. The set up:


Powerful agribusiness interests collect a 45-cent-per-gallon tax credit to convert this food crop into ethanol, an unnecessary and sometimes harmful additive to gasoline. Another 54-cent-per-gallon tariff is imposed to keep Brazil’s sugar-cane-based ethanol from entering our shores. Nor does the folly end there. The Food and Energy Security Act of 2007 mandates a massive increase in the production of ethanol by 2022 even though there is no demand.

While there’s no demand, there’s plenty of your money to be had. And what do producers react too? Incentive. So what provides the best return on investment right now? Corn. Not for the consumer, but for the producer. So what do producers of other commodity foods do? They switch from growing wheat and soybeans to corn. The result is inevitable:


The lure of free government money reduces the amount of corn available for other uses, primarily as feed for animals. This has a cascade effect, increasing prices down the food chain and for crops unrelated to corn. Farmers might switch from growing, say, soybeans, to corn to get hold of the extra subsidy. That makes soybeans scarcer and drives up their cost. This year, the price of wheat has increased as farmers have switched to corn to take advantage of high corn prices. In either scenario, the price of food increases, and that’s the last thing we need right now.

When the price of feed grain increases, what do you suppose happens to the price of meat?

Want ethanol? Feel it is a necessary and good thing? Drop the mandate, drop the subsidy and drop the tariff. Let the market decide. If it actually does what its champions claim and actually provide an additive to gasoline that increases performance (a dubious claim at best) and lessens our dependence on oil, that ought to be an easy idea to sell.

The fact is, without the subsidy and the mandate, the market would most likely reject ethanol completely. And that would conflict with the ideologically driven agenda that our government has put in place – namely it has the responsibility to decide what we should or shouldn’t use to power our vehicles. Each administration has its own take on how this should be done but make no mistake, this has been something which has survived both Republican and Democratic administrations.

It is another, in a long line of examples, of government intrusion, market distortion and wasting taxpayer money for a product with no demand. It also has the effect of driving up prices in food in an era of high unemployment. It is a disastrous policy and the proof is in the distorted markets.

Time to end the whole program and rescind the foolish government mandate. The effect? Food prices would again react to market pressures instead of government mandates. And taxpayer money wouldn’t be used to distort those markets any longer.

Win win as I see it.

~McQ

[philunderwood]

Land of the envious and home of the victim

By Star Parker

www.JewishWorldReview.com |

President Barack Obama laid out his vision of America Tuesday in Osawatomie, Kan.

Ours is no longer, in our president’s take on things, the land of the free and the home of the brave.

America now is the land of the envious and the home of the victim.

Ours is a land, as our president explains it, where the success of one American comes at the expense of another. Where the poor are poor because the rich are rich. And where the role of government is not to ensure “life, liberty and the pursuit of happiness” but to tax away wealth from those it deems to have too much and determine how to invest our nation’s resources.

The president chose to give this speech in Osawatomie because President Theodore Roosevelt, a Republican, spoke there in 1910 and made a plea for more government in American life. How clever.

But in 1910, the federal government was extracting less than five cents from every dollar produced by the American economy.

It was not until the 1930s, except during World War I, that this doubled to 10 cents of every dollar. After World War II, this doubled again, to 20 cents.

Now, after three years under Obama’s vision, the federal government takes 25 cents of every dollar produced by the American economy. If we throw in the costs of state and local government, barely 50 cents of each dollar of our economic output remains in the private economy.

But Obama thinks we’re languishing because we’re still too free.

The idea that “the market will take care of everything” may look good on a “bumper sticker,” according to our president, but, in his words, the idea of free citizens and free markets “doesn’t work” and “never worked.”

Perhaps our president ought to wake from his dream, and our nightmare, and take a closer look at the country he is living in.

According to the Kauffman Foundation, which specializes in studying entrepreneurship, almost all net new jobs created in our country come from firms less than five years old.

Net new job growth in America comes from entrepreneurs. Not from government bureaucrats and not even from corporate monoliths.

This entrepreneurial activity takes place at considerable risk. According to one study from Case Western Reserve University, only 30 percent of new business start-ups are still operating after 10 years.

Entrepreneurs start and build their businesses with personal savings, credit cards, funds from family and friends, and loans and investments from banks and venture capitalists.

But what entrepreneur will take these risks if there isn’t upside as well as downside? Who will do it if success is punished rather than rewarded? If power-seeking politicians decide that certain successful entrepreneurs have become too wealthy?

Our president cannot seem to grasp that freedom and entrepreneurship are not about “doing your own thing” but are the essence of what he calls “we’re greater together than we are on our own.”

Businesses grow by competing to serve customers.

It is also not about, to the president’s confusion, “making up your own rules.” It works when we don’t make up our own rules and live by eternal truths, which prohibit theft and protect private property. Our problems start when government stops doing its job to enforce those rules and starts making up its own.

We stand at a critical crossroads today in clarifying the role of government in our free country.

Obama was correct to say that “this is the defining issue of our time.”

Whatever solutions Republicans propose to deal with issues like government spending, taxation, healthcare and education must flow from a core vision of what America is about.

Whoever emerges as the Republican presidential nominee in 2012 must be ready to offer a dusted-off and clear vision of America that will restore our understanding of and faith in the freedom that made and makes this country great.

[philunderwood]

Let's Give the Fed Some Competition

By John Stossel

www.JewishWorldReview.com |

Pssst. Want to buy some Stossels? They’re my own currency with my face on them.

Why should you trust them?

Because I promise to redeem them for gold. And I’m reliable. I have money in the bank and a job that brings in more than I spend.

By contrast, the politicians who back American currency run an unsustainable deficit.

The Federal Reserve prints so much money that since it opened its doors in 1914, the dollar has lost more than 90 percent of its value.

OK, I won’t really sell Stossels. Americans get jailed for offering alternative currencies. The government insists on a monopoly. So even though I am unhappy about holding money whose value evaporates, there’s not much I can do about it. Printing my own dollars would be healthy competition, but the government calls it counterfeiting.

Why? Why must our government make currency competition illegal? If I did print my own money, no one would have to use it. But people could if they wanted to. Competition is generally good. Why not competition in currencies?

Most people I interviewed scoffed at the idea. They said private currency should be illegal.

But impressive thinkers disagree. In 1975, a year after he won the Nobel Prize in economics, F.A. Hayek published “Choice in Currency,” which has inspired a generation of “free banking” economists. Hayek taught us that competition not only respects individual liberty, it produces essential knowledge we cannot obtain any other way. Any central bank is limited in its access to such knowledge and subject to political pressure, no matter how independent it’s supposed to be.

“This monopoly of government, like the postal monopoly, has its origin not in any benefit it secures for the people but solely in the desire to enhance the coercive powers of government,” Hayek wrote. “I doubt whether it has ever done any good except to the rulers and their favorites. All history contradicts the belief that governments have given us a safer money than we would have had without their claiming an exclusive right to issue it.”

Former Federal Reserve economist David Barker discussed this idea recently on my Fox Business show.

“There are a lot of ways that private money might be better,” Barker said. “It might have embedded chips that would make it easier to count.”

The chips would also prevent counterfeiting.

There used to be private currencies. A businessman who sold iron and tin made coins that advertised his business. The Georgia Railroad Co. also produced its own currency.

This became illegal in 1864 � Abraham Lincoln was a fan of central banking.

People generally assume that government is careful about preserving the value of the dollar. As we’ve seen, that is far from the case. When Franklin Roosevelt became president, he raised the dollar price of gold � from bed.

In his diary, FDR’s Treasury Secretary Henry Morgenthau Jr. wrote, “If anybody ever knew how we really set the gold price … they would be frightened.” One day, Roosevelt was asked how he picked the change in the price of gold, and he said he increased it 21 cents because 7 was a lucky number (3 times 7).

When government monetary policy is too loose, you get hyperinflation, like in Germany in the 1920s. A more recent example is Zimbabwe, where prices rose so fast that the government printed bills with a face value of 100 trillion (Zimbabwean) dollars.

“That has never happened in the case of private competing currencies,” said Barker, who wants to abolish the Fed. “In all of those instances in world history where we’ve had (competition), we have not had rampant runaway inflation.”

Barker said the information age may break down the government’s monopoly on money.

“There are experiments going on. There’s something called Bitcoin, which is an electronic money that some people are experimenting with. The legal status is a bit unclear.”

I pointed out the irony of a former Fed economist wanting to close the Fed.

“The Federal Reserve is not the first agency of government that I would get rid of,” he said. “But one thing we’ve learned over the last several decades is that central planning does not work as well as markets.”

[philunderwood]

www.qando.net/?cat=1

The US could become the world’s largest exporter of Liquid Natural Gas … “if”

Published April 9, 2012 | By Bruce McQuain

Could. That’s the operative word. “If” is the keyword. We certainly have the assets and infrastructure.


By 2017 the U.S. could be the largest exporter of liquefied natural gas in the world, surpassing leading LNG exporters Qatar and Australia. There is one big “if,” however. America can produce more gas, export a surplus, improve the trade deficit, create jobs, generate taxable profits and reduce its dependence on foreign energy if the marketplace is allowed to work and politics doesn’t get in the way.

However, there are few things like this in which politics doesn’t get in the way. And don’t forget the crony capitalists:


But exporters must overcome growing opposition to LNG exports by environmentalists and industrial users of natural gas. Exporters must also get multiple permits from environmentally conscious federal officials. And Rep. Ed Markey (D.-Mass.) has proposed legislation to bar federal approval of any LNG export terminals until 2025. Those who most fear global warming don’t want anyone anywhere to use more fossil fuel, even “cleaner” natural gas.

Of course the most beneficial thing to do would be to let the market for LNG work. But there are vested interests which will lobby against that:


Exporting energy, however, rubs a lot of people the wrong way. [T. Boone] Pickens wants cheap natural gas for his 18-wheelers and opposes LNG exports. Industrial gas users argue that a vibrant LNG industry would propel domestic gas prices higher. A study by Deloitte said that exporting six 6 BCF [billion cubic feet] per day of LNG would raise wellhead gas prices by 12 cents per million BTU (about 1% on a retail basis). Advocates of “energy independence” argue that exporting LNG would tie U.S. natural gas prices to global markets.

The Energy Department’s Office of Fossil Energy is considering whether exporting LNG is in the public interest. In the meantime — shades of Keystone XL — the department has effectively put a moratorium on new LNG export licenses.

Energy’s decision-making process balances the extent to which exporting LNG drives up prices with the economic benefits of increased production and energy exports. The price assessment comes at a time when U.S. gas fetches the same price in constant dollars as it did in 1975. Producers are now shutting down production and lowering exploration budgets. The shale-gas “job machine” is now in reverse.

So what would be the ideal?


Ideally, the Energy Department should move quickly and recognize free-market principles. And the administration could send a clear policy signal that natural gas is integral to the country’s energy future and that exporting LNG is good economics and consistent with its 2010 State of the Union address to double U.S. exports over five years and create two million new jobs. But Energy is moving slowly, and administration signals on natural gas are mostly lip service. The economic-benefits study should have been done by the end of March. But last week, Energy delayed its release until late summer, and said there is no timeline to review results and develop policy recommendations. Translation: after the election.

We’ve seen this scenario before (*cough* Keystone *cough*).

Here we are in the middle of a recession and we’re seeing the same sort of nonsense being played out as we have with other energy projects. The delays are literally playing with people’s lives and livelihoods:


Estimates of the job benefits from U.S. LNG projects depend on a variety of assumptions. Roughly 25,000 direct construction jobs would be created if all the projects are built. Increasing the U.S. natural-gas production base by another 13 billion cubic feet might translate to 450,000 direct and indirect jobs and $16 billion in annual tax revenue for federal and state coffers.

It’s easier to forecast improved trade balances. Exporting 13 BCF per day of LNG could generate about $45 billion annually. Reaching Pickens’ goals could offset another $70 billion annually of oil imports.

But, instead, the Energy Department is delaying.

And people wonder why coming out of this recession we aren’t adding jobs to the economy as we have in past recessions?

Politics and policy, my friends, politics and policy.

~McQ

[Ritty77]

T. Boone Pickens: 'I've Lost My Ass' in Wind Power - 'The Jobs Are in the Oil and Gas Industry'

newsbusters.org/blogs/noel-sheppard/2012/04/11/t-boone-pickens-ive-lost-my-wind-power-jobs-are-oil-and-gas-industry

[philunderwood]

The Economy Needs No Conductor

By John Stossel

www.JewishWorldReview.com |

We spend too much time waiting for orders — and money — from Washington.

The collapse of the housing bubble gave politicians a license to do what they wanted to do all along: spend. The usual checks on extravagance, weak as they are, were washed away. Budgets? We'll worry about that later. Inflation? We'll worry about that later.

As I point out in my brand new book, "No, We Can't: Why Government Fails — and Individuals Succeed," (Buy it at a 39% discount by clicking here or in KINDLE edition for 52% off by clicking here) a true free market doesn't require much. It's not like an orchestra in need of a conductor. What it needs is property rights, so no one can take your stuff. Then people trade property to their mutual advantage. Resources move around without the need for a central, coercive government telling people which resources should go where — or telling them that they must get permission to do what they think is advantageous.

Given time, an economy, unless crippled by further government intervention, will regenerate itself. But during the recession, Keynesians in the administration said government had to "jump-start" the economy because businesses weren't hiring. An economy, however, is not a machine that needs jump-starting. It is people who have objectives they want to achieve.

If the economy continues to recover, President Obama will claim he caused that. It wouldn't be the first time a "leader" ran in front of a crowd and claimed to have led the way. But politicians don't deserve credit for what free people do.

Despite politicians' talk of "giving" money to this or that (remember those tax rebate checks with President George W. Bush's name emblazoned on them?), government has no money of its own. It has to take it from the private sector. Grabbing those scarce resources stifles the real economy.

One of the most important questions in politics should be: "Would the private sector have done better things with that money?"

A healthy economy does not just create jobs of any kind, it creates productive jobs. The pharaohs of ancient Egypt created plenty of jobs building pyramids, but who knows how much better the lives of ancient Egyptians (especially the slaves) might have been had they been free to engage in other work? They would all have had better housing, more food or snazzier headdresses. Even as smart a person as economist John Maynard Keynes seemed to forget about that when he wrote in his "General Theory" back in 1936, "Pyramid-building, earthquakes, even wars may serve to increase wealth."

By that logic, government could create full employment tomorrow by outlawing machines. Think of all the work there'd be to do then!

Think about the two other methods to "increase wealth" that Keynes lumped in with pyramid-building: earthquakes and war. Now, sure, after a war or earthquake, there's plenty of construction to be done. After the Haitian earthquake, Nancy Pelosi actually said, "I think that this can be an opportunity for a real boom economy in Haiti." New York Times columnist Paul Krugman made a similar error. On CNN, he said if "space aliens were planning to attack and we needed a massive buildup to counter the space alien threat ... this slump would be over in 18 months." Before that, he said the 9/11 attacks would be good for the economy.

This is Keynesian cluelessness at its worst.

Isn't it obvious that without a catastrophe those same workers and resources could have done productive work — with the overall standard of living higher as a result? There is something wrong with mainstream politics and economics when some of its most respected practitioners overlook this point.

The economic philosopher Frederic Bastiat called their mistake the "broken window fallacy." If I break your window, it's easy to see that I gave work to a glass-maker. But what we don't see is this: You would have improved your circumstances with the money you paid the glass-maker. He merely restored your previous condition. That money could have created different jobs, perhaps more productive ones. They're unseen.

People favor government projects because they notice the seen, not the unseen.

Creating jobs is not difficult for government. What is difficult is creating jobs that produce wealth.

The private sector does that.

[philunderwood]

www.qando.net/?tag=reality

Fantasy vs. Reality

Published May 21, 2012 | By Dale Franks

Greece’s long vacation from reality is very nearly over. Not that you’d believe it from listening to the country’s politicians. In the aftermath of Greece’s last elections, voters rejected further austerity, and instead sought refuge in fantasy. That fantasy is perhaps best exemplified by Alexis Tsipras, who emerged from the election with the power to block approval of any further austerity by blocking the formation of a government.

Indeed, I now have some doubt as to whether Mr. Tsipras is actually sane:


Leftist Alexis Tsipras, 37, emerged with the power to block them. Greece, he said, could ditch its spending cuts and renounce its debts to EU partners, yet enlist their help in keeping the euro currency some 80 percent of Greeks cherish.

Not. Gonna. Happen.

And everybody with a lick of sense knows it’s not gonna happen. Not in Greece. Nor, apparently, anywhere else on the Euro Zone’s periphery, as money is fleeing it with alacrity.


Foreign bank deposits have fallen 64% in Greece, 55% in Ireland and 37% in Portugal; in Italy, the fall is 34% and Spain 13%. Foreign government bond holdings have dropped 56% in Greece, 18% in Ireland and 25% in Portugal; in Italy the fall is 12% and Spain 18%. So if Italy and Spain were to move to the average for the other three, a further 200 billion euros would flow out.

The Greeks are not being punished by rich Germans. They aren’t the victims of speculators or criminals. They are merely being forced to pay the price that reality is about to impose for decades of enthusiastic socialism, and the attendant corruption, debt, and malfeasance it has encouraged. Their problem isn’t "austerity"; it’s the unsustainable political and economic fantasies that have sustained the county’s political culture.

Greece is a failed state. Spain is about to become a failed state. No doubt a list of "enemies" will be promulgated to try and paper over whose fault all this actually is. The sacrifice of scapegoats in times of crisis is, after all, a venerated European tradition.

But, that won’t help, or stop what is coming. Reality is relentless. And the really scary thing about that is that there are lessons in all this for us, which I am not entirely sure our own political class will heed—or is even capable of recognizing.

~
Dale Franks

[philunderwood]

No problem is so severe that our government can't make it worse

By Jack Kelly

www.JewishWorldReview.com |

The subprime mortgage crisis plunged our economy into a deep recession, and nearly destroyed our financial system. The federal government responded by:




Doing absolutely nothing about the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), the "government-sponsored entities" whose reckless policies and mammoth bankruptcies triggered the crisis.

Bailing out the big investment banks whose reckless behavior worsened vastly the crisis brought on by Fannie Mae and Freddie Mac.

Punishing community banks that had absolutely nothing to do with the crisis. Government has done next to nothing to prevent the next financial crisis, much to make sure it will be worse.


This is partly because those who broke the law haven't been prosecuted. "As a general rule, the worse you behaved from 2000 to 2008, the better you've been treated," said Wall Street Journal columnist Brett Arends. "And so the next crowd will do it again. Guaranteed."

But it's mostly because the dangerous concentration of wealth in a handful of "too big to fail" banks has increased by 20 percent. The ten largest banks now account for 65 percent of all banking industry assets. The five largest account for half. In 1984, the top five U.S. banks controlled only 9 percent of the total deposits in the banking sector.

Lots of taxpayer money has been expended to put us at greater risk. The expenditures began with the $700 billion Troubled Asset Relief Program. Congress approved TARP with the understanding the money would be used to buy up bad mortgages. Treasury used the money instead to make loans directly to troubled banks.

The banks have repaid their loans. Taxpayers would have made a little money from TARP were it not for the auto bailouts and a mortgage subsidy program President Barack Obama tacked onto it.

Though big banks benefited, smaller banks -- and Americans as a whole -- have not, said TARP's inspector general. Mismanagement by Obama Treasury Secretary Timothy Geithner turned TARP "into a program commonly viewed as little more than a giveaway to Wall Street executives," Neil Barofsky wrote in the New York Times last year.

Worse, "[TARP] has increased the potential need for future government bailouts by encouraging the 'too big to fail' financial institutions to become even bigger�therefore increasing their ultimate danger to the financial system," Mr. Barofsky told Congress.

The big banks have no incentive to curb reckless lending because they "reasonably assume that the government will rescue them again, if necessary," he said. "Indeed, credit rating agencies incorporate future government bailouts into their assessments of the largest banks, exaggerating market distortions that provide them with an unfair advantage over smaller institutions."

The big banks got another boost with the passage in 2010 of the 2,300- page Dodd-Frank financial reform law, which imposes 400 new regulations upon bankers. It will take more than 24 million man-hours to comply with the new rules, estimated a House committee.

That's a devastating burden to community banks, which don't have large legal staffs. Dodd-Frank will force 1,000 of them out of business by 2020, estimates the American Bankers Association.

Implementing the law requires an additional 2,850 federal employees, at a cost to taxpayers of $1.3 billion, the Government Accountability Office estimated. But it does nothing to curb risky lending or investments, as the $2 billion trading loss JP Morgan Chase reported in May demonstrates.

The enormous concentration of wealth in a handful of banks is a product of crony capitalism, not of market forces. The big banks can afford lobbyists and campaign contributions community banks cannot.

Too big to fail banks are too dangerous to permit. "Our calculations indicate that the cost to the economy as a whole due to increased systemic risk is of an order of magnitude larger than the potential benefits due to any economies of scale when banks are allowed to be large," concluded a University of Minnesota study last year.

"Breaking up the biggest banks would allow markets to work better, by cutting down on crony capitalist rent-seeking by big money from big government," said James Pethokoukis of the American Enterprise Institute.

No dramatic trust-busting is required. Just (1) repeal Dodd-Frank; (2) restrict federal deposit insurance to commercial banks only; (3) prosecute the sumbitches who committed crimes in the subprime mortgage crisis, and (4) make it clear there will never ever be another bank bailout. Then market forces will slim the obese banks down to a safe size.

[philunderwood]

Trickle Down and Tax Cuts

By Walter Williams

www.JewishWorldReview.com |

Dr. Thomas Sowell's "'Trickle Down Theory' and 'Tax Cuts for the Rich'" has just been published by the Hoover Institution. (Buy it for $5 by clicking here or in KINDLE for $4.75 by clicking here).

Having read this short paper, the conclusion you must reach is that the term "trickle down theory" is simply a tool of charlatans and political hustlers.

Sowell states that "no such theory has been found in even the most voluminous and learned histories of economic theories." That's from a scholar who has published extensively in the history of economic thought. Several years ago, Sowell, in his syndicated column, challenged anyone to name an economist from any economic school of thought who had actually advocated a "trickle down" theory. To date, no one has quoted any economist who ever advocated such a theory. Trickle down is a nonexistent theory. Those who use it simply argue against a caricature rather than confront an argument actually made.

President Barack Obama recently criticized Mitt Romney and Paul Ryan for trying to sell a tax plan, which he called "trickledown snake oil." Criticizing tax cuts as trickle down is a way not to confront the argument; however, there's empirical evidence about the effects of tax cuts. Sowell shows that during the Warren Harding administration, in 1921, Secretary of the Treasury Andrew Mellon advocated tax rate cuts, which were enacted into law by Congress. Afterward, there was rising output; unemployment plummeted; and the resulting higher income produced greater federal tax revenues, even though the tax rate had been lowered. There were somewhat similar results in later years after high tax rates were cut during the John F. Kennedy, Ronald Reagan and George W. Bush administrations.

The facts about the 1920s tax rate cuts are unmistakably clear for those who bother to check the facts. In 1921, when the tax rate on people earning more than $100,000 a year was 73 percent, the federal government collected a little more than $700 million in income taxes, of which 30 percent was paid by those earning more than $100,000. By 1929, after the tax rate had been cut to 24 percent on incomes higher than $100,000, the federal government collected more than $1 billion in income taxes, of which 65 percent was collected from those with incomes higher than $100,000.

In 1962, Democratic President John F. Kennedy pointed out that "it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now." Both Presidents Ronald Reagan and George W. Bush made similar arguments, and the tax rate cuts had the effect of stimulating economic growth while increasing federal tax revenue and shifting a greater percentage of the tax burden on to wealthier individuals.

One very insightful part of Sowell's paper is the discussion about what Mellon called the "gesture of taxing the rich" — namely, tax-exempt securities that he tried unsuccessfully to put an end to. Tax-exempt securities and other tax breaks are valuable tools in the politics of class warfare and envy. Politicians have it both ways. They get votes by raising taxes on the wealthy — or threatening to do so — and at the same time provide the wealthy with a way out of high taxes through tax-exempt securities. This explains how President Obama can raise tens of millions of dollars in campaign contributions from Hollywood millionaires and Wall Street's rich and powerful. "Tax cuts for the rich" demagoguery is simply the height of deceit perpetrated on the gullible people and useful idiots.

You can bet that the White House has people reading every bit of the news, including this column and Dr. Sowell's article. You can bet some people in the news media will read it, as well. Despite the facts that Sowell has marshaled, they will continue to use trickle down theory and "tax cuts for the rich" demagoguery, even though they now have hard evidence to the contrary, because they can count on widespread gullibility and inability to do critical thinking.

[philunderwood]

A book that could have booted Obama from office was all but ignored. It shouldn't be any longer

By Thomas Sowell

www.JewishWorldReview.com |

If everyone in America had read Stephen Moore's new book, "Who's The Fairest of Them All?", Barack Obama would have lost the election in a landslide. (Buy the book for 39% off the cover price by clicking here or in KINDLE at a 44% discount, $12.04 by clicking here)


The point here is not to say, "Where was Stephen Moore when we needed him?" A more apt question might be, "Where was the whole economics profession when we needed them?" Where were the media? For that matter, where were the Republicans?

Since "Who's The Fairest of Them All?" was published in October, there was little chance that it would affect this year's election. But this little gem of a book exposes, in plain language and with easily understood facts, the whole house of cards of assumptions, fallacies and falsehoods which constitute the liberal vision of the economy.

Yet that vision triumphed on election day, thanks to misinformation that was artfully presented and seldom challenged. The title "Who's The Fairest of Them All?" is an obvious response to liberals' claim that their policies are aimed at creating "fairness" by, among other things, making sure that "the rich" pay their "fair share" of taxes. If you want a brief but thorough education on that, just read chapter 4, which by itself is well worth the price of the book.

A couple of graphs on pages 104 and 108 are enough to annihilate the argument about "tax cuts for the rich." These graphs show that, under both Republican President Calvin Coolidge and Democratic President John F. Kennedy, high-income people paid more tax revenues into the federal treasury after tax rates went down than they did before.

There is nothing mysterious about this. At high tax rates, vast sums of money disappear into tax shelters at home or is shipped overseas. At lower tax rates, that money comes out of hiding and goes into the American economy, creating jobs, rising output and rising incomes. Under these conditions, higher tax revenues can be collected by the government, even though tax rates are lower. Indeed, high income people not only end up paying more taxes, but a higher share of all taxes, under these conditions.

This is not just a theory. It is what hard evidence shows happened under both Democratic and Republican administrations, from the days of Calvin Coolidge to John F. Kennedy to Ronald Reagan and George W. Bush. That hard evidence is presented in clear and unmistakable terms in "Who's The Fairest of Us All?"

Another surprising fact brought out in this book is that the Democrats and Republicans both took positions during the Kennedy administration that were the direct opposite of the positions they take today. As Stephen Moore points out, "the Republicans almost universally opposed and the Democrats almost universally favored" the cuts in tax rates that President Kennedy proposed.

Such Republican Senate stalwarts as Barry Goldwater and Bob Dole voted against reducing the top tax rate from 91% to 70%. Democratic Congressman Wilbur Mills led the charge for lower tax rates.

Unlike the Republicans today, John F. Kennedy had an answer when critics tried to portray his tax cut proposal as just a "tax cut for the rich." President Kennedy argued that it was a tax cut for the economy, that changed incentives meant a faster growing economy and that "A rising tide lifts all boats."

If Republicans today cannot seem to come up with their own answer when critics cry out "tax cuts for the rich," maybe they can just go back and read John F. Kennedy's answer.

A truly optimistic person might even hope that media pundits would go back and check out the facts before arguing as if the only way to reduce the deficit is to raise tax rates on "the rich."

If they are afraid that they would be stigmatized as conservatives if they favored cuts in tax rates, they might take heart from the fact that not only John F. Kennedy, but even John Maynard Keynes as well, argued that cutting tax rates could increase tax revenues and thereby help reduce the deficit.

Because so few people bother to check the facts, Barack Obama can get away with statements about how "tax cuts for the rich" have "cost" the government money that now needs to be recouped. Such statements not only promote class warfare, to Obama's benefit on election day, they also distract attention from his own runaway spending behind unprecedented trillion dollar deficits.

[philunderwood]

Our Government-Created Financial Crisis

By Walter Williams

www.JewishWorldReview.com |

Suppose you saw a building on fire. Would you seek counsel from the arsonist who set it ablaze for advice on how to put it out? You say, "Williams, you'd have to be a lunatic to do that!" But that's precisely what we've done: turned to the people who created our fiscal crisis to fix it. I have never read a better account of our doing just that than in John A. Allison's new book, "The Financial Crisis and the Free Market Cure."

Allison is the former CEO of Branch Banking and Trust, the nation's 10th largest bank. He assembles evidence that shows that our financial crisis, followed by the Great Recession, was caused by Congress, the Federal Reserve, Freddie Mac and Fannie Mae and was helped along by the Bill Clinton, George W. Bush and Barack Obama White Houses.

The Federal Reserve, under the chairmanship of Alan Greenspan, created the massive housing bubble by over-expanding the money supply. President Bush and members of Congress, through the Community Reinvestment Act, intimidated banks and other financial institutions into making home loans to people ineligible for loans under traditional lending criteria. They became subprime lenders. Lending institutions made these loans, now often demeaned as predator loans, because they knew they'd be sold to government-sponsored enterprises (GSEs) Freddie and Fannie.

The GSEs had no problem taking this risky path, because they knew that Congress would force taxpayers to bail them out. Current Fed Chairman Ben Bernanke is following in the footsteps of his predecessor by massively expanding the money supply by purchasing Treasury debt. He is creating prime conditions for a calamity by the end of this decade.

Then there were the crony capitalists, among whom are Goldman Sachs, Citigroup, Countrywide, Bear Stearns, JPMorgan Chase, General Motors and Chrysler. These and many other companies, through the thousands of Washington lobbyists they hire, are able to get Congress to shortcut market forces. Free market capitalism is unforgiving. In order to earn a profit and stay in business, producers must please customers and wisely use resources to do so. If they fail to do this, they face losses or go bankrupt.

It's this market discipline of profits and losses that many businesses seek to avoid. That's why they descend upon Washington calling for government bailouts, subsidies and special privileges. Many businessmen wish not to be held strictly accountable to consumers and stockholders, who hold little sympathy for economic blunders and will give them the ax on a moment's notice. With a campaign contribution here and a gift there, they get Congress and the White House to act against the best interests of consumers and investors. Allison suggests that if our country had a separation of "business and state" as it does a separation of "church and state," crony capitalism or crony socialism could not exist.

Allison says that crony capitalism should not be our only concern. The foundation for economic collapse 20 to 25 years from now has already been set. Social Security and Medicare deficits, unfunded state and local pension liabilities, government operating deficits, baby boomer retirement and a failed K-12 education system have eaten out our substance.

What I take away from Allison's highly readable book is that our biggest problem lies in the Federal Reserve's ability to manipulate our monetary system to accommodate big government and use inflation to rob Americans. That's why politicians and government leaders everywhere hate a monetary system based on gold. They can manipulate the quantity of paper money, but they can't manipulate the quantity of gold.

Here's a tidbit of information about John Allison, now president of the Washington-based Cato Institute, that speaks to this man's morality as BB&T's CEO, which can't be praised highly enough. His company refused to lend money to developers who acquired land by having the government take it from private owners, euphemistically called eminent domain. That's putting his money where his mouth is, not sacrificing principle for the sake of earnings.

[philunderwood]

Official Lies

By Walter Williams

www.JewishWorldReview.com |

Let's expose presidential prevarication. Earlier this year, President Barack Obama warned that Social Security checks will be delayed if Congress fails to increase the government's borrowing authority by raising the debt ceiling. However, there's an issue with this warning. According to the 2012 Social Security trustees report, assets in Social Security's trust funds totaled $2.7 trillion, and Social Security expenditures totaled $773 billion. Therefore, regardless of what Congress does about the debt limit, Social Security recipients are guaranteed their checks. Just take the money from the $2.7 trillion assets held in trust.

Which is the lie, Social Security checks must be delayed if the debt ceiling is not raised or there's $2.7 trillion in the Social Security trust funds? The fact of the matter is that they are both lies. The Social Security trust funds contain nothing more than IOUs, bonds that have absolutely no market value. In other words, they are worthless bookkeeping entries. Social Security is a pay-as-you-go system, meaning that the taxes paid by today's workers are immediately sent out as payment to today's retirees. Social Security is just another federal program funded out of general revenues.

If the congressional Republicans had one ounce of brains, they could easily thwart the president and his leftist allies' attempt to frighten older Americans about not receiving their Social Security checks and thwart their attempt to frighten other Americans by saying "we are not a deadbeat nation" and suggesting the possibility of default if the debt ceiling is not raised. In 2012, monthly federal tax revenue was about $200 billion. Monthly Social Security expenditures were about $65 billion per month, and the monthly interest payment on our $16 trillion national debt was about $30 billion. The House could simply enact a bill prioritizing how federal tax revenues will be spent. It could mandate that Social Security recipients and interest payments on the national debt be the first priorities and then send the measure to the Senate and the president for concurrence. It might not be a matter of brains as to why the Republican House wouldn't enact such a measure; it likes spending just as the Democrats.

I believe our nation is rapidly approaching our last chance to do something about runaway government before we face the type of economic turmoil seen in Greece and other European nations. Tax revenue has remained constant for the past 50 years, averaging about 18 percent of gross domestic product. During that interval, federal spending has risen from less than 20 percent to more than 25 percent of GDP. What accounts for this growth in federal spending? The liberals like to blame national defense, but in 1962, national defense expenditures were 50 percent of the federal budget; today they are 19 percent. What accounts for most federal spending is the set of programs euphemistically called entitlements. In 1962, entitlement spending was 31 percent of the federal budget; today it is 62 percent. Medicare, Medicaid and Social Security alone take up 44 percent of the federal budget, and worse than that, it's those expenditures that are the most rapidly growing spending areas.

Our federal debt and deficits are unsustainable and are driven by programs under which Congress takes the earnings of one American to give to another, or entitlements. How long can Congress take in $200 billion in revenue per month and spend $360 billion per month? That means roughly 40 cents of every federal dollar spent has to be borrowed. The undeniable fact of business is that a greater number of people are living off government welfare programs than are paying taxes. That's what's driving Europe's economic problems, and it's what's driving ours. The true tragedy is that just to acknowledge that fact is political suicide, as presidential contender Mitt Romney found out. We can't blame politicians. It's the American people who will crucify a politician who even talks about cutting their favorite handout.

[philunderwood]

Can It Happen Here?

By Thomas Sowell

www.JewishWorldReview.com |

The decision of the government in Cyprus to simply take money out of people's bank accounts there sent shock waves around the world. People far removed from that small island nation had to wonder: "Can this happen here?"

The economic repercussions of having people feel that their money is not safe in banks can be catastrophic. Banks are not just warehouses where money can be stored. They are crucial institutions for gathering individually modest amounts of money from millions of people and transferring that money to strangers whom those people would not directly entrust it to.

Multi-billion dollar corporations, whose economies of scale can bring down the prices of goods and services — thereby raising our standard of living — are seldom financed by a few billionaires.

Far more often they are financed by millions of people, who have neither the specific knowledge nor the economic expertise to risk their savings by investing directly in those enterprises. Banks are crucial intermediaries, which provide the financial expertise without which these transfers of money are too risky.

There are poor nations with rich natural resources, which are not developed because they lack either the sophisticated financial institutions necessary to make these key transfers of money or because their legal or political systems are too unreliable for people to put their money into these financial intermediaries.

Whether in Cyprus or in other countries, politicians tend to think in short run terms, if only because elections are held in the short run. Therefore, there is always a temptation to do reckless and short-sighted things to get over some current problem, even if that creates far worse problems in the long run.

Seizing money that people put in the bank would be a classic example of such short-sighted policies.

After thousands of American banks failed during the Great Depression of the 1930s, there were people who would never put their money in a bank again, even after the Federal Deposit Insurance Corporation was created, to have the federal government guarantee individual bank accounts when the bank itself failed.

For years after the Great Depression, stories appeared in the press from time to time about some older person who died and was found to have substantial sums of money stored under a mattress or in some other hiding place, because they never trusted banks again.

After going back and forth, the government of Cyprus ultimately decided, under international pressure, to go ahead with its plan to raid people's bank accounts. But could similar policies be imposed in other countries, including the United States?

One of the big differences between the United States and Cyprus is that the U.S. government can simply print more money to get out of a financial crisis. But Cyprus cannot print more euros, which are controlled by international institutions.

Does that mean that Americans' money is safe in banks? Yes and no.

The U.S. government is very unlikely to just seize money wholesale from people's bank accounts, as is being done in Cyprus. But does that mean that your life savings are safe?

No. There are more sophisticated ways for governments to take what you have put aside for yourself and use it for whatever the politicians feel like using it for. If they do it slowly but steadily, they can take a big chunk of what you have sacrificed for years to save, before you are even aware, much less alarmed.

That is in fact already happening. When officials of the Federal Reserve System speak in vague and lofty terms about "quantitative easing," what they are talking about is creating more money out of thin air, as the Federal Reserve is authorized to do — and has been doing in recent years, to the tune of tens of billions of dollars a month.

When the federal government spends far beyond the tax revenues it has, it gets the extra money by selling bonds. The Federal Reserve has become the biggest buyer of these bonds, since it costs them nothing to create more money.

This new money buys just as much as the money you sacrificed to save for years. More money in circulation, without a corresponding increase in output, means rising prices. Although the numbers in your bank book may remain the same, part of the purchasing power of your money is transferred to the government. Is that really different from what Cyprus has done?

[philunderwood]

www.qando.net/?tag=community-reinvestment-act

Study: Government policy primarily the reason for sub-prime mortgage meltdown

Published March 28, 2013. | By Bruce McQuain.

Despite the attempt by government and particularly Democrats, to blame the financial meltdown we’ve endured on banks and unscrupulous investment companies, the buck stops with them according to a new study just released:


Democrats and the media insist the Community Reinvestment Act, the anti-redlining law beefed up by President Clinton, had nothing to do with the subprime mortgage crisis and recession.

But a new study by the respected National Bureau of Economic Research finds, “Yes, it did. We find that adherence to that act led to riskier lending by banks.”

Added NBER: “There is a clear pattern of increased defaults for loans made by these banks in quarters around the (CRA) exam. Moreover, the effects are larger for loans made within CRA tracts,” or predominantly low-income and minority areas.

As we’ve mentioned previously any number of times, government policies can set and enforce preverse incentives. And that has nothing to do with a free market. That’s at best a mixed market. So no, the problem wasn’t a “market failure”, it was the usual result of government intruding and setting preverse incentives that are contrary to good business practices and would likely not survive or succeed in an actual free market.

Here’d the bottom line:


The strongest link between CRA lending and defaults took place in the runup to the crisis — 2004 to 2006 — when banks rapidly sold CRA mortgages for securitization by Fannie Mae and Freddie Mac and Wall Street.

CRA regulations are at the core of Fannie’s and Freddie’s so-called affordable housing mission. In the early 1990s, a Democrat Congress gave HUD the authority to set and enforce (through fines) CRA-grade loan quotas at Fannie and Freddie.

It passed a law requiring the government-backed agencies to “assist insured depository institutions to meet their obligations under the (CRA).” The goal was to help banks meet lending quotas by buying their CRA loans.

But they had to loosen underwriting standards to do it. And that’s what they did.

Not only that, they guaranteed the bad loans with your money. Why do you think so much money has had to be pumped into those two institutions?

You see the market had determined that certain standards protected their investments. The government decided to ignore reality and push a social agenda using “race” as the basis for throwing out those standards and using their coercive power to implement the social agenda they preferred.

The result was predictable.

And the coverup as well.

~McQ

[philunderwood]

www.qando.net/?tag=economic-growth

Some sanity, sad as it is

Published April 2, 2013. | By Dale Franks.

It’s not often one finds a dose of sanity in the New York Times. When one does, it should be celebrated, rather than ignored. In this case, the sanity comes from David Stockman, former budget director for President Reagan. His bottom line is no different than what I’ve been predicting since 2009. It’s just as gloomy:


[T]he Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.

When it bursts, there will be no new round of bailouts like the ones the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.

He calls it a state-wreck, which is exactly what it is. An arrogant government that thinks it can fix everything, help everyone, and create money out of nothing has corrupted the markets & political culture, and mortgaged our future.

Even now, the Fed, after two previous rounds of "monetary stimulus"—code words for creating en ever larger supply of "money"—is dumping $44 billion cash into the market every month. And where it going? Creating millions of new jobs? No. It’s just going to Wall Street, where the equity markets have hit an all-time high.

The wheels have been wobbling for the last five years. Sometime in the not-too-distant future, they’ll simply…come off, and then we shall see what we see.

Read the whole article. Save it. Print it out. Keep it. That way, you’ll be be able to show your children how the richest, most powerful nation in the history of the earth committed suicide.

~
Dale Franks

[Ritty77]

Here is the article Dale Franks cites:


State-Wrecked: The Corruption of Capitalism in America
By DAVID A. STOCKMAN
March 30, 2013

GREENWICH, Conn.

The Dow Jones and Standard & Poor’s 500 indexes reached record highs on Thursday, having completely erased the losses since the stock market’s last peak, in 2007. But instead of cheering, we should be very afraid.

Over the last 13 years, the stock market has twice crashed and touched off a recession: American households lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash. Sooner or later — within a few years, I predict — this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode, too.

Since the S.&P. 500 first reached its current level, in March 2000, the mad money printers at the Federal Reserve have expanded their balance sheet sixfold (to $3.2 trillion from $500 billion). Yet during that stretch, economic output has grown by an average of 1.7 percent a year (the slowest since the Civil War); real business investment has crawled forward at only 0.8 percent per year; and the payroll job count has crept up at a negligible 0.1 percent annually. Real median family income growth has dropped 8 percent, and the number of full-time middle class jobs, 6 percent. The real net worth of the “bottom” 90 percent has dropped by one-fourth. The number of food stamp and disability aid recipients has more than doubled, to 59 million, about one in five Americans.

So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.

When it bursts, there will be no new round of bailouts like the ones the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.

THIS dyspeptic prospect results from the fact that we are now state-wrecked. With only brief interruptions, we’ve had eight decades of increasingly frenetic fiscal and monetary policy activism intended to counter the cyclical bumps and grinds of the free market and its purported tendency to underproduce jobs and economic output. The toll has been heavy.

As the federal government and its central-bank sidekick, the Fed, have groped for one goal after another — smoothing out the business cycle, minimizing inflation and unemployment at the same time, rolling out a giant social insurance blanket, promoting homeownership, subsidizing medical care, propping up old industries (agriculture, automobiles) and fostering new ones (“clean” energy, biotechnology) and, above all, bailing out Wall Street — they have now succumbed to overload, overreach and outside capture by powerful interests. The modern Keynesian state is broke, paralyzed and mired in empty ritual incantations about stimulating “demand,” even as it fosters a mutant crony capitalism that periodically lavishes the top 1 percent with speculative windfalls.

The culprits are bipartisan, though you’d never guess that from the blather that passes for political discourse these days. The state-wreck originated in 1933, when Franklin D. Roosevelt opted for fiat money (currency not fundamentally backed by gold), economic nationalism and capitalist cartels in agriculture and industry.

Under the exigencies of World War II (which did far more to end the Depression than the New Deal did), the state got hugely bloated, but remarkably, the bloat was put into brief remission during a midcentury golden era of sound money and fiscal rectitude with Dwight D. Eisenhower in the White House and William McChesney Martin Jr. at the Fed.

Then came Lyndon B. Johnson’s “guns and butter” excesses, which were intensified over one perfidious weekend at Camp David, Md., in 1971, when Richard M. Nixon essentially defaulted on the nation’s debt obligations by finally ending the convertibility of gold to the dollar. That one act — arguably a sin graver than Watergate — meant the end of national financial discipline and the start of a four-decade spree during which we have lived high on the hog, running a cumulative $8 trillion current-account deficit. In effect, America underwent an internal leveraged buyout, raising our ratio of total debt (public and private) to economic output to about 3.6 from its historic level of about 1.6. Hence the $30 trillion in excess debt (more than half the total debt, $56 trillion) that hangs over the American economy today.

This explosion of borrowing was the stepchild of the floating-money contraption deposited in the Nixon White House by Milton Friedman, the supposed hero of free-market economics who in fact sowed the seed for a never-ending expansion of the money supply. The Fed, which celebrates its centenary this year, fueled a roaring inflation in goods and commodities during the 1970s that was brought under control only by the iron resolve of Paul A. Volcker, its chairman from 1979 to 1987.

Under his successor, the lapsed hero Alan Greenspan, the Fed dropped Friedman’s penurious rules for monetary expansion, keeping interest rates too low for too long and flooding Wall Street with freshly minted cash. What became known as the “Greenspan put” — the implicit assumption that the Fed would step in if asset prices dropped, as they did after the 1987 stock-market crash — was reinforced by the Fed’s unforgivable 1998 bailout of the hedge fund Long-Term Capital Management.

That Mr. Greenspan’s loose monetary policies didn’t set off inflation was only because domestic prices for goods and labor were crushed by the huge flow of imports from the factories of Asia. By offshoring America’s tradable-goods sector, the Fed kept the Consumer Price Index contained, but also permitted the excess liquidity to foster a roaring inflation in financial assets. Mr. Greenspan’s pandering incited the greatest equity boom in history, with the stock market rising fivefold between the 1987 crash and the 2000 dot-com bust.

Soon Americans stopped saving and consumed everything they earned and all they could borrow. The Asians, burned by their own 1997 financial crisis, were happy to oblige us. They — China and Japan above all — accumulated huge dollar reserves, transforming their central banks into a string of monetary roach motels where sovereign debt goes in but never comes out. We’ve been living on borrowed time — and spending Asians’ borrowed dimes.

This dynamic reinforced the Reaganite shibboleth that “deficits don’t matter” and the fact that nearly $5 trillion of the nation’s $12 trillion in “publicly held” debt is actually sequestered in the vaults of central banks. The destruction of fiscal rectitude under Ronald Reagan — one reason I resigned as his budget chief in 1985 — was the greatest of his many dramatic acts. It created a template for the Republicans’ utter abandonment of the balanced-budget policies of Calvin Coolidge and allowed George W. Bush to dive into the deep end, bankrupting the nation through two misbegotten and unfinanced wars, a giant expansion of Medicare and a tax-cutting spree for the wealthy that turned K Street lobbyists into the de facto office of national tax policy. In effect, the G.O.P. embraced Keynesianism — for the wealthy.

The explosion of the housing market, abetted by phony credit ratings, securitization shenanigans and willful malpractice by mortgage lenders, originators and brokers, has been well documented. Less known is the balance-sheet explosion among the top 10 Wall Street banks during the eight years ending in 2008. Though their tiny sliver of equity capital hardly grew, their dependence on unstable “hot money” soared as the regulatory harness the Glass-Steagall Act had wisely imposed during the Depression was totally dismantled.

Within weeks of the Lehman Brothers bankruptcy in September 2008, Washington, with Wall Street’s gun to its head, propped up the remnants of this financial mess in a panic-stricken melee of bailouts and money-printing that is the single most shameful chapter in American financial history.

There was never a remote threat of a Great Depression 2.0 or of a financial nuclear winter, contrary to the dire warnings of Ben S. Bernanke, the Fed chairman since 2006. The Great Fear — manifested by the stock market plunge when the House voted down the TARP bailout before caving and passing it — was purely another Wall Street concoction. Had President Bush and his Goldman Sachs adviser (a k a Treasury Secretary) Henry M. Paulson Jr. stood firm, the crisis would have burned out on its own and meted out to speculators the losses they so richly deserved. The Main Street banking system was never in serious jeopardy, ATMs were not going dark and the money market industry was not imploding.

Instead, the White House, Congress and the Fed, under Mr. Bush and then President Obama, made a series of desperate, reckless maneuvers that were not only unnecessary but ruinous. The auto bailouts, for example, simply shifted jobs around — particularly to the aging, electorally vital Rust Belt — rather than saving them. The “green energy” component of Mr. Obama’s stimulus was mainly a nearly $1 billion giveaway to crony capitalists, like the venture capitalist John Doerr and the self-proclaimed outer-space visionary Elon Musk, to make new toys for the affluent.

Less than 5 percent of the $800 billion Obama stimulus went to the truly needy for food stamps, earned-income tax credits and other forms of poverty relief. The preponderant share ended up in money dumps to state and local governments, pork-barrel infrastructure projects, business tax loopholes and indiscriminate middle-class tax cuts. The Democratic Keynesians, as intellectually bankrupt as their Republican counterparts (though less hypocritical), had no solution beyond handing out borrowed money to consumers, hoping they would buy a lawn mower, a flat-screen TV or, at least, dinner at Red Lobster.

But even Mr. Obama’s hopelessly glib policies could not match the audacity of the Fed, which dropped interest rates to zero and then digitally printed new money at the astounding rate of $600 million per hour. Fast-money speculators have been “purchasing” giant piles of Treasury debt and mortgage-backed securities, almost entirely by using short-term overnight money borrowed at essentially zero cost, thanks to the Fed. Uncle Ben has lined their pockets.

If and when the Fed — which now promises to get unemployment below 6.5 percent as long as inflation doesn’t exceed 2.5 percent — even hints at shrinking its balance sheet, it will elicit a tidal wave of sell orders, because even a modest drop in bond prices would destroy the arbitrageurs’ profits. Notwithstanding Mr. Bernanke’s assurances about eventually, gradually making a smooth exit, the Fed is domiciled in a monetary prison of its own making.

While the Fed fiddles, Congress burns. Self-titled fiscal hawks like Paul D. Ryan, the chairman of the House Budget Committee, are terrified of telling the truth: that the 10-year deficit is actually $15 trillion to $20 trillion, far larger than the Congressional Budget Office’s estimate of $7 trillion. Its latest forecast, which imagines 16.4 million new jobs in the next decade, compared with only 2.5 million in the last 10 years, is only one of the more extreme examples of Washington’s delusions.

Even a supposedly “bold” measure — linking the cost-of-living adjustment for Social Security payments to a different kind of inflation index — would save just $200 billion over a decade, amounting to hardly 1 percent of the problem. Mr. Ryan’s latest budget shamelessly gives Social Security and Medicare a 10-year pass, notwithstanding that a fair portion of their nearly $19 trillion cost over that decade would go to the affluent elderly. At the same time, his proposal for draconian 30 percent cuts over a decade on the $7 trillion safety net — Medicaid, food stamps and the earned-income tax credit — is another front in the G.O.P.’s war against the 99 percent.

Without any changes, over the next decade or so, the gross federal debt, now nearly $17 trillion, will hurtle toward $30 trillion and soar to 150 percent of gross domestic product from around 105 percent today. Since our constitutional stasis rules out any prospect of a “grand bargain,” the nation’s fiscal collapse will play out incrementally, like a Greek/Cypriot tragedy, in carefully choreographed crises over debt ceilings, continuing resolutions and temporary budgetary patches.

The future is bleak. The greatest construction boom in recorded history — China’s money dump on infrastructure over the last 15 years — is slowing. Brazil, India, Russia, Turkey, South Africa and all the other growing middle-income nations cannot make up for the shortfall in demand. The American machinery of monetary and fiscal stimulus has reached its limits. Japan is sinking into old-age bankruptcy and Europe into welfare-state senescence. The new rulers enthroned in Beijing last year know that after two decades of wild lending, speculation and building, even they will face a day of reckoning, too.

THE state-wreck ahead is a far cry from the “Great Moderation” proclaimed in 2004 by Mr. Bernanke, who predicted that prosperity would be everlasting because the Fed had tamed the business cycle and, as late as March 2007, testified that the impact of the subprime meltdown “seems likely to be contained.” Instead of moderation, what’s at hand is a Great Deformation, arising from a rogue central bank that has abetted the Wall Street casino, crucified savers on a cross of zero interest rates and fueled a global commodity bubble that erodes Main Street living standards through rising food and energy prices — a form of inflation that the Fed fecklessly disregards in calculating inflation.

These policies have brought America to an end-stage metastasis. The way out would be so radical it can’t happen. It would necessitate a sweeping divorce of the state and the market economy. It would require a renunciation of crony capitalism and its first cousin: Keynesian economics in all its forms. The state would need to get out of the business of imperial hubris, economic uplift and social insurance and shift its focus to managing and financing an effective, affordable, means-tested safety net.

All this would require drastic deflation of the realm of politics and the abolition of incumbency itself, because the machinery of the state and the machinery of re-election have become conterminous. Prying them apart would entail sweeping constitutional surgery: amendments to give the president and members of Congress a single six-year term, with no re-election; providing 100 percent public financing for candidates; strictly limiting the duration of campaigns (say, to eight weeks); and prohibiting, for life, lobbying by anyone who has been on a legislative or executive payroll. It would also require overturning Citizens United and mandating that Congress pass a balanced budget, or face an automatic sequester of spending.

It would also require purging the corrosive financialization that has turned the economy into a giant casino since the 1970s. This would mean putting the great Wall Street banks out in the cold to compete as at-risk free enterprises, without access to cheap Fed loans or deposit insurance. Banks would be able to take deposits and make commercial loans, but be banned from trading, underwriting and money management in all its forms.

It would require, finally, benching the Fed’s central planners, and restoring the central bank’s original mission: to provide liquidity in times of crisis but never to buy government debt or try to micromanage the economy. Getting the Fed out of the financial markets is the only way to put free markets and genuine wealth creation back into capitalism.

That, of course, will never happen because there are trillions of dollars of assets, from Shanghai skyscrapers to Fortune 1000 stocks to the latest housing market “recovery,” artificially propped up by the Fed’s interest-rate repression. The United States is broke — fiscally, morally, intellectually — and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.

David A. Stockman is a former Republican congressman from Michigan, President Ronald Reagan’s budget director from 1981 to 1985 and the author, most recently, of “The Great Deformation: The Corruption of Capitalism in America.”

www.nytimes.com/2013/03/31/opinion/sunday/sundown-in-america.html?pagewanted=all&_r=1&