Tuesday, November 30, 2010

Milton Friedman Would Have Supported QE2; Japan Scenario Unnecessary

The debate over what Milton Friedman would say about QE2 can now be closed. Below is a Q&A with Milton Friedman following a speech he delivered in 2000. In this excerpted exchange with David Laidler, we learn that Friedman's prescription for Japan at that time is almost identical to what the Fed is doing now with QE2:
David Laidler: Many commentators are claiming that, in Japan, with short interest rates essentially at zero, monetary policy is as expansionary as it can get, but has had no stimulative effect on the economy. Do you have a view on this issue?

Milton Friedman: Yes, indeed. As far as Japan is concerned, the situation is very clear. And it’s a good example. I’m glad you brought it up, because it shows how unreliable interest rates can be as an indicator of appropriate monetary policy.

During the 1970s, you had the bubble period. Monetary growth was very high. There was a so-called speculative bubble in the stock market. In 1989, the Bank of Japan stepped on the brakes very hard and brought money supply down to negative rates for a while. The stock market broke. The economy went into a recession, and it’s been in a state of quasi recession ever since. Monetary growth has been too low. Now, the Bank of Japan’s argument is, “Oh well, we’ve got the interest rate down to zero; what more can we do?”

It’s very simple. They can buy long-term government securities, and they can keep buying them and providing high-powered money until the high powered money starts getting the economy in an expansion. What Japan needs is a more expansive domestic monetary policy.

The Japanese bank has supposedly had, until very recently, a zero interest rate policy. Yet that zero interest rate policy was evidence of an extremely tight monetary policy.Essentially, you had deflation. The real interest rate was positive; it was not negative. What you needed in Japan was more liquidity.
So Milton Friedman said in 2000 that the Bank of Japan should do what the Federal Reserve would be doing 10 years later! In fact, if names, dates, and places were changed in the above excerpt one could get a 2010 Ben Bernanke Q&A. Friedman's belief that a zero policy interest rate could be contratctionary and thus required the central bank to buy long-term securities shows that he understood unconventional monetary policy long before it was vogue. He truly was a great economist.

Note, though, that his emphasis is still on expanding the monetary base as much as needed to start and maintain an economic expansion. This implies he saw an excess money demand problem in Japan, just as there is one today in the United States. He understood, though, the need to expand the monetary base through purchases of long-term securities rather than short-term ones. This is because short-term securities are close to a perfect substitute for the monetary base at a zero percent policy rate. Swapping perfect substitutes does not change anything in one's portfolio of assets and therefore has no effect on spending. Thus, Friedman saw the need for purchasing long-term securities, which are not perfect substitutes with the monetary base.

Although Milton Friedman probably would have preferred a rule-based approach to QE2, this excerpt is the smoking gun that ends all debate on whether he would have supported QE2. The case is closed.

Federalist 51 – Balance of Power

Madison’s general discussion of balance of power as it is addressed in the proposed Constitution reflects his views on securing liberties for individuals and minority segments while limiting the power of government and seeing that it derives its power from the people and is responsive to the collective needs.

He describes the purpose of government as ‘justice.’ And states that, ‘if men were angels, government would be unnecessary.’

It is impressive to see with 20-20 hindsight how well we have been served by the US Constitution, and although it has been amended from time to time, the bulk of the framework remains intact.

Madison begins by asking how power is to be partitioned in the government. He answers, “by so contriving the interior structure of the government as that its several constituent parts may by their mutual relations, be the means of keeping each other in their proper places.”

He goes on to argue that the branches of government should be designed to have a ‘will of their own.’ “…and consequently should be so constituted that the members of each should have as little agency as possible in the appointment of the members of the others.”

He goes on to say that if this principle were rigorously adhered to all appointments would be made by the people. He then goes on to offer a specific example, selection of federal judges, which because of the specialized qualifications required the best mode of choice should be the one that best ‘secures these qualifications.’ Further as the federal bench appointments are appointments for life it will, ‘soon destroy all sense of dependence on the authority conferring them.’ Meaning that the judges will not be beholden to the body that appointed them and that there is less cause for concern that they will behave in a biased manner once appointed.

He specifically states that the separate branches and departments of government should be constituted so that, ‘each department has the necessary constitutional means and personal motives to resist encroachments of the others.’

“Ambition must be made to counterattack ambition.”

“If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary.”

“But what is government itself but the greatest of all reflections on human nature.”

“..you must first enable the government to control the governed; and in the next place oblige it to control itself.”

Always concerned about a tyranny of the majority, he writes, “A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.”

Regarding the apparent dominant role of the legislative branch, he writes, “The remedy for inconveniency is to dived the legislature into different branches; and to render them, by different modes of election and different principles of action, as little connected with each other as the nature of their common functions and their common dependence on the society will admit.”

Specifically in defense of the proposed American constitution, he argues, “ In the compound republic of America, the power surrendered by the people is first divided between two distinct governments, and then the portion allotted to each subdivided among distinct and separate departments. Hence a double security arises to the rights of the people. The different governments will control each other; at the same time that each will be controlled by itself.”

On protecting the rights of a minority interest, “…the society itself will be broken into so many parts, interests, and classes of citizens, that the rights of individuals, or of the minority, will be in little danger from interested combinations of the majority. In a free government the security for civil rights must be the same as that for religious rights.”

So Madison reaffirms his long standing belief that religious freedom is an essential ingredient in the American model. He is essentially arguing in favor a diverse pluralistic society. He might well have been pleased to see how diverse the United States has become two hundred years later.

He sums up in a philosophic tone, “Justice is the end of government. It is the end of civil society. It ever had been and ever will be pursued until it be obtained, or until liberty be lost in the pursuit.”

He goes on to argue that it individual states were broken off from the Confederation that they would suffer internal factions that the people would soon call for some third power to intercede on their behalf.

Madison believed that the larger the society the more capable it would be of self-governing, and that the proposed constitution offered a “judicious modification and mixture of the federal principle.”

Federalist 10 – Factions

In Federalist 10, Madison argues in favor a republican structure as the only antidote to factions unavoidably created by the differing interests of men. He defines factions as ‘a number of citizens actuated by some common purpose or interest, adverse to the rights of others, or the aggregate interests of the community.’

He finds that factions are inherent to societies of men, “The latent causes of faction are thus sown into the nature of man.”

He finds that they often arise from opinions regarding religion, government and property.

“Those who hold and those who are without property have ever formed distinct interests in society. Those who are creditors, and those who are debtors, fall under a like discrimination. A landed interest, a manufacturing interest, a mercantile interest, a moneyed interest, with many lesser creditors, grow up of necessity in civilized nations, and divide them into different classes, accentuated by different sentiments and views.”

He deduces that there only two methods of curing the mischiefs of faction, ‘the one by removing its causes; the other, by controlling its effects.’

He further deduced that removing the causes of factions can in turn only be accomplished by two methods, “the one, by destroying the liberty which is essential to its existence; the other, by giving to every citizen the same opinions, the same passions, and the same interests.”

The concept of abolishing liberty is without merit; it belies the purpose of government. It is “worse than the disease.” Likewise the “second expedient is as impractical as the first is unwise.”

Consequently, since the causes of factions cannot be removed, Madison argues, controlling the effects of factions is the only possible remedy.

“If a faction consists of less than a majority, relief is supplied by the republican principle which enables the majority to defeat its sinister views by regular vote.”

How then is the minority to be protected from a majority faction? Either by diluting passions or interests such than no majority faction forms, or by setting up an obstacle to the majority faction’s ‘schemes of oppression.’

So, Madison finds that the larger a society is the less likely it is to have majority factions to contend with. The larger the society, the more likely that there are numerous smaller factions. In the second case, where a majority faction already exists, only a republican government can protect the minority.

On why republicanism is superior to direct democracy, he offers, “…to refine and enlarge the public views, by passing them through the medium of a chosen body of citizens, whose wisdom may best discern the true interest of their country, and whose patriotism and love of justice will be least likely to sacrifice it to temporary or partial considerations. …it may well happen that the public voice, pronounced by the representatives of the people, will be more consonant to the public good than if pronounced by the people themselves.”

Madison argues that the larger a society was the better it would function as a republic, likewise the union of states would be better prepared to counter a faction than if the states operated independently in all respects. He offers specific examples,

“The influence of factious leaders may kindle a flame within their particular States, but will be unable to spread a general conflagration through the other States. A religious sect may degenerate into a political faction in a part of the Confederacy; but the variety of sects dispersed over the entire face of it must secure the national councils against any danger from that source. A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project, will be less apt to pervade the whole body of the Union than a particular member of it; in the same proportion as such a malady is more likely to taint a particular county or district, than an entire State.”

But don't worry they can run everything else.

You Can Stop Paying for Al Gore's Mistake

In Greece earlier this month, Al Gore made a startling admission: "First-generation ethanol, I think, was a mistake." Unfortunately, Americans have Gore to thank for ethanol subsidies. In 1994, then-Vice Presiden
Gore ended a 50-50 tie in the Senate by voting in favor of an ethanol tax credit that added almost $5 billion to the federal deficit last year. And that number doesn't factor the many ways in which corn-based ethanol mandates drive up the price of food and livestock feed.

Sure, he meant well, but as Reuters reported, Gore also said, "One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee and I had a certain fondness for the farmers in the state of Iowa because I was about to run for president."

In sum, Gore demonstrated that politicians are lousy at figuring out which alternative fuels make the most sense. Now even enviros like Friends of the Earth have come to believe that "large-scale agro-fuels" are "ecologically unsustainable and inefficient." That's a polite way of saying that producers need to burn through a boatload of fossil fuels to make ethanol.

Gore also showed that most D.C. politicians can't be trusted to put America's interests before those of Iowa farmers. But there is one pursuit in which homo electus excels: spending other people's money.

Beware politicians when they promise you "the jobs of the future." Last week, the Washington Post ran a story about a federal grant program in Florida designed to retrain the unemployed for jobs in the growing clean-energy sector. Except clean tech isn't growing as promised. Officials told the Post that three-quarters of their first 100 graduates haven't had a single job offer.

In May, President Obama came to a Fremont, Calif., solar plant where he announced, "The true engine of economic growth will always be companies like Solyndra." This month, Solyndra announced it was canceling its expansion plans. The announcement came after voters rewarded the green lobby by defeating Proposition 23 -- which would have postponed California's landmark greenhouse gas reduction law AB32 -- because voters bought the green-jobs promise.

Monday, November 29, 2010


Why should Social Security and Medicare foot the bill for irresponsible and crooked Wall Street bankers greed, an unnecessary war and unfunded drug program and fiscal irresponsibility by Washington.
We need to cut military spending, and cut " foreign aid." The very people who want to slash Social Security and Medicare are shouting for more unpaid Bush tax cuts for millionaires.
Are we that crazy we want people to work till their 70, really!
Now having said that we can look at means testing for Social Security, and here is one I just learned. Some of these millionaires on their second wives (trophy wives) and are on Social Security over 65 years of age their children under the age of 18 are eligible and get up to half of their Daddy's Social Security till they are 18. Whether they are his biological father or his step children.
That just seems wrong to me ! If those old guys want to trade in their first wives for young trophy wives isn't that reward enough!!!!!

Please Defend Jon Kyl

1) START Treaty?
2) First Senator to break earmark agreement after 3 business days to help local indians?
3) Boy, I'd really like to hear his opinions about Wikileaks!

Just embarrassing.

Sunday, November 28, 2010

Ronnie The Hero Reagan

Everybody's Hero Ronald Reagan (I still don't understand that phenomenon) I lived thru that idiotic period of lowering and then raising taxes, cutting goverment services putting sick people on the street to fend for themselves instead of getting needed medical help, and then in the end making government bigger that when it started under his administration, it's the truth look it up.
While he played the role of the nation's kindly grandfather, his operatives divided the American people, using "wedge issues" to deepen grievances especially of white men who were encouraged to see themselves as victims of "reverse discrimination" and "political correctness."

Yet even as working-class white men were rallying to the Republican banner (as so-called "Reagan Democrats"), their economic interests were being savaged. Unions were broken and marginalized; "free trade" policies shipped manufacturing jobs abroad; old neighborhoods were decaying; drug use among the young was soaring.

Meanwhile, unprecedented greed was unleashed on Wall Street, fraying old-fashioned bonds between company owners and employees.

Before Reagan, corporate CEOs earned less than 50 times the salary of an average worker. By the end of the Reagan-Bush-I administrations in 1993, the average CEO salary was more than 100 times that of a typical worker. (At the end of the Bush-II administration, that CEO-salary figure was more than 250 times that of an average worker.)

When it came to cutting back on America's energy use, Reagan's message could be boiled down to the old reggae lyric, "Don't worry, be happy." Rather than pressing Detroit to build smaller, fuel-efficient cars, Reagan made clear that the auto industry could manufacture gas-guzzlers without much nagging from Washington.

The same with the environment. Reagan intentionally staffed the Environmental Protection Agency and the Interior Department with officials who were hostile toward regulation aimed at protecting the environment. George W. Bush didn't invent Republican hostility toward scientific warnings of environmental calamities; he was just picking up where Reagan left off.

Reagan pushed for deregulation of industries, including banking; he slashed income taxes for the wealthiest Americans in an experiment known as "supply side" economics, which held falsely that cutting rates for the rich would increase revenues and eliminate the federal deficit.

Over the years, "supply side" would evolve into a secular religion for many on the Right, but Reagan's budget director David Stockman once blurted out the truth, that it would lead to red ink "as far as the eye could see."

N Korea and the Prospect of a "Two for One" Victory

The issue of nuclear proliferation trumps all others. If this matter is not handled correctly, it can literally have "Fall of Rome" consequences in our lifetimes. The Obama administration has been aggressive in it's approach to Pyongyang and our provocative posture is beginning to bear fruit. The North Koreans use brinksmanship all too often and it is time that their bluff is called. For the first time in forty years, the South is uniting behind a militant policy towards their belligerent neighbor.

Lets push harder - right now - in an effort to humiliate Kim Jong Il and his heir apparent son. They will have the option of escalating - a point beyond which they utterly lose the whole game - or backing down and losing the confidence of the Peoples Army and the Central Committee. Finally, China will understand that their ongoing support of Pyongyang is simply too expensive. The stakes are too high to let this tiny regime continue to thwart the will of the international community and stir up the possibly of nuclear weapons programs in Tokyo and Taipei.

What if they escalate? What do we do then? We have sufficient, massive airpower to quickly punish the North Koreans. It would be bloody, indeed, however their wad would be exhausted early on and artillery damage to Seoul would likely be far less than has been feared. The upside of such a war would be the end of the North Korean nuclear threat. We would have nipped it in the bud at great expense, however, at a tiny fraction of the potential cost in the years ahead.

Would they go nuclear? Thats highly doubtful. In fact, the evidence suggests they do not have a reliably deliverable bomb. If our shock and awe was properly targeted, we could take this possibly entirely off the table at the onset of hostilities. Obviously, they would know that going nuclear meant certain suicide - the US would be in a position to answer quickly and finally.

The "Two for One" nature of the victory is obvious. North Korea's success to date has emboldened the Iranians. Teheran would pay close attention to the events in Korea. If Pyongyang's nuclear production is shut down, Iran's would soon follow. There would be a new proliferation paradigm in place and it would not be hospitable to new nuclear states. Quite the opposite.

Saturday, November 27, 2010

wacky, wacky, New Republic. Terry must be in love.

 “You’ve Got Them All Wrong, Mr. President,”  the only true independents are white working-class men and women (actually, more the latter than the former) who “are susceptible to populist appeals” against “special interests” that “can include business as well as government. 
One of the main reasons white Americans who lack a college education and make only a modest income now tilt toward Republicans and their right-wing populist talk: Few belong to an institution that counters those opinions.
During the campaign, an unemployed Ohio steelworker told The New York Times, “We heard everything was going to change, but there hasn’t been much change and the unemployment is still bad and the area we live in is still really depressed.” Yes, Obama should have made a better attempt to explain to people like this steelworker how the financial crisis occurred and how health care reform will help to create a more decent, as well as more efficient, society. Social Justice!  
But, if that unemployed Ohioan belonged to a vibrant, powerful labor union, he might be able to see himself as a maker of change, instead of its victim—and thus absorb Obama’s message differently. White men and women who do belong to unions are still far more likely to support progressive ideas on a variety of issues and to vote for Democrats than are their non-union counterparts. 

Friday, November 26, 2010


Baxter my Republicans friends beat me up all the time with the retort" You never got a Job from a poor man", I need a snappy comeback!! The whole thing sounds like a class warfare to me but I am unable to comeback with anything to answer them.
I realize I got a job because I was qualified and fulfilled the requirements of the job opening, but somehow the point they are trying to make is jobs are created by the rich in this country so please let them continue to be rich! help help!!!

Monday, November 22, 2010

That Darn George Bush

Obama is victim of Bush's failed promises
Greener Pastures Column -- 5/ 15/10

Barack Obama is setting a record-setting number of records during his first year in office.
Largest budget ever. Largest deficit ever. Largest number of broken promises ever. Most self-serving speeches ever. Largest number of agenda-setting failures ever. Fastest dive in popularity ever.

Wow! Talk about change.

Just one year ago, fresh from his inauguration celebrations, President Obama was flying high. After one of the nation's most inspiring political campaigns, the election of America 's first black president had captured the hopes and dreams of millions. To his devout followers, it was inconceivable that a year later his administration would be gripped in self-imposed crisis.

Of course, they don't see it as self-imposed. It's all George Bush's fault.

George Bush, who doesn't have a vote in congress and who no longer occupies the White House, is to blame for it all.

He broke Obama's promise to put all bills on the White House web site for five days before signing them.

He broke Obama's promise to have the congressional health care negotiations broadcast live on C-SPAN.

He broke Obama's promise to end earmarks.

He broke Obama's promise to keep unemployment from rising above 8 percent.

He broke Obama's promise to close the detention center at Guantanamo in the first year.

He broke Obama's promise to make peace with direct, no precondition talks with America 's most hate-filled enemies during his first year in office, ushering in a new era of global cooperation.

He broke Obama's promise to end the hiring of former lobbyists into high White House jobs.

He broke Obama's promise to end no-compete contracts with the government.

He broke Obama's promise to disclose the names of all attendees at closed White House meetings.

He broke Obama's promise for a new era of bipartisan cooperation in all matters.

He broke Obama's promise to have chosen a home church to attend Sunday services with his family by Easter of last year.

Yes, it's all George Bush's fault. President Obama is nothing more than a puppet in the never-ending failed Bush administration.
If only George Bush wasn't still in charge, all of President Obama's problems would be solved. His promises would have been kept, the economy would be back on track, Iran would have stopped its work on developing a nuclear bomb and would be negotiating a peace treaty with Israel . North Korea would have ended its tyrannical regime, and integrity would have been restored to the federal government.

Oh, and did I mention what it would be like if the Democrats, under the leadership of Nancy Pelosi and Harry Reid, didn't have the heavy yoke of George Bush around their necks? There would be no ear marks, no closed-door drafting of bills, no increase in deficit spending, no special-interest influence (unions), no vote buying (Nebraska, Louisiana).

If only George Bush wasn't still in charge, we'd have real change by now.

All the broken promises, all the failed legislation and delay (health care reform, immigration reform) is not President Obama's fault or the fault of the Democrat-controlled Congress. It's all George Bush's fault.

Take for example the decision of Eric Holder, the president's attorney general, to hold terrorists' trials in New York City . Or his decision to try the Christmas Day underpants bomber as a civilian.

Two disastrous decisions.

Certainly those were bad judgments based on poor advice from George Bush.

Need more proof?

You might recall that when Scott Brown won the election to the U.S. Senate from Massachusetts , capturing "the Ted Kennedy seat", President Obama said that Brown's victory was the result of the same voter anger that propelled Obama into office in 2008. People were still angry about George Bush and the policies of the past 10 years. And they wanted change.

Yes, according to the president, the voter rebellion in Massachusetts was George Bush's fault.

Therefore, in retaliation, they elected a Republican to the Ted Kennedy seat, ending a half-century of domination by Democrats. It is all George Bush's fault.

Will the failed administration of George Bush ever end, and the time for hope and change ever arrive?

Will President Obama ever accept responsibility for something... - anything?

(Chuck Green is a veteran Colorado journalist and former editor-in-chief of The Denver Post.)

Sunday, November 21, 2010

George Schultz on Fareed Zakaria GPS

For those that missed it - I highly recommend today's GPS with guest George Schultz (4 minute mark to 24). Though he and I do not see things the same with respect to economic policy, his comments on diplomacy and geopolitics were spot on. I will be buying his new book, "Ideas and Action."

He was one of the good guys in the Reagan administration. His expert hand on the ship of State Department was very valuable to the Gipper. He sees things with a long view.

He offered many insightful thoughts on diplomacy and likened it to gardening. Our relationships with other nations can't be addressed in fits and starts. The relationships need constant care and maintenance. We cannot hope to go it alone in the 21st century.

Thursday, November 18, 2010

Hayek - Will - Paul


I remember reading Hayek's, "The Road to Serfdom" in college. It is an attack on soviet style central planning, which no one I know is in favor of.

(Of course now if you Google "Hayek" all you get is pictures of Selma Hayek's breasts -- which is actually more interesting than the book, and probably better for the economy overall.)

By the way Jim, George Will's erudite arguments never follow: They never run A-B-C-D-E, always C-A-D#-E.


1) It turns out that recessions are good; they cull out weak competitors.
2) Recent speculative bubbles, caused by poor oversight, have resulted in a colossal recession and high unemployment.
3) Ultimately this recession may put the economy on the right track. There is no reason to be unduly concerned about temporary high rates of unemployment which will be sorted out by market forces.
4) We should take this opportunity to cut taxes on the rich, because there is not an insurmountable problem, and all taxes are a drag on the economy.

(If you listen closely and give it the right cadence, you can almost hear George Will's voice.)

You can't push a string. You can either stimulate the economy now or enjoy a 10-year economic depression. I guess some people would prefer a depression to a second term for Obama.

Ron Paul, was smart enough to understand the Libertarian argument and stay on track. His Tea Party offspring are spouting gibberish.

More Evidence of Bush Failure


Depends on who is tinkering. As usual, Will says it all, much better that Jim G.

This lame-duck Congress - its mandate exhausted, many of its members repudiated - should merely fund the government for a few months at current spending levels with a "continuing resolution," then apologize for almost everything else it has done and depart. If, however, the 111th Congress wants to make amends, it should repeal something the 95th did.
In 1977, Congress gave the Federal Reserve a "dual mandate." Although the central bank is a creature of Congress, it is, in trying to fulfill this mandate, becoming a fourth branch of government.
The Fed's large, and sufficient, original mission was to maintain price stability - to preserve the currency as a store of value. "Mission creep" usually results from a metabolic urge of government agencies. The Fed, however, had institutional imperialism thrust upon it when Congress - forgetting, not for the first or last time, its core functions - directed the Fed "to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates." The last two goals are really one. In the pursuit of the first, which requires the Fed to attempt to manage short-term economic growth, the Fed has started printing $600 billion - this is the meaning of what is called, with calculated opacity, "quantitative easing."
Those running the Fed, says Rep. Paul Ryan (R-Wis.) dryly, "are really putting the fiat in fiat money" - money backed by nothing but trust in the judgment and good faith of the government creating it. The Fed is doing what the executive branch wants done but that the legislative branch will not do - creating another stimulus.
By seeming to do the president's bidding, the Fed stumbled into a diplomatic thicket. While the president was impotently accusing China of keeping the value of its currency low in order to facilitate exports, many nations were construing America's quantitative easing as similarly motivated currency manipulation. The primary purpose of quantitative easing might be to force down the yields of government bonds in order to induce investors to invest in corporate bonds and stocks. But when a predictable result of the policy is to devalue the dollar, it is a pointless parsing of words for Treasury Secretary Timothy Geithner, who serves a president who has vowed to double U.S. exports in five years, to say that America will never weaken its currency "as a tool to gain competitive advantage."

In a 2007 speech, Frederic S. Mishkin, then of the Fed's Board of Governors, lauded the dual mandate as "consistent with" the Fed's "ultimate purpose of fostering economic prosperity and social welfare." Note how easily the mandate to "maximize employment" becomes the grandiose, and certainly political, function of promoting, and therefore defining, "social welfare."  Sounds like the commerce cause to me.

Mishkin said "the rationale for maximizing employment is fairly obvious": "The alternative situation - high unemployment - is associated with human misery, including lower living standards and increases in poverty as well as social pathologies such as loss of self-esteem, a higher incidence of divorce, increased rates of violent crime, and even suicide." Obviously, some of the central bank's governors have been encouraged by Congress to think of themselves as more than mere bankers - as wizards of social control, even regulating society's reservoirs of self-esteem.

The Fed cannot perform such a fundamentally political function and forever remain insulated from politics. Only repeal of the dual mandate can rescue the Fed from the ruinous - immediately to its reputation; eventually to its independence - role as the savior of the economy, or of any distressed sector (e.g., housing) that clamors for lower interest rates. Ryan has introduced repeal legislation before and will do so again in January.

Fed Chairman Ben Bernanke has wistfully imagined a day when economists might get "themselves thought of as humble, competent people on a level with dentists." But that day will not dawn as long as the dual mandate makes it almost mandatory for him to vow that the Fed "can assist keeping employment close to its maximum level through adroit policies." Even defining "maximum employment" is a political as well as technical act.

Ryan, incoming chairman of the House Budget Committee, says the Fed thinks it can adroitly "put the cruise missile through the goal posts." But how adroit can Fed management of the economy be? No complex economy can be both managed and efficient, meaning dynamic. To think otherwise is what Friedrich Hayek called "the fatal conceit." That conceit can be fatal to the Fed's independence.

Tuesday, November 16, 2010

If you really want Socialism and a Great Depression, this is how you get it! By tinkering with the Fed's mandate.

Corker Calls for Dropping Fed Mandate on Jobs - Wall Street Journal, Nov 16, 2010.

Sen. Bob Corker (R., Tenn.) called Tuesday for a narrowing of the Federal Reserve’s focus to price stability, the latest attempt by a Republican to alter the central bank’s mandate.

A day after holding a long meeting with Fed Chairman Ben Bernanke, Corker said the central bank’s “overly broad dual mandate” should be changed so that full employment will no longer be its responsibility.

“The Federal Reserve is not seeking a change to its statutory mandate. The dual mandate is appropriate,” said Michelle Smith, spokeswoman at the Fed.

The Fed’s latest attempt to spur growth and jobs by buying $600 billion in government debt is coming under increasing fire from Republican politicians and economists who are worried it could lead inflation to move sharply higher in the future.

A top House Republican, Mike Pence of Indiana, said Monday that he plans to introduce legislation that would make the Fed’s focus on just fighting inflation. A group of Republican-leaning economists published on open letter in Tuesday’s Wall Street Journal asking Bernanke to drop the bond purchases, saying it could spark inflation and hurt the U.S. dollar.

“As a result of lengthy research and discussion, Corker believes now is the time to direct the mandate of the Fed to focus only on price stability,” the senator said in a statement.

The majority of central banks in large advanced economies have price stability as their only goal. But the Fed was given two objectives by Congress: after the 1930s Great Depression and high unemployment, the Fed was tasked with keeping the economy and jobs growing. Price stability was added following the double-digit inflation seen in the 1970s.

“I am concerned about inflation down the road,” Corker told CNBC. “The time is right for us to bring clarity to the Fed,” he said, adding he believes the current dual mandate can send misleading signs to financial markets.

Senate Minority Leader Mitch McConnell (R., Ky.) said removing the full employment part from the Fed’s mandate would only be “one of the many issues we’ll be thinking about in the coming weeks.”

Corker is a moderate Republican who is scheduled to be up for reelection in 2012. Moderate Republicans faced stiff challenges from the right at recent elections.

He is also a member of the Senate Banking Committee, which is slated to vote for the second time later Tuesday on the appointment of economist and recent Nobel laureate Peter Diamond to the Fed board. The Massachusetts Institute of Technology economist was rebuffed by Senate Republicans just weeks before winning the Nobel. Republicans said at the time that he lacked the appropriate economic policy background.

Monday, November 15, 2010

See what you think about his article. Not like anything I've read -- ever.

Wayne Madsen is pretty accurate in his reporting..historically


President Obama was urged by the few White House insiders from whom he still takes advice to leave the country on his ten-day Asian trip, his longest trip abroad since becoming president, in order to not inflict any more damage to the Democratic Party in the wake of one of the worst electoral defeats for the party of an incumbent president in recent history. According to sources close to the White House, who put themselves in great danger by even talking to members of the media, the plans to have Obama leave for a visit to India, Pakistan, Indonesia, South Korea, and Japan are an attempt to get Obama out of the country while top Democrats can sort through the political disaster created for the party by Obama's increasingly detached-from-reality presidency.
Virtual political guerrilla warfare has broken out between Obama's inner circle on one hand and senior Democratic officials, including outgoing House Speaker Nancy Pelosi, Democratic Party strategist James Carville, former Democratic National Committee chairman Howard Dean, and, behind-the-scenes, Vice President Joe Biden and former President Bill Clinton, on the other.

Top Democrats are still reeling from Obama's bizarre behavior at a $7500-a-plate fundraiser at a stately mansion at Brown University in Rhode Island on October 25. The fundraiser, organized by the Democratic Congressional Campaign Committee, was supposed to highlight Democratic Party unity. However, while Obama endorsed Democratic House candidate David Cicilline for outgoing Representative Patrick Kennedy's seat, the president failed to endorse Democratic gubernatorial candidate Frank Caprio over Republican-turned-independent, former Senator Lincoln Chafee. Obama's lack of an endorsement for a Democrat over a former Republican prompted Caprio to tell a radio show host that Obama "could take his endorsement and really shove it, as far as I’m concerned."

Later that day, Obama briefly appeared at the fundraiser at Brown University, where Democratic loyalists paid $7500 to hear Obama speak, but departed after only twenty minutes, telling the assembled guests that he had to go back to the White House to "tuck in my daughters, walk the dog, and 'scoop the poop." The Democratic faithful were appalled and shocked at Obama's quick departure and one of the three reasons he gave for it: to scoop up dog turds, as if the President of the United States actually performs such tasks with a phalanx of White House staff and Secret Service agents at his disposal.
Vice President Biden knows too well about Obama's lack of attention to his daily tasks of being president. The details of the fiasco at Brown soon were conveyed to Biden by his two old Democratic Senate colleagues from Rhode Island: Jack Reed and Sheldon Whitehouse. Biden was not amused about Obama's dissing of the Democrats in Rhode Island. A week later, Chafee defeated Caprio for the Rhode Island governorship, thanks largely to Obama's less-than-neutral stance in cutting a secret deal to support Chafee against Caprio.

White House leaks about the ineffectiveness of Obama's presidency are expandng beyond the revelations attributed to a former high-level Obama administration insider and which have been reported by a blogger named "Ulsterman." Some White House staffers have described a "reign of terror" in the White House over continued leaks and a troika of leadership that is making decisions without any input from the president. The troika reportedly consists of First Lady Michelle Obama, presidential adviser Valerie Jarrett, and the president's mother-in-law, Marian Robinson, who resides in the White House.
Not to be deterred, some White House staffers have sought out journalists and have arranged to meet them at nearby Starbuck's cafes to discretely convey to them inside information about the current disarray within the Obama administration. Some staffers have personally born the brunt of Obama's temper and witnessed his extreme narcissistic behavior. WMR has also learned from White House sources that Obama is taking presciption anxiety medication.

Vice President Biden, under intense pressure from some Democratic Party officials and Cabinet members to invoke Article 25, Section 4 of the Constitution and have Obama temporarily or permanently removed as president because of his mental incapacity to fulfill his constitutional oath as president is reluctant to take such drastic action. Biden feels that the country would "become unglued" after such action and he doesn't want to be the one who would be responsible for "picking up the pieces," according to a source who works within Biden's office.

Some staffers have said on deep background that the revelations by the ex-White House official to "Ulsterman" are not even half of the story about what is actually occurring in the White House.

However, Biden and other Democratic adminstration do believe that if Obama were to display some of the same reckless behavior publicly as many White House personnel have witnessed privately, there may be wide support for enactment of the provisions of the 25th Amendment.

Such a public display by Obama that could trigger succession action might involve a public outburst, including the use of foul language or a statement that Obama believes there is a conspiracy against him.

On October 5, Obama was addressing Fortune magazine’s “Most Powerful Women” summit in Washington, DC. During the middle of Obama's speech, the presidential seal fell off the podium. Publicly, Obama took the incident as a joke, but WMR has learned from White House insiders that Obama went on a tirade after the incident, accusing White House staffers of purposely not anchoring the seal to the podium. The White House supplies all the podiums and seals at all presidential addresses and the seal is usually well-anchored with four screws affixed to the podium. Obama reportedly "freaked out" and accused White House staffers of engaging in a conspiracy against him. The presidential tirade over such a trivial matter was not lost on senior administration officials who have witnessed Obama's lackadaisical behavior during the consideration of much weightier issues, for example, the war in Afghanistan.

Although some observers believe African-Americans would react negatively to the invocation of the 25th Amendment, WMR has learned that members of the Congressional Black Caucus would reluctantly go along with such a move. Many in their ranks, including outgoing House Judiciary Committee chairman John Conyers (D-MI) were outraged over Obama's lack of interest in Haiti after that nation's devastating earthquake. For many black caucus members, it was their first indication that there was something very wrong with Obama and his grasp of reality.

With Obama intent on running for re-election and seriously considering sending White House Press Secretary Robert Gibbs to the Democratic National Committee (DNC) to replace former Virginia Governor Tim Kaine, the potential Democratic challengers to Obama in 2012 are beginning to stir. WMR has learned that former DNC chairman Howard Dean is seriously considering a challenge to Obama as is Secretary of State Hillary Clinton, who will reportedly depart Foggy Bottom after Defense Secretary Robert Gates leaves his position, possibly in January.

Several top Democrats consider Obama's chances to keep the White House in 2012 as slim and they find it fanciful that White House policy adviser David Axelrod is moving back to Chicago to work on Obama's 2012 re-election campaign, an effort many Democratic officials find a "fool's errand."

Obama also is disengaged from the plight of his former Senate Democratic colleagues in the wake of their near loss of the Senate with a much-reduced majority. There is pressure on Senate Majority Leader Harry Reid to step down as Majority Leader. However, Charles Schumer (D-NY), who has been mentioned as a replacement, reportedly has let it be known that he will not carry Obama's water as Majority Leader and may not want the job after all. The Majority Whip is Dick Durbin (D-IL) but he is seen as part of the Obama Chicago Mafia and almost every Democratic senator agrees on one thing: they do not want Durbin as their Majority Leader. Obama, the titular head of the Democratic Party, has refused to weigh in with any effective leadership as congressional Democrats pick up the pieces and lick their wounds.

Meanwhile, a team of ex-CIA officers are traveling the globe assembling a dossier of documents on Obama's past, including his education, passport, travel, and residency records. The team has scoured Kenya, Indonesia, Pakistan, and other countries collecting documents that are not already mantained in the CIA's own files on Obama's past. There is a possibility, according to WMR's sources, that any "smoking gun" documents may be released while Obama is inAsia in order to elicit a public and, perhaps, irrational enough response from the president to prompt the public to begin raising questions about Obama's suitability for office. Such an incident would make it easier for Biden to begin the succession process that was previously considered when President Richard Nixon was drinking heavily and taking prescription medication during the final days of his administration, twice during the Ronald Reagan administration -- after the attempted assassination and in 1987 when he demonstrated early stages of Alzheimer's Disease, and during the Bill Clinton administration, when Clinton's self-destructive sexual antics had Vice President Al Gore considering taking similar steps.

Wayne Madsen (Washington)

I don't know, Jim. I like living in California.

Why Mr.Flake should have run for McCain's seat

Sen. Mitch McConnell recently played down the chances of an earmark moratorium in the Senate next year by saying, "I'm sure the president would love to have a legislative blank check."

You've heard appropriators make that argument before: If Congress gives up earmarks, it will be surrendering its power of the purse to the executive branch, ceding its authority under Article I of the Constitution by permitting the administration to decide the country's funding priorities.

Nothing could be further from the truth. In fact, much of the erosion of Congress' authority relative to the executive branch over the past two decades can be traced to its obsession with earmarks.

Congress has always had, and will retain, the ability to direct the administration to spend money on specific items, such as missile defense. It does so by authorizing specific programs and providing funding that can be used only for those programs.

What I am talking about, and what its practitioners are seeking to defend, is the contemporary practice of earmarking, which typically involves individual members of Congress identifying specific projects for which they obtain exclusive funding.

Those who view earmarking as an expression of the "congressional prerogative" sell Congress short of its pre- eminent role as the first branch of government. As the defenders of earmarking are fond of saying, earmarks represent less than 2 percent of all federal spending. Precisely! By focusing on a measly 2 percent of spending, we have given up effective oversight on the remaining 98 percent.

This lopsided exchange can be examined empirically. As the number of earmarks has risen significantly over the past two decades, the amount of oversight exercised by the House Appropriations Committee - as measured by the number of hearings held, witnesses called, etc. - has declined substantially.

It is as if Congress has called a truce with the executive branch: Don't hassle us about our 2 percent, and we'll offer only token interference with your 98 percent. Such a poor trade has not been made since the days of Esau.

Earmarks are often justified because members of Congress "know their districts better than faceless bureaucrats do." I'm not out to defend bureaucrats (they're hard to identify, being faceless and all), but if we don't like the way federal bureaucrats are allocating money, the answer is to stop giving them the money to allocate, or to narrow or broaden their choices through the authorization process.

The answer is not to run parallel spending programs in Congress. And given the disproportionate manner in which Congress spends money on earmarks, it seems that party leaders, committee chairs and appropriators know their districts a lot better than those rank-and-file members.

The public revulsion related to earmarks is largely a product of the perceived waste (teapot museums) and the potential for corruption (earmarks exchanged for campaign contributions). These are reason enough for a full earmark moratorium to be extended to both parties in the House, as well as in the Senate, as is the incongruity of cutting popular programs while doling out money for the Rock and Roll Hall of Fame.

But the most compelling reason to scuttle earmarks is simply that doing so will help balance the relationship between Congress and the executive branch. Without the earmark distraction, Congress can return to the deliberative process of authorization, appropriation and oversight, thus reining in spending abuses of the administration rather than simply piling on with spending abuses of our own.

Faux Conservative

Arnold Schwarzenegger pulled off some jaw-dropping feats as a movie action hero. But he saved the best for his last role — leaving the state of California in even worse shape than the man he replaced as governor after a recall.
Californians had high hopes for the Terminator when he rappelled into the 2004 race to replace the wimpy Gray Davis. At the time, the swaggering, cigar-puffing bodybuilder seemed like a shot in the arm.

He entered office claiming to be a conservative through and through, a disciple of big-thinking free-market economist Milton Friedman. Now he leaves sounding like his successor — the small-is-beautiful retread from the benighted 1970s, Jerry Brown.

In his first State of the State address, Schwarzenegger bemoaned the "staggering" $15 billion deficit he had inherited — an "aftershock of past financial recklessness." Well, last Wednesday, in a report that seemed to surprise everyone in (but few outside) Sacramento, the state's chief budget analyst estimated this year's shortfall at $25.4 billion.

How can this be? Check the text in which this editorial is floating. It's a list of California's many departments, offices, agencies, schools and quasi-governmental groups— a mare's nest of bureaucracy and red tape. It gives you an idea — but only an idea — of how smothering government has become in the so-called Golden State.

Schwarzenegger spoke of all this officialdom in that first speech. "We cannot afford waste or fraud in any department or agency," he said. "Every governor proposes moving boxes around to reorganize government. I don't want to move boxes around; I want to blow them up."

Judging by the list, he missed a few. The only thing he blew was a permanent hole in the state budget. From 2004 to 2007, Schwarzenegger and the wildly irresponsible Democratic state legislature increased spending by $34 billion, or just over a third.  California is required by its own Constitution to balance its budget. It hasn't done so without gimmicks since 1999.

Schwarzenegger also brayed about becoming California's "job czar." "I am a salesman by nature," he said. "And now most of my energies will go into selling California." Seven years later, the state's a tougher sell than ever.

By almost any measure, it's the most frustrating state in the union to do business. In 10 years, it has lost 640,000 factory jobs, or 34% of its manufacturing base. Unemployment, which in '04 stood at 6.1%, is today at 12.4% — close to its all-time high of 12.6%. Some 2.3 million Californians are without work. No wonder the state, with 12% of the nation's population, has 36% of the welfare recipients.

Schwarzenegger could have done something about this by opposing a climate-change law that may cost the state $100 billion and boost each citizen's cost of living by $7,857, according to Larry Bell of the University of Houston. Instead, he counts it as his crowning achievement.

Even without that ruinous law, an estimated 5,000 people flee the state's high taxes, business-unfriendly government and heavy-handed regulation for other states each week. Many are smart, can-do leaders in business and other fields who built the state's great wealth.

Once upon a time, Arnold Schwarzenegger, the great conservative hope, seemed to fit in. Then he exited, stage left.

Sunday, November 14, 2010


Suppose that every day, ten men go out for beer and the bill for all ten comes to $100 and if they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.)
So, that's what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." So drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?' They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
"I only got a dollar out of the $20,"declared the sixth man. He pointed to the tenth man," but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too.. It's unfair that he got ten times more than I!"
"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!  "The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, ladies and gentlemen, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier. "So simple a Liberal Democrat can understand it" ; Then again , maybe not !

Thursday, November 11, 2010

The Debt Commission Preliminary Proposals

There is a lot to like and dislike in the Debt Commission preliminary proposals. It is certainly not the plan that I would have come up with, however, I support it as a package absent any alternatives.

I am dismayed at the response it has received on Capitol Hill. The GOP doesn't like the revenue component (25%) and some Democrats are complaining about the relatively modest cuts in Social Security and Medicare. Geez Louise! Like it was supposed to be easy? We could balance the budget in five years (not counting interest payments which, of course, should be counted) painlessly, without upsetting any interest groups? Is raising the normal retirement age for Social Security to 69 in 2050 really a problem in 2010? When we are borrowing 40% of our spending?

And there is talk of surrender - a complete extension of the Bush Tax Cuts from soup to nuts. The Democrats have a Lame Duck session with large majorities and they do not believe they can beat a Mitch McConnell Filibuster!?

Our political class really is deteriorating. They are either not in touch with reality or grossly irresponsible. I think the White House would support the Debt Commission package if it were to reach the president's desk. Unfortunately, that is not going to happen.

I guess we get to wait for the real crisis - the one that will close the book on American global leadership and usher in an era of austerity unseen since the thirties. At this point, I simply do not see a more likely scenario.

Wednesday, November 10, 2010


Crazy Rich asks me to be his secretary.

Third time around, the Republicans say they mean business. But when asked how they will close the deficit, most explain they will cut taxes — which will only reduce government revenues further and increase the debt. Others, like Dick Armey, chairman of the Tea Party affiliate FreedomWorks, say they would eliminate the National Endowment for the Arts, whose budget is $167.5 million, approximately 0.01% of the federal deficit.   OK, but is a start and a reduction of government involvement in our lives, so why not start with small reductions, Crazy Rich?

On the Oct. 31 edition of 60 Minutes, Stockman weighed in on this madness. "We've demonized taxes," he said. "We've created almost the idea that they're a metaphysical evil ... It's rank demagoguery. We should call it for what it is. If these [Republicans] were all put into a room on penalty of death to come up with how much they could cut, they couldn't come up with $50 billion, when the problem is $1.3 trillion. So to stand before the public and rub raw this antitax sentiment, the Republican Party, as much as it pains me to say this, should be ashamed of themselves."   No, we understand that you a JUST interested in tax increases.

I would suggest three litmus tests to gauge whether the Republicans are serious about deficits: 1) Are they prepared to stop with the tax cuts? No, the deficits has ballooned because your party has gone into spending hyperdrive and it will only get worse if we feed the beast.  Because the deficit will keep widening with more of them. 2) Are they prepared to cut middle-class entitlements? Because the only places to find real reductions in federal-government spending are in the large, popular programs like Medicare and Social Security. Yes and if we do are you willing to resist the temptation to trot out starving Grandma's?  3) Are they ready to take on the Pentagon? Because at $717 billion, defense spending — more than half of all discretionary spending — has to be trimmed. Yes!  What part of we want to reign in spending do you not get?

These are not political statements. They are mathematical ones, and it is on understanding math, not politics, that the third Republican revolution now rests.  Do your math formulas have minus signs?

Oops. He is even going to lose Crazy Rich's vote.

WASHINGTON - The Obama administration has decided to begin publicly walking away from what it once touted as key deadlines in the war in Afghanistan in an effort to de-emphasize President Barack Obama's pledge that he'd begin withdrawing U.S. forces in July 2011, administration and military officials have told McClatchy Newspapers.
The new policy will be on display next week during a conference of NATO countries in Lisbon, Portugal, where the administration hopes to introduce a timeline that calls for the withdrawal of U.S. and NATO forces from Afghanistan by 2014, the year when Afghan President Hamid Karzai once said Afghan troops could provide their own security, three senior officials told McClatchy, along with others speaking anonymously as a matter of policy.

Tuesday, November 9, 2010

Healthcare? Healthcare for who? She'll be fine. A Tree Grows in Brooklyn

Would Some Actual Data Help?

For those who believe it was the magic of Clintonion tax increases that balanced the budget I offered some data. Actual facts, in fact. From January 1993 through December 2000, (for the historically challenged, that is Clinton's term in office) he enjoyed a mean value of 3.85% for US inflation adjusted GDP. From January 2001 through December 2008 (Bush's term) the mean growth rate was 2.03. Sometimes it is better to be lucky than good. I'm not sure Bush was either, but Clinton certainly was lucky, in my opinion.

You can go to this website and play with the dates and look at the data yourself from 1947 onward.


The notion that our best days are behind us is a thought embraced by those who either lack imagination and/or don't understand how successful people think and act. Incentives work. More is created. More can be shared. Disincentives work, too. Less is created. There is less to share.

In the words of Margaret Thatcher, "The problem with Socialism is that sooner or later you run out of other people's money to spend."



Monday, November 8, 2010

Now I don't want to get cross wise with Hags

Not realy cross wise, more as an starting point with our liberal brethern.

So, you guys want to tax the high earners to "make" $130B, and keep passing on our specific suggestions of spending cuts because...and boy have we heard this a lot...those cuts won't make a dent in the deficit.

OK.. but it is a start.

So, yes, Mr. Hags we can "grow" the economy but let's cut some spending.  You know, the department of energy, earmarks, PBS  all that crap

and Rich, if, and granted it is a big if speculating if your party would ever put country before politics, they cut some and we were still short, heck, even we rational conservatives might give a listen to taxes.

Sunday, November 7, 2010

Cutting Government Spending Is Good But Insufficient. Growing the Pie is Essential

I found this article insightful (see link) regarding Obama's understanding of our economy. The key to future prosperity for all is growth, and capitalism's risk/reward incentive system only works if those who take the risks get to keep enough of the rewards to provide incentive. Obama seems to have an instinct that tells him what enough is, and when enough is enough Obama will have the State confiscate the rest. Really. Check out the article. It is a quick and interesting read.


Massive redistribution leads to reduced risk taking which leads to reduce growth. We should reduce excessive spending, but we cannot cut our way to prosperity. We need to constrain spending AND grow the pie.



Saturday, November 6, 2010

Look at the budget and tell me what you want to cut and how much.

So says our friend Eric.

I wwould to freeze discretionary spending at 2008 levels.  I want to privatize the post office, Amtrak, and PBS.

I would eliminate earmarks and corporate tax breaks.

I would reduce the Federal government work force, in real terms, 5%.

I would significantly down size the department of energy and education.

I would raise the retirement age to 69 and while being revenue neutral, have medicare recipients pay 5% of their first $10,000 in charges.

I would limit, by shortening and eligibility, Federal Unemployment insurance.

You have other good ideas? I'm listening.
During a recent post election political discussion at my Tony club, a semi liberal made a statement which seems to be the fall back position for the blistered Democrats. "Well what about the mess your fella left?"

Let's blog about that for a moment.

In fact, let's look at the facts:

After the dot com bust and 9-11 as well as 2 wars (their necessity a topic for another time-wars they were), the 2007 deficit was a manageable portion of GDP and the unemployment rate was hovering around 5%. Not bad, granted earmarks exploded and discretionary spending rose too quickly but things were heading in the right direction.

Then...Too many folks bought homes they could not afford, this went on for a long time, aided and abetted by our government and corrupted by our banks, but EVERYONE should have known better and the S--t hit the fan.

THAT was the mess that was left, and a mess it was. However, it was not a mess involving the health care industry, it was a mess of lending and their response...more borrowing! Everyone not stupid like Paul K. knows that does not make sense.

So here we are in a new era (the last era lasting 2 years) and I have 2 things to say:

To my club friend who probably will never read this blog, but will hear reports from the pro, as well as Baxter...you keep implying that..".hey the Republicans got their turn at over spending, we get ours!" Is that your argument? Cause if it is, it is dumb.

More importantly, and I don't get this, what do you have against the TEA party?

The TEA party candidates seemed to run on principal and discussed difficult issues. I heard Rand Paul talk about entitlements, I heard Joe Miller talk about limiting unemployment insurance. You complain that the TEA party folks talk about limited spending and limited government but don't pony up THEIR entitlements.

That is just not true. We all know unless we deal with entitlements, we are on a quick road to bankruptcy. The TEA party is offering honest solutions and being treated like wacko's in the process. I liken the initial wave and their defeat to a sacrificial group offering peace in time of war.

What is a matter with you Liberals? Are you daft?

Taxpayer dollars -- WSJ

Peggy Pegs O and Mama Griz

Excellent post-election commentary from Peggy Noonan. Ms. Palin should tread lightly when referring to Reagan. Some, like Noonan, have both lived history and even remember it.

Noonan is no light weight and she gives O and Palin a modest spanking. Give it a read.


They seem confused

Reuters) - Demoralized Democrats face an uncertain future after their bruising U.S. election losses, and the soul-searching and finger-pointing already have begun. A debate raged about whether the party, which suffered its biggest losses in Congress since 1938, needed a dramatic shift in course ahead of President Barack Obama's 2012 re-election campaign.

Liberal Democrats demanded more confrontation and less compromise with Republicans, that worked so well, while party pragmatists called for bipartisanship and a move to the center after the election rout on Tuesday in which Republicans took control of the House of Representatives and picked up seats in the Senate.
Two years after Obama entered the White House with a promise to change Washington, voters did it for him in a result Obama termed "a shellacking."

Support for Democrats collapsed across the upper Midwest, a crucial building block in Obama's winning 2008 coalition, as blue-collar whites abandoned the party. It also weakened among independents, suburban voters and moderates, while turnout dropped among young and black voters.

"What is perhaps most remarkable to me was the inability of the Democrats to mount any kind of coherent argument in the closing months of the campaign," said Simon Rosenberg, head of the Democratic advocacy group.

It is not possible to be coherent when you are attacking the job creators when there are no jobs, spending vast sums of money when you have none.  It is very certain where the party stands...it stand for spending a whole lot of money, most of it wasted.

"Democrats are saddened and demoralized by this policy of appeasement," U.S. Representative Alan Grayson of Florida, who lost his re-election bid, said on MSNBC. "The center cannot hold. There is no center left. Either you deliver for the people on your side or you're gone. It's that simple," he said.

Each side has its idiots, he was theirs.  Good riddance!
But Democratic congressional leaders said the lesson of the election was that both parties needed to work together to find solutions on issues like high unemployment and economic stagnation. "If at the end of the day we play to a draw, achieve little or nothing, and try to celebrate with press releases, the American people will see right through it," Dick Durbin, the No. 2 Senate Democrat, said of the new Congress. "They want us to roll up our sleeves and find common ground."

Really?  So these guys want compromise?  They just want half the health care bill, because it will never grow.  Or another stimulus because the first was so effective.  They just want to be half as hostile to business and the suscessful.

Thursday, November 4, 2010

Creeping Socialism

I like Jim's last post too.

I don't think the US is in danger of becoming Scandinavia. The United States is not well suited by tradition, culture, or political design to become an egalitarian society. James Madison's slow moving constitutional framework is behaving just as he intended. We are insulated from a 'tyranny of the majority.'

I am disappointed that the politics of the day is much ado about nothing.

I am coming to the conclusion that the daily news is offered as a form of therapeutic catharsis for repressed, idle, middle aged males.

And it is conspicuously lacking in salacious content. At least they have plenty of nudity in Scandinavia.

Wednesday, November 3, 2010

What happened?

Well Obama and the Democrats got their asses kicked for starters; but that was not the only thing.
The TEA party brought together the previously silent majority who have previously thought and now say "enough"!

Limited government! Reduce spending! We really mean it and we want it now!

Baxter's gobbledygook is standard pabulum, "we just needed to spend more"!, "infrastructure will be our savior"! and the best..."it is really not infringing on your rights to make you buy health insurance"

All the crap about how we just need to tax more to enable our entitlement state to grow and provide for everyone so we can be like...France. Well the Franc's are rioting over early retirement. LET ME AND MY FELLOW CONSERVATIVES BE CLEAR, WE DO NOT WANT OUR COUNTRY TO BECOME A EUROPEAN SOCIALIST STATE. WE DO NOT WANT TO EMULATE THEM, WE DO NOT WANT TO HAVE A GDP TO TAX RATE LIKE THEM. AND THAT MY LIBERAL FRIENDS IS WHAT YESTERDAY WAS ALL ABOUT.  We want to cut taxes but cut spending more and yes that will require entitlement reform and standing up to seniors and yes the Liberals, putting party before country, will say we are being mean by letting people keep more of what they earn and that we want to starve grandma because we don't want to allow our country and our children's, children to become insolvent.  Yes we can!

Moving forward the Conservative hold much promise, especially with a foil like Obama but we also need results and a sorting our of our previous confusion.

The old Conservative collation was somewhat patched together and with the familiar refrain...I'm a fiscal conservative but socially liberal is hopefully sorting itself out. The TEA party is manifestly FISCAL!

But I am hopeful they, the Conservatives, will do a better job this time. But...we are going to keep our eyes wide open. I can still remember reading (and almost vomiting) about the proliferation of earmarks when the Republican's held congress.

If they cannot get that simple one straight right off the bat....well let's just say they better.

Are Republicans Blue Today?

I thought I was going to feel bad today and I don't. Perhaps it is because the "wave" had been well advertised in advance and it crested below the expectations of many on the right. Tuesday night was a good one for the GOP. However, many of my Republican friends are subdued today. I get the feeling they are more upset having failed to capture the Senate than they are happy for taking the House. It may also be that their party will need to put forth genuine proposals for spending cuts that they have heretofore avoided.

Are Republicans blue today or is something else going on?

It May Be Time for the Fed to Go Negative

N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President George W. Bush.

Published: April 18, 2009

WITH unemployment rising and the financial system in shambles, it’s hard not to feel negative about the economy right now. The answer to our problems, however, could well be more negativity. But I’m not talking about attitude. I‘m talking about numbers.

Let’s start with the basics: What is the best way for an economy to escape a recession?

Until recently, most economists relied on monetary policy. Recessions result from an insufficient demand for goods and services — and so, the thinking goes, our central bank can remedy this deficiency by cutting interest rates. Lower interest rates encourage households and businesses to borrow and spend. More spending means more demand for goods and services, which leads to greater employment for workers to meet that demand.

The problem today, it seems, is that the Federal Reserve has done just about as much interest rate cutting as it can. Its target for the federal funds rate is about zero, so it has turned to other tools, such as buying longer-term debt securities, to get the economy going again. But the efficacy of those tools is uncertain, and there are risks associated with them.

In many ways today, the Fed is in uncharted waters.

So why shouldn’t the Fed just keep cutting interest rates? Why not lower the target interest rate to, say, negative 3 percent?

At that interest rate, you could borrow and spend $100 and repay $97 next year. This opportunity would surely generate more borrowing and aggregate demand.

The problem with negative interest rates, however, is quickly apparent: nobody would lend on those terms. Rather than giving your money to a borrower who promises a negative return, it would be better to stick the cash in your mattress. Because holding money promises a return of exactly zero, lenders cannot offer less.

Unless, that is, we figure out a way to make holding money less attractive.

At one of my recent Harvard seminars, a graduate student proposed a clever scheme to do exactly that. (I will let the student remain anonymous. In case he ever wants to pursue a career as a central banker, having his name associated with this idea probably won’t help.)

Imagine that the Fed were to announce that, a year from today, it would pick a digit from zero to 9 out of a hat. All currency with a serial number ending in that digit would no longer be legal tender. Suddenly, the expected return to holding currency would become negative 10 percent.

That move would free the Fed to cut interest rates below zero. People would be delighted to lend money at negative 3 percent, since losing 3 percent is better than losing 10.

Of course, some people might decide that at those rates, they would rather spend the money — for example, by buying a new car. But because expanding aggregate demand is precisely the goal of the interest rate cut, such an incentive isn’t a flaw — it’s a benefit.

The idea of making money earn a negative return is not entirely new. In the late 19th century, the German economist Silvio Gesell argued for a tax on holding money. He was concerned that during times of financial stress, people hoard money rather than lend it. John Maynard Keynes approvingly cited the idea of a carrying tax on money. With banks now holding substantial excess reserves, Gesell’s concern about cash hoarding suddenly seems very modern.

If all of this seems too outlandish, there is a more prosaic way of obtaining negative interest rates: through inflation. Suppose that, looking ahead, the Fed commits itself to producing significant inflation. In this case, while nominal interest rates could remain at zero, real interest rates — interest rates measured in purchasing power — could become negative. If people were confident that they could repay their zero-interest loans in devalued dollars, they would have significant incentive to borrow and spend.

Having the central bank embrace inflation would shock economists and Fed watchers who view price stability as the foremost goal of monetary policy. But there are worse things than inflation. And guess what? We have them today. A little more inflation might be preferable to rising unemployment or a series of fiscal measures that pile on debt bequeathed to future generations.

Ben S. Bernanke, the Fed chairman, is the perfect person to make this commitment to higher inflation. Mr. Bernanke has long been an advocate of inflation targeting. In the past, advocates of inflation targeting have stressed the need to keep inflation from getting out of hand. But in the current environment, the goal could be to produce enough inflation to ensure that the real interest rate is sufficiently negative.

The idea of negative interest rates may strike some people as absurd, the concoction of some impractical theorist. Perhaps it is. But remember this: Early mathematicians thought that the idea of negative numbers was absurd. Today, these numbers are commonplace. Even children can be taught that some problems (such as 2x + 6 = 0) have no solution unless you are ready to invoke negative numbers.

Maybe some economic problems require the same trick.

Tuesday, November 2, 2010

Poor "O" the Repubican didn't win a majority in the Senate.

After the world class ass kicking of this evening, old Obama will be able to crow..."but we held the Senate"!

The only problem...he will not have anyone to triangulate against.

He still "owns" the economy and with his limited political skills (you hear it here first) will not compromise.

Had the Senate gone Republican, he would have a ready made villian, but not now.

Us good conservatves can hardly wait until tomorrows speech.  Watch him crow and eat crow at the same time.

Monday, November 1, 2010

Composition of the Electorate is Everything

Yesterday, the Washington Post released a poll showing that likely voters supported the GOP by 6 points (49-43) in a generic congressional ballot. This spread would lead to a gain of 50 - 60 seats. Registered voters actually prefer the Democrats by 4 points (47-43), which would lead to retention of Democratic control if they all voted. http://voices.washingtonpost.com/behind-the-numbers/2010/10/poll_republicans_lead_49-43_on.html

Further - in other polls - the "enthusiasm gap" is gauged to be 10+ points higher on the GOP side. Anecdotally, I have seen this to be the case and I do not believe that Democratic attempts to rally the base have borne much fruit. Tomorrow will be a good day for the GOP.

My bother-in-law suggested yesterday that the stock market will do very well going forward should the Republicans decisively win. So, I thought I would check out the record:

S&P 500 - Close Price at Inauguration - % Change - % per Annum

Obama: 805.22/1,183.26/+46.9%/+26.4%
GW Bush: 1,342.54/805.22/-40.0%/-5.0%
Clinton: 433.37/1,342.54/+309.8%/+38.72%
Reagan: 131.65/286.63/+217.7%/+27.2%

What is most impressive about this is that both Democrats inherited massive deficits and reduced them. Both Republicans created massive deficits. If I were to create a job growth chart, it would show similar results. Over 20mm jobs were created under Clinton, net zero under GW Bush. Facts are stubborn things, no?