Words of Wisdom

A friend sent me this statement in an email. Short and sweet. But how true it is. Read this, then stop and think about what it says. Profound, indeed. (emphasis mine)

You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is the beginning of the end of any nation. You cannot multiply wealth by dividing it." * Adrian Rogers, 1931*

Introduction to the Laws of Economics

To every action there is always opposed an equal reaction; or, the mutual actions of two bodies upon each other are always equal, and directed to contrary parts.- Newton's Third Law of Motion, translated from the Principia's Latin

In the politico-economic context, there is similar law at work: For every action, there is an equal and opposite reaction.

The trick – and the true art of economics or politics – is the ability to predict what reaction (or collateral damage) your action will cause. So, for example, if the government decides to borrow money to pay for its programs, it causes predictable effects on the general economy. First, the credit supply (and money supply) is reduced, as the available credit is taken up by the government, and less is therefore available to businesses and consumers. Second, because supply is affected, price is affected as well, so interest rates begin to rise. Third, to pay down that debt and the interest, the government (which produces nothing and has no ability to generate income) increases taxes to generate revenues. This in turn has the effect of further reducing the money available for investment by businesses and consumers.

All of this, of course, is quite simplistic, and many econometricians would express disdain and call it so, preferring to create complex formulae to describe and then predict these causes and effects. But it is important to remember that as Einstein once said, “the whole of science is nothing more than a refinement of everyday thinking.”

A politician, then, might retain an economist to assist in predicting the effects of a particular piece of legislation. If I raise the standards for fuel economy and emissions, what may I predict will be the result on the car industry? The economist would advise that this will require research and development, retooling, and a large expenditure of capital, and this will in turn increase the price of automobiles. He will also point out that this capital will likely be borrowed, which will have effects on money and credit supply, and the interest on that capital will also ultimately increase the cost of the car. The consumer, if he has no alternatives, will either choose not to buy, or will, if he buys, have less money available for other purchases, or for investment. If the particular automaker is already at or near the edge of being able to compete, because he has managed badly or has irresponsibly agreed to non-competitive wage and benefits levels for his workforce, then the economist would predict that this automaker will probably not recover his investment, will suffer from a non-attractive price and a corresponding lack of sales, and these factors will in turn create difficulty in repaying the capital borrowed. If, at some point, the automaker defaults or is slow in paying, there are other negative effects, all combining to make it all the more difficult for the automaker to compete efficiently. It the politician decides to insist that wages and benefits be protected at these non-competitive levels, he must know, and take into account, that this action will predictably and adversely affect the automaker’s ability to compete. If the politician also passes a law requiring the automaker not to sell at a loss, then the automaker will lose even more sales, and will lose cash flow which might have allowed the debt to be serviced in the short term, until efficiencies could be implemented to achieve a better cost structure. If he passes a law making it easy for unions to organize and grow, he has to understand that historically, increases in union membership (facilitated by their government-sponsored monopoly power) have caused a corresponding decrease in the number of jobs in the economy, by a startling 2:1 ratio. If he taxes the small business to the point of cutting its available capital, that money won’t be invested, those jobs won’t be created, that new equipment won’t be purchased, hence it won’t be produced, with corresponding effects on production inventories and, ultimately, jobs. The law always works – the art is accurately predicting what the effects will be, and balancing effects, aiming for those that are more tolerable.

Some collateral effects are more predictable than others. Whether one is a “supply-side” economist or not, it is generally predictable that tax increases have the potential to have negative effects on revenues, because the taxed parties take steps to avoid the taxes. Further, during economic contraction, there is both less profit to tax, and fewer people who are earning taxable incomes. So it was at least possible (some would say predictable) that federal tax revenue plunged, as it measurably did, in April 09 versus a year ago – by $138 billion, or 34%, according to a study by the American Institute for Economic Research. This is the biggest drop since 1981. When the economy is in recession, tax revenues go down. Six million people have lost jobs in the year ending in April, so income tax revenues are predictably down even more than the overall revenues above – by 44%. Hotair.com lists the annual US deficits dating from 2000 (which, along with 2001, reported surpluses), and only one since then (2008) is greater than 400 billion. Yet, the Obama government by its own estimates offers deficits of $1.75 trillion in 09, over $800 billion in ’10 and ’11, and additional $500 billion-plus deficits in each of the remaining years to 2019. And these estimates are based on questionable assumptions about growth, expecting a -1.2%, when the first quarter shows an annualized growth for ’09 of -6%! It is highly unlikely, with these revenues and the unemployment numbers, that we can expect a turnaround in 2009 that will produce the assumed growth levels. Using proper growth projections, the deficits in each year are 10% higher or more, and all those from 2014 and beyond are greater than 800 billion per year. Further, the $138 billion revenue shortfall has to be added directly to the bottom line deficit, meaning even with an economic turnaround of fantastic proportions, the deficit in ’09 will be at least $1.85 trillion.

These deficits have already hurt our ability to sell bonds, and if the recent credit downgrades of Japan and the UK are any indicator, we are facing downgrades within 5-8 years, meaning the cost of the debt will go up dramatically. Again, this is collateral damage, resulting from government monetary and fiscal policy and irresponsible legislative ambitions. Worse, it was all probable, if not predictable, yet the three key advisors for this administration – Summers, Bernanke and Geithner – all appear to believe they are smarter than the markets and can manipulate policy as necessary to correct or offset these known effects. So far it hasn’t worked. Despite spending $700 billion in TARP funds, the Treasury was showing no progress in loosening up credit markets. Most forms of credit were still unavailable, and the economy was reacting negatively world wide. So in March, rather than reassess the advisability of attempting a command economy following Keynesian principles, the Fed took another step to jump-start credit, by dropping short term rates to zero, committing to buy $300 billion in long term treasuries and $100 billion in GSE securities, and promising to buy another $750 billion of mortgage-backed securities of at least dubious value. Acting this aggressively and swiftly was an unprecedented play which meant that results were less predictable, but as our “Newton’s Third Law” makes clear, there were effects. He hoped credit would loosen as he made purchases monetizing treasuries that now total over $130 billion, for the first time in half a century. Instead, T-bond prices have continued to plunge, while interest rates are sharply higher. Treasury yields (10-year) are now climbing above 3.7%, the highest since November. That rate hurts other areas, because it helps determine mortgage lending rates. Desperate to reflate the housing market, the Fed, plunging ever farther into efforts to shore up mortgages, is now facing the wrath of bond investors. Despite half-a-trillion in mortgage security purchases, mortgages bonds have followed the same path as treasuries, with prices up and mortgage rates down.

In fact, debt buyers and bond investors are expressing concerns – the Chinese Premier in March said he was concerned about the safety of assets in US instruments. No wonder. Over $1.5 trillion of China’s $1.95 trillion in foreign currency reserves is held in US debt instruments. According to the Council on Foreign Relations, China holds $768 billion in US treasuries, $489 billion in GSE-agency bonds, $121 billion in US corporate bonds, and $41 billion in deposits. The head of China’s central bank has publicly advocated replacing the US dollar as the world’s reserve currency with the IMF’s Special Drawing Rights, beginning to shy further away from US debt. Yet, if China doesn’t buy our debt, then we must monetize it, meaning we buy it from ourselves by printing money, which results in inflation, in turn lowering the value of Chinese holdings. And if it buys the debt, it faces increasing risk, as noted above, of losses from a downgrade or default. With no apparent consideration of the collateral effects on the value of the dollar, Obama committed, apparently on the advice of Geithner, to a $100+ billion line of credit expansion at IMF (which supports, and in fact accelerates, moving to the SDR as a world currency reserve, rather than the dollar). Yet, in order to finance the deficit expected this year by the Obama administration, Treasury will have to issue at least $1.84 trillion in new debt, which doesn’t count the additional amount required if the economy rebounds slower than hoped, or worsens. And that doesn’t consider the costs of defaults in the trillions on credit that the government guarantees, or the new money to GM, or the money being requested by state and local governments. Printing money and inflating our currency won’t fix the problem either, because we still have over $14.5 trillion in outstanding Treasury, GSE and mortgage securities issued world-wide. Trying to deal with this new debt merely aggravates the problems with our existing debt. If five or ten percent of those trillions in instruments are put up for discounted sale by nervous investors, the sales that triggers would overwhelm the Fed’s proposed and continuing purchases. The US just doesn’t have enough money to “save” us. Yet, are such sales of treasuries possible? The reason these investors are nervous is fear of inflation and downgrading of credit – and our main debt-holders are already making public statements about this concern. So what do you think?

History instructs, without question, that following this economic path ultimately leads to stagnant markets, costly credit, and more failure. The USSR, with arguably the richest aggregation of natural resources in the world, did not fail because it lacked resources. It failed because it pursued a command economy, which blunted innovation, increased costs, and made markets wholly unresponsive to demand. Europe has stagnated in the last two decades not because its citizens are lazy or stupid, but because its social democratic policies squelched ambition, entrepreneurship, and productivity, while government competition for credit increased its cost, and government tax levels made the commodities necessary for growth far more expensive. These mistakes are invariably made by earnest folk who believe they have figured out the system, and are smarter than their forebears. We can only hope that Obama and his economic triumvirate are smarter than the markets, and can overcome all these pesky economic laws.

P.S. One (uncharacteristically) humble caveat: Despite my disdain for the excessively complex analyses of too many econometricians that lead them to miss the forest for the trees, the economy really IS complex, especially when it comes to timing. So while I have a high degree of confidence in the “laws” of econo-physics, I have much less confidence about the timetable when the predictable consequences of economic actions will come about. So if it takes the Obama Administration 12 years to wreck the dollar and the economy, I will admit error on the timetable but I’ll still say “I told you so.”

Europe Vs. America

Well, I've been neglecting the blog and I apologize. Now, I'm suffering battle wounds from a 10 month old large pup. He won. My left arm hurts...so typing hurts! For that reason, I'm simply going to post an article written in 2004 in the WSJ comparing America to Europe. Maybe all the socialists should go over there and live and see how "cozy" it is...

Europe vs. America Germany edges out Arkansas in per capita GDP.

Sunday, June 20, 2004 12:01 a.m.

The growing split between the U.S. and Europe has been much in the news, mostly on foreign policy. But less well understood is the gap in economic growth and standards of living. Now comes a European report that puts the American advantage in surprisingly stark relief.

The study, "The EU vs. USA," was done by a pair of economists--Fredrik Bergstrom and Robert Gidehag--for the Swedish think tank Timbro. It found that if Europe were part of the U.S., only tiny Luxembourg could rival the richest of the 50 American states in gross domestic product per capita. Most European countries would rank below the U.S. average, as the chart below shows.

The authors admit that man doesn't live by GDP alone, and that this measure misses output in the "black" economy, which is significant in Europe's high-tax states. GDP also overlooks "the value of leisure or a good environment" or the way prosperity is spread across a society.

But a rising tide still lifts all boats, and U.S. GDP per capita was a whopping 32% higher than the EU average in 2000, and the gap hasn't closed since. It is so wide that if the U.S. economy had frozen in place at 2000 levels while Europe grew, the Continent would still require years to catch up. Ireland, which has lower tax burdens and fewer regulations than the rest of the EU, would be the first but only by 2005. Switzerland, not a member of the EU, and Britain would get there by 2010. But Germany and Spain would need until 2015, while Italy, Sweden and Portugal would have to wait until 2022.

Higher GDP per capita allows the average American to spend about $9,700 more on consumption every year than the average European. So Yanks have by far more cars, TVs, computers and other modern goods. "Most Americans have a standard of living which the majority of Europeans will never come anywhere near," the Swedish study says.

But what about equality? Well, the percentage of Americans living below the poverty line has dropped to 12% from 22% since 1959. In 1999, 25% of American households were considered "low income," meaning they had an annual income of less than $25,000. If Sweden--the very model of a modern welfare state--were judged by the same standard, about 40% of its households would be considered low-income. In other words poverty is relative, and in the U.S. a large 45.9% of the "poor" own their homes, 72.8% have a car and almost 77% have air conditioning, which remains a luxury in most of Western Europe. The average living space for poor American households is 1,200 square feet. In Europe, the average space for all households, not just the poor, is 1,000 square feet.

So what is Europe's problem? "The expansion of the public sector into overripe welfare states in large parts of Europe is and remains the best guess as to why our continent cannot measure up to our neighbor in the west," the authors write. In 1999, average EU tax revenues were more than 40% of GDP, and in some countries above 50%, compared with less than 30% for most of the U.S.

We don't report this with any nationalist glee. The world needs a prosperous, growing Europe, and its relative economic decline is one reason for growing EU-American tension. A poorer Europe lacks the wealth to invest in defense, a fact that in turn affects the willingness of Europeans to join America in confronting global security threats. But at least all of this is a warning to U.S. politicians who want this country to go down the same welfare-state road to decline.

Shamelessly Taxing. This time, energy.

Well, another post about my FAVORITE guy, Mr. Geithner. As if being a tax cheat isn't enough, NOW he wants to tax American oil and gas companies because THEY are they ones that are responsible for Global Warming (and Our President has said he has NO qualms with gas being $4/gallon. Maybe because WE'RE paying for the gas he uses?!?!).

Hmmm...what happens when you raise taxes on companies, Mr. Geithner? Well, they raise PRICES on their consumers. Way to help out middle America, Mr. Secretary. Applause.

GetLiberty.org outlines this much better than I can...as I cannot separate my emotions at the moment. This guy is really pissing me off.

"There are two things profoundly wrong with this scenario.

First of all, the fact that a card-carrying tax cheat is dictating the nation’s weightiest tax policies is an abomination in and of itself.

Secondly, basing such monumental energy policies on the false premise of “Global Warming”—reinforced, of course, with junk science—should be a warning to all. This is particularly frustrating given the utter—and utterly unreported—lack of a consensus on the subject of anthropogenic climate change."

I don't know about you all, but I'm sure enjoying the gas prices at where they are now. Is anyone seeing a repeat of the Carter years when gas lines wrapped around city blocks?

From the Americans for Limited Government: Barack Obama is anxious to raise taxes on average citizens, and Mr. Obama and Secretary Geithner have no problem taxing energy producers that will only result in higher gas and oil prices! Tell Secretary Geithner to keep our gas prices low by calling his office at 202- 622-2000 telling him not target energy producers...or simply that the American people are on to him. TAX CHEAT.

The Rooster and the Hen

I'm sure most of you are familiar with Dave Ramsey. I wish more people WERE familiar with him and his teachings. Particularly those that are currently in Government positions and are responsible for our BUDGETS and SPENDING.

Anyhow, I stumbled across this poem in one of Dave's books, that was sent to him by his mother when Dave was struggling through a period of economic hardship due to high interest rates in the real estate business.

Again, I wish more people in Government positions would read and listen to Dave. The Rooster and the Hen says it all.

The Rooster and the Hen

Said the Little Red Rooster, "Believe me things are tough! Seems the worms are getting scarcer and I cannot find enough. What's become of all those fat ones? It's a mystery to me. There were thousands through that rainy spell, but now, where can they be?"

But the Old Black Hen who heard him didn't grumble or complain, she had lived through lots of dry spells; she had lived through floods of rain. She picked a new and undug spot, the ground was hard and firm, "I must go to the worms," she said. "The worms won't come to me."

The Rooster vainly spent his day, through habit, by the ways where fat round worms had passed in squads back in the rainy days. When nightfall found him supperless, he growled in accents rough, "I'm hungry as a fowl can be, conditions sure are tough."

But the Old Black Hen hopped to her perch and dropped her eyes to sleep and murmured in a drowsy tone, "Young man, hear this and weep. I'm full of worms and happy for I've eaten like a pig. The worms were there as always, but boy, I had to dig!"

This poem was written during the Depression. Strange how it still applies today, if not more than yesterday.

Civil Disobedience

While doing my daily blog stalking I came across a post at Blonde Sagacity that made me grin from ear to ear.

Civil Disobedience. The blog "Where's The Change" suggests stamping "Tax Cheat" on American Dollars that bear Tim Geithner's name. Hmmm. Now, while I don't think it's so much Civil Disobedience as just a nuisance to a certain "Secretary of Treasury," I do think it is a FABULOUS idea.

It probably wouldn't cause much of an uproar, but could you imagine, if every dollar was marked "Tax Cheat." That would at least let our Government know that we are on to them...

Obama was right in one thing. It IS time for a change. He's just not showing us any.

A Letter from Senator McCain--Economic Stimulus Package

I admit...I'm a Facebook-aholic. I received this update just a little while ago from Senator McCain: From John McCain Today at 9:15am

Recently, the Senate began debate on an economic stimulus package that is intended to get our economy back on track and help Americans who are suffering through these difficult times. Unfortunately, the proposal on the table is big on the giveaways for the special interests and corporate high rollers, yet short on help for ordinary working Americans. I cannot and do not support the package on the table from the Democrats and the Obama Administration. Our country does not need just another spending bill, particularly not one that will load future generations with the burden of massive debt. We need a short term stimulus bill that will directly help people, create jobs, and provide a jolt to our economy.

I believe we need to evaluate every bit of spending in this stimulus proposal with one important criteria - does it really stimulate the economy and help create jobs - if the answer is no, it does not belong in a so-called stimulus package. Furthermore, the stimulus must include significant direct relief to American workers in the form of payroll tax cuts and programs to help homeowners keep their homes. Finally, we need an end game to this stimulus so that when our economy recovers, these spending programs do not remain permanent and saddle our children with a skyrocketing national debt.

http://www.CountryFirstPAC.com/facebook/economic.htm

I appreciate the discussions President Obama is having with my Republican colleagues, but the time for talking has come to an end and we must now begin some serious negotiation. But as of yet, Republicans have not been given the opportunity to be involved. The House of Representatives passed a stimulus bill without a single Republican supporting it. In the Senate, the Democrat leadership is trying to jam the existing proposal through regardless of reservations from a number of members. With so much at stake, the last thing we need is partisanship driving our attempts to turn the economy around.

I have long been a fighter against wasteful spending in Washington and long an advocate for a balanced budget -- that will never change. I realize we face extraordinary challenges with our economy today, but that is not an excuse for more irresponsibly from Washington. I hope you will join me in saying no to this stimulus package as it currently exists by signing this petition.

Sincerely,

John McCain

Chair, Country First PAC

I've done my part.

I have written a letter to the POTUS and to my state's two Senators explaining why I do not think the American Recovery and Reinvestment Bill of 2009 is the way to pull this country out of its economic catastrophe. At this point, it is all I can do, you know, except for blog. I slept better last night knowing that I at least made an attempt to have my voice heard. Now, I'm waiting for my automatic response email. You know the one that tells me how wonderful this bill truly is and that it will cause my grass to grow green and a rainbow to appear above my house? But thanks for my concern--my opinion truly doesn't matter? Ahhh. The possibilities. If you haven't already, I highly recommend letting your Senators know that you oppose the bill as well.

An Open Letter to the Secretary of Treasury

By SouthernGirl

February 3, 2009

Dear Mr. Secretary:

I first want to offer my congratulations to you on your lofty position in our Government. I am sure it is quite a priviledge to be named The Secretary of Treasury.

On Wednesday, January 21, 2009, it was brought to America's attention that you failed to pay $34,000 in taxes. You told a panel of Senators that "These were careless mistakes. They were avoidable mistakes, but they were unintentional," Geithner told the committee. "I should have been more careful."

I have a severe problem believing that you made a careless mistake in reporting your taxes. When it is your job to know money and taxes, you should NOT make these mistakes. I suppose we can group you with the Weathermen of the Country...be wrong 90% of the time and still keep your job. If you don't feel that is a fair "grouping," I'd be happy to suggest that otherwise, we can simply group you with the Criminals.

In addition to you making a "mistake" in your taxes, you have allowed your boss to continue nominating and appointing people to key Governmental roles that have also "made mistakes" (some over $100K worth of mistakes) in their taxes.

I am not sure what kind of example you and your colleagues are trying to set for American citizens, but I am highly disappointed in the road you are taking. How come you made a mistake and get appointed to the highest office in the "tax world," yet if Joe Blow on Main Street made the mistake, he'd be sent to prison? I don't feel like the double standards that this current administration are acting on are setting a good example for Jane and Joe Blow.

With that said, I have contemplated to no longer withhold my taxes. Instead, I would open a savings account and place the money that would have been withheld in there. At year's end I would "accidentally" forget to send in the money I owe the Government.

When you and the IRS decide to confront me about this "accident" I will simply state, "these were careless mistakes. They were avoidable mistakes, but they were unintentional, I should have been more careful." After that, I would happily pay you my back taxes. Would that be ok with you? I mean, it was just a "simple mistake" afterall.

As I make a pretty measley salary, you and the IRS would probably not notice that I was not paying in my contribution to the Government. If this were the case, I would keep that money in my savings account UNTIL I felt that the Government is responsibly handling my money and not handing it out to every poor soul that "needs a hand out." (what's that called again, Wealth Redistribution?) When I felt that the taxpayers' money was being handled fairly and responsibly, then and only then, would I happily cut a check back to the Government.

Please note that I have used the word "contemplated." I am a law-abiding citizen that could never bring myself to commit such an act. I am highly disappointed, however, that the people that have been selected to make decisions in my Government do not share the same attitude. Unfortunately, for us all, there are plenty of people in this country that will think it is ok to do the same as you have. You have set the standard for us all.

I wish you the best of luck in your current role and can only pray that you will take the high road from now on. I unfortunately will not have another say in the matter until the second Tuesday of November, 2012, but hopefully by then the world will see you and your colleagues for what you truly are: Criminals.

Respectfully,

SouthernGirl

A Taxpaying Citizen of the United States of America

Paris rejects 'Obama-style' stimulus program

This weekend I posted about how Great Britain is starting to see the light when it comes to giving Parliament too much power.

This morning, I open my Outlook to find an email in my inbox titled, "Obama too liberal for France?!?" (click the post title to see the article)

Ok--is that a joke? Have we seriously just elected a President that is too liberal even for the liberal Parisians?

"It would be irresponsible to chose another policy, which would increase our country's indebtedness without having more infrastructure and increased competitiveness in the end," [Prime Minister Francois] Fillon said in a speech in Lyon.

It would be IRRESPONSIBLE to spend more money when we're already in so much debt. What a crazy idea.

Maybe we SHOULD follow the example of other countries (before we make our own mistakes). After years of socialism and liberalism, I think some countries are finally starting to see that the choices they've made could possibly be more trouble than they are worth.

THE COWORKER: "It's getting hard for me to hate France with Nicolas Sarkozy as their President."

Amen Coworker, Amen.

Follow the Leader

What are you teaching the American taxpayer? That it is ok NOT to pay taxes--just as long as you apologize and pay your backtaxes?

Obama 'Absolutely' Stands By Daschle at HHS

Daschle is not the first Cabinet choice that has had issues with his taxes.

Geithner failed to pay taxes as well.

I don't know...if I were the "average tax paying American," that didn't typically follow politics, I'd certainly take these two appointments as..."it's ok to not pay your taxes."

Team it up with alotting over $100 billion to the low-level income level, so that they become even more dependent on the government and what do you get?

A society that will depend and depend on the Big Ol' Government...that WILL eventually run out of money...and then be in an even worse crisis than we are now.

WHY is it ok to have two tax evading criminals in the POTUS's Cabinet?!? Is anyone else as enraged as I am? The double standards of this nation today are sickening.

**UPDATED February 3, 2009**Add Nancy Killefer to the list.

$93,000 To Congress Petty Cash

I'm getting ready to head to a Super Bowl party and not think about these things...but feel that this event should be duly noted.

So, I'm going to direct you to Wyatt Earp's blog...as a post has already been made about this...check out Support Your Local Gunfighter and be ready to be enraged!!! **UPDATE: February 3, 2009. While there has still been no mention of this $93,000 petty cash "raise" to Congress in the MSM (with the exception of Fox News), there are two Congress proposals out there with very little description. This petty cash allotment could very well fall under one of these (but who has the time to read the fine print of the 300+ page bill) or amendments to the bill?

An Inconvenient Truth

Market vs. Bailout

**A note from The General's Libertarian Friend:

As you know from our (almost heated) exchanges at the time, I think this was a tremendous misjudgment on the part of Mr. Paulson, Mr. Ryan, Mr. Becker. The damage to our free enterprise system of saying it needs to be “bailed out” was obviously going to be – and has proven to be – enormous and long-lasting. Just accepting the premise that the government can do better than the market at allocating resources makes it all but impossible for principled pro-market arguments to prevail in the future.

Free market adherents simply cannot say, “I favor the market except when the experts tell me there’s a big problem requiring government assistance,” and expect to be taken seriously in the future when arguing that some other idiotic interference in the market is a bad idea. Once you open the door to saying that there is such a thing as a “market failure,” you have forfeited in the public mind the right to object to the government fixing every market “failure” that someone declares to exist.

Now, as to this “crisis,” yes, there was a problem, or actually a bunch of government-created problems consisting of interference with the credit and housing markets – compounded enormously by the panic that was caused by Bush, Paulson, McCain, Obama, Frank, Becker, and a bunch of others saying, “There’s a great big problem here and it’s so bad we can’t even tell you what it is because it would scare you to death and set off a panic.” Duh, that was reassuring.

Now, you had a problem with (1) artificially inflated housing prices that needed to come down, (2) excessively risky loan portfolios had dropped down below their “true value,” (3) a government system concentrating the risk in just two major players (Fannie Mae and Freddie Mac) in the mortgage market, (4) a Federal Reserve (working in conjunction with the Treasury) terminally addicted to trying to micromanage the economy through interest rates and the money supply, and (5) lenders were excessively afraid to lend.

Now, here are some solutions to these five problems: (1) The market, (2) the market, (3) the market, (4) the market, (5) the market. You tell me why – certainly no one else has ever tried and I predict you won’t either -- there is ANY government solution that is better than the market for these five problems.

(1) Housing prices are “too high.” Well, the market can decide what the right price of a house is far better than any bureaucrat I’ve ever met.

(2) Risky mortgage bundles were priced “too low.” How the hell did anyone know this? “Too low” is a market judgment and the market was saying, “these things are toxic.” So the prices needed to go down. And the reason for stopping the market from doing its pricing job was -- some of the fools who bought these things might go bankrupt? So what? That is not a rhetorical question. So what? That’s what bankruptcy is for – the loan bundles could have been sold off in bankruptcy at a fair market price. (I actually know the bureaucrat who was assigned responsibility within GAO of monitoring the pricing of the TARP portfolios – back when they expected to have portfolios – and he was very open in saying that he couldn’t imagine how the government was going to be able to do that)

(3) Concentration of mortgage market risk in the Macs. Solution – stop doing that, abolish Freddie and Fannie, and let the market spread the risk among many players, any one of which could go bankrupt without a problem.

(4) The Federal Reserve trying to maintain a steady state economy by manipulating interest and currency – Solution, a steady medium of exchange (probably a money supply tied to GDP) so that the market can efficiently price goods, without trying to ensure there are no “losers.”

(5) Lenders were “too afraid” to make loans that made “good business sense.” Oh sure. And the government knows better than the people who have the money to lend what makes good business sense. Don’t tell me that the market couldn’t have solved this one in short order. Banks would have been happy to lend, at a fair price. But the Fed had convinced the businesses of America (and the world) that they had a God-given right to cheap credit forever, so the prices that the banks would have charged would have led to the bankruptcy of businesses who had bet their existence on interest rates never going up in risky times. That mind-set that cheap credit will always be available (caused by problem #4) obviously has to be corrected – even Obama and the liberals agree to that – and the market is the best corrective I know. What the Fed has been doing under Greenspan was every bit as arrogant Big Government (and every bit as damaging) as Keynes at his worst.

Now, knowing to an absolute CERTAINTY that junking the free market system in September 2008 would damage arguments in its favor for generations to come – damage that will literally cause the deaths of millions of children in sub-Saharan Africa, Bangladesh, and other economies on the survival margin – means to me you’d better be absolutely damn certain that what you’re doing is better than the solution the market would produce to the short-term problem in September 2008.

But not one economist or politician or analyst that I heard talking about the September 2008 bailout ever discussed the damage the so-called solution would have. All they would do is look at the mess the government had created by interfering with the market and say “well, that’s unacceptable, we’d better ‘do something.’”

This failure to make any effort to tell the public the costs and benefits of the government “solution” and the market solution (no quotes needed) was immoral. A corrective had to happen but the politicians were unwilling to tell the public that. So instead, they made the problem worse by many orders of magnitude than just letting the market work.

It was a level of irresponsibility that infuriates me to this very day and probably will for the rest of my life. To have had Republicans destroy the free market system … I just find it hard not to get angry about that.

And I’m sure not sympathetic to arguments that what Obama and his crew are doing is somehow worse than having our free market party wave the white flag of surrender.

Geithner enlists lobbyist as top aide

WASHINGTON — Treasury Secretary Timothy Geithner picked a former Goldman Sachs lobbyist as a top aide Tuesday, the same day he announced rules aimed at reducing the role of lobbyists in agency decisions. < Mark Patterson will serve as Geithner's chief of staff at Treasury, which oversees the government's $700 billion financial bailout program. Goldman Sachs received $10 billion of that money. Melanie Sloan, executive director of the Citizens for Responsibility and Ethics in Washington, said President Obama was retreating from his own ethics rules barring lobbyists from working on the issues they lobbied about during the previous two years. "It makes it appear that they are saying one thing and doing another," she said. **Please note that as of 1/28/09--the website for Ethics at whitehouse.gov is currently "under construction"--though it was up and running last week. Is someone having second thoughts?** (website)

Politics at its finest.

Enough is Enough-Stimulus Plan 2009

So, I'm a bit outraged at the moment...too much so to do any research--but am hoping to get some done tonight or in the morning. This is all I have to say for now. $4.19 BILLION to ACORN? And how is this to stimulate the economy? Ummm....the Catholic Church pulled their funds allocated for ACORN. Why do we, the taxpayers, have to support a non-profit organization that is under FEDERAL investigation? So more to come...just had to get that written before I explode.

Businesses Position in the Economy

Does Calvin remind you of anyone? ...This cartoon is over 15 years old!! (double click image to enlarge)