Does ‘coming out of the closet’ if you’re gay show courage? Probably not; as many, many have over the past few decades preceded you and it has become politically popular to support that ‘right’. In the same vein it is hardly courageous or ‘hero status’ to profess your religious preferences particularly if they’ve been predominant in your culture for centuries.

However, to stand up for Liberty and individual freedoms even when they rub up against your personal preferences and to believe in a society that is determined from the ground up and not the top down through government managing of those forfeited freedoms is not only unpopular but deserves to be called ‘courageous’.

As I heard a Pastor explain recently that, “Most things worth acquiring like ‘Rest’ or a ‘Quality Relationship’ are achieved indirectly through other investments”, most time into others which many times includes individual tolerance (the good kind) and the ‘inconvenience of Liberty’ as Jefferson put it.

While there’s fortunes and power to be gained in ‘Special Interest’ there’s hardly any in standing up for Liberty as Ron Paul and others could attest to (but wouldn’t). But the irony is that it is the agency of Liberty that produces social cooperation and true equality. Let’s be honest, we will never solve the inequalities in men by creating empirical homogeneity in the science labs of Universities and think tanks in Washington, that shape the blunt force of government policy; rather a limited government structure that is purposefully divided in its function to protect Liberty would be grand to have once again.

Stand up for the US Constitution and demonstrate Liberty in your personal lives. That my friends is courageous.

“You never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before.” Rahm Emanuel

If you look around your kitchen and garage you’ll find chemicals and appliances that are used every day that can be ‘weaponized’ into a smoke bomb, flame thrower or even worse. Obviously that wasn’t the original intent of the product, but under the right circumstances and wrong intentions bad results occur. Even something as innocuous as a suitcase can be turned into a ‘dirty suitcase bomb’. Remember after the fall of the Russian Empire we were afraid some of their suitcase bombs made it onto the streets?

A similar comparison can be made regarding social values, competing interests and how they are maintained and managed. James Madison called these special interests ‘Factions’ and warned about how divisive they could be in pitting one group against another, but also how healthy, as they provided the right friction in a Republic for order in the marketplace and a stable society. Madison and the other founding era fathers warned against the abuse and instability of democracy.

This week the Supreme Court has taken up two cases that will greatly impact our society, Liz Goodwin, Yahoo! writes regarding the Supreme Court’s decision to take up two gay rights cases, “Supreme Court gay marriage cases could set stage for dramatic societal changes”. On Tuesday the Court will decide whether California’s Proposition 8 ban on gay marriage denies rights and discriminates unfairly against gays. On Wednesday the Court will take up a case that will look at whether the 1996 Defense of Marriage Act which bars the Federal Government from recognizing gay marriage is constitutional.

Out of the two cases the CA Prop 8, Perry v. Hollingsworth is considered by both Pro and Anti-gay rights groups as having the most far reaching effect. “In Perry, there’s a possibility that the court could declare that gays and lesbians have a fundamental right to marriage just as heterosexual couples do. Such a decision would send a message from the court that both same sex and heterosexual relationships must be treated equally in the eyes of the law.”

The trickledown effect could result in restrictions on religious freedoms, adoption and contract law, personal property rights, health care and every other nook and cranny of society. What the Perry case does it reaffirms the Supreme Court and the Federal Government as ‘the law of the land’ and final arbiter. The irony here is that ‘The Majority’ for years has suppressed the rights of a minority (less than 10% of population) to protect societal norms where today the tables might be turned.

Madison in Federalist Papers #10 defines Factions or Special Interest, “By a faction, I understand a number of citizens, whether amounting to a majority or a minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adversed to the rights of other citizens, or to the permanent and aggregate interests of the community.” Madison goes on to write, “The latent causes of faction are thus sown in the nature of man; and we see them everywhere brought into different degrees of activity, according to the different circumstances of civil society. A zeal for different opinions concerning religion, concerning government, and many other points, as well of speculation as of practice; an attachment to different leaders ambitiously contending for pre-eminence and power; or to persons of other descriptions whose fortunes have been interesting to the human passions, have, in turn, divided mankind into parties, inflamed them with mutual animosity, and rendered them much more disposed to vex and oppress each other than to co-operate for their common good.”

Madison as well as the other framers understood the potential for abuse in a democracy as individuals through special interest will line up behind leaders to promote and protect their interests over the interests of others.

Special Interest groups play into the political dynamics as Madison had suggested, ‘an attachment to different leaders ambitiously contending for pre-eminence and power’ which divides men into parties. The Democrats pocket the Unions, Teachers and African Americans, while the Republicans herd family values, business and the defense industry.

“The two great points of difference between a democracy and a republic are: first, the delegation of the government, in the latter, to a small number of citizens elected by the rest; secondly, the greater number of citizens, and greater sphere of country, over which the latter may be extended.” Madison #10

Democracy if it works at all works best at lower rungs of government as there tends to be more homogeneity and common interests. The Constitution was constructed to restrain democratic rule, as Madison suggested “Factions tend to nullify each other.” This applies to other ‘Weaponized Causes’ like Gun Ownership, Security, Commerce, Education, Abortion, and Welfare as well. Today however, slimmer majorities rule over larger minorities and remove individual liberties for a ‘common good’. Early nationalists like Alexander Hamilton who were leery of individuals to behave correctly, were more in favor of an aristocratic rule but were in the minority,  as the US Constitution protected  state sovereignty and limited delegated power restrained the federal government and the instability of democracy. Factions (Special Interest) fought their battles at the state level and in the marketplace. Today however, at the whim of the next social or economic crisis Washington removes the rights and freedoms of one group in order to provide for another.

In a recent interview, Sandra Day O’Connor recalled fond memories of her colleague Chief Justice William Rehnquist with whom she graduated with from Stanford University and served with on the Stanford Law Review. In the interview she alluded to the progress the Chief Justice had made in ‘ruling for the majority’ when it came to landmark issues, inferring a greater importance of majority rule rather than constitutional rule of law. While the cautions of democracy have gone unheeded over the past century, with power concentrated in Washington, it now has been left in the hands of the democracy of nine to rule over the 315 million.

Recently, Mark Victor a Defense Attorney and Radio Host in Phoenix AZ speaking before a Republican group for Liberty asked, “With a show of hands how many are for Freedom!” Hands went up all around the room with many shouts. Next he started to ask, “How many believe in the freedom to practice your faith!” Again, hands up and screams around the room. After Mark was through the list of freedoms that appeal to Conservative Republicans, he asked, “How many are for the freedom to use drugs?” All of a sudden it fell quiet. Again, “How many are for the freedom to be gay or choose a nontraditional lifestyle?” No one raised their hands. Mark says he does that in Progressive Democrat meetings as well, and no one applauded or raised their hands in support of freedom of individuals to keep their paychecks, choose their schools, choose their health care or the rights of the unborn. Do you see the problem?

Thomas Jefferson put it this way, “I would rather be exposed to the inconveniences attending too much liberty than to those attending too small a degree of it”.

Madison’s remedy was the Constitution which created bicameral powers and dual sovereignty of state and federal governments that avoided systemic failure that was a characteristic of democracies in the past. Through decentralized state powers it allowed for government closer to the people and experimentation in solving social and economic maladies that allowed for failure and success. “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.”

At the end of the Constitutional Convention in 1787, a lady (Mrs. Powell) asked Benjamin Franklin, “Well Doctor what have we got a republic or a monarchy? To which he replied, “A republic if you can keep it.”

While the rights of each individual and the natural law freedoms that supersede government are in play through these rulings, an important issue lost in the fray is the federalist system that our nation was created from and maintains those freedoms. Jonathan Alder writing in Reason Magazine in defense of state constitutional power that keeps in check federal power, “The system of federalism is an essential guarantor of individual liberty and constraint on governmental power. As the Supreme Court noted in a unanimous 2011 decision, “federalism secures the freedom of the individual.” It does this by, among other things, forcing states to compete with one another for citizens by providing different mixes of policies (taxes, services, and legal guarantees) in an effort to discover the best mix. Where states get it wrong, such as by imposing excessive taxes or unjust laws, people remain free to “vote with their feet”  and move to a jurisdiction with laws more in line with their beliefs.”

The question to ask ourselves today is ‘Can we restore the integrity of the Republic?’, where most decisions that are made today in Washington would be made in private transactions, through local communities and State Houses. Or should nine jurors in Washington supersede individual liberty and rule for Special Interests?

Christopher Mahon, Editor

editor@ambidextrouscivicdiscourse.com

 

“You don’t become completely free by just avoiding to be a slave; you also need to avoid becoming a master.” Nassim Taleb

In Greek Mythology, Procrustes (who’s name means ‘The Stretcher’) the son of Poseidon, lured weary travelers from Athens to Eleusis to stay with him where he would fit them to his iron bed. He would stretch those too short to fit his bed and amputate the legs of those too long. Procrustes continued his reign of terror until Theseus traveling the same route killed Procrustes, by convincing him to fit himself to his own bed.

A Procrustes bed is used as a modern analogy of an “arbitrary standard by which exact conformity is required“. It has been used as comparisons in literature, math and computer science. In his 2010 book, ‘The Procrustes Bed: Philosophical and Practical Aphorisms’,  Nassim Taleb says that it is not only that many times we try to fit into wrong boxes, but that the emphasis is on the box rather than the object. He also points out the danger of overestimating or under estimating variables as in Modern Portfolio Theory that uses risk assessment like Bell Curve distribution sigmas to gauge investment pairing and balancing. In a sense, Modern Portfolio Theory is a Procrustes Bed as it lops off 3rd or 4th sigma risk as inconsequential, only to find out later as we have with recent financial crises, those variables played a greater role.

A Procrustes Bed analogy of government policy can be made in areas like health care, education and other areas where centralized government tries to create solutions. As Procrustes would stretch his shorter victims and amputate his taller ones, government health care policy would give more health care to the healthy and less to the very sick. Individuals with health care needs ‘out of the bed’ of protocol would either have to look for it on the private or black market while the healthiest would be required an annual exam and other benefits that they don’t want. The same could also apply regarding cost sharing as healthy and unhealthy would be in the bed with the same premiums. Alternative care options which even now are generally only available to those with discretionary income, might under government health care be outlawed or even more expensive. Those who have the money might be joining those already fleeing other nation’s government health care, like a Danny Williams former Canadian MP who flew to Miami, FL  for a heart procedure a few years back.

The Procrustes Bed of public education as it exists today is  particularly cruel. I’d refer to an earlier article on a brief history of US education, that was loosely state regulated, decentralized and adaptable to different regions of the country and even up until the early 20th century was local and neighborhood focused. Today education is highly centralized through the Dept of Education,  federal mandates and state enticements of money and credits to cash strapped states. Public school children are at the mercy of every new lab project coming through teacher colleges like Columbia, that weigh priorities of traditional skills of reading, writing, arithmetic and critical learning against socialization and tolerance which was John Dewey’s goal in the early 20th century, who believed changes in societies have to start in the classrooms. But the experiments are failing dramatically as US test scores have plummeted against other nations and the US has even pulled out of some competition.

If these experiments in healthcare, education and other non-delegated state powers had been done on a decentralized state by state  basis as was the original system, the failures would have been isolated, less impacting nationally and successful models would be adapted in other states.

The Procrustes Bed can be applied in so many areas where federal government in particular creates arbitrary policy with rigid compliance. There is almost a unanimous conclusion that something is wrong in Washington, DC, while some consider the government as being ineffective and needs to be ‘fine tuned’, most believe it is doing too much and needs to do less.

As a fitting (pun intended) end of the mythological story, Procrustes is done in by his own device. Wouldn’t a fitting end to an uncontrollable and runaway federal government be a Procrustes Bed of Constitutional measures?

Statists, Governmentalists, Collectivists for over a century now have lured weary citizen travelers journeying through life, into the secure and comfortable bed of federal government powers to solve all problems, only to find out too late the limits it put on individual freedom.  There is an inverse relationship between Government and Individual Liberty – as government power increases, individual liberty decreases. The framers of the Constitution understood the natural process of government was to grow and that it needed to be limited through constitutional restraint.

Are there Theseus’ in Washington or in state governments who can lure the Federal Government back into the bed of constitutional restraint so we can once again ‘fit it’ so it functions as was intended as a protector of individual liberties and not as a provider of rights and services?

Christopher M. Mahon, Editor

editor@ambidextrouscivicdiscourse.com

Federal Reserve announces Consent Order against Citigroup, addressing their deficiencies and corrective measures.

 

NOW, THEREFORE, it is hereby ordered that, before the filing of any notices, or taking
of any testimony or adjudication of or finding on any issues of fact or law herein, and without
this Order constituting an admission or denial by Citigroup of any allegation made or implied by
the Board of Governors in connection with this matter, and solely for the purpose of settling this 4
matter without a formal proceeding being filed and without the necessity for protracted or
extended hearings or testimony, pursuant to sections 8(b)(1) and (3) of the FDI Act (12 U.S.C.
§§1818(b)(1) and 1818(b)(3)), Citigroup and its institution-affiliated parties shall cease and
desist and take affirmative action as follows:
Source of Strength
1. The board of directors of Citigroup shall take appropriate steps to fully utilize
Citigroup’s financial and managerial resources, pursuant to section 38A of the FDI Act
(12 U.S.C. § 1831o-1) and section 225.4(a) of Regulation Y of the Board of Governors (12 C.F.R.
§ 225.4(a)), to serve as a source of strength to each of the Banks, including, but not limited to,
taking stepsto ensure that each of the Banks complies with the Consent Orders issued by their
respective banking agency supervisors and any other supervisory actions taken by their respective
banking agency supervisors.
Board Oversight
2. Within 60 days of this Order, Citigroup’s board of directors shall submit to the
Reserve Bank an acceptable written plan to continue ongoing enhancements to the board’s
oversight of Citigroup’s firmwide compliance risk management program with regard to
compliance with BSA/AML Requirements. The plan shall describe the actions that the board of
directors has taken since the Consent Orders became effective and will take to improve
Citigroup’s firmwide compliance risk management with regard to BSA/AML Requirements,
including, but not limited to, ensuring that such compliance risk is effectively managed across
Citigroup, including within and across business lines, support units, legal entities, and
jurisdictions in which Citigroup and its subsidiaries operate. The plan shall, at a minimum,
address, consider, and include: 5
(a) Funding for personnel, systems, and other resources as are needed to
operate a BSA/AML compliance risk management program that is commensurate with the
compliance risk profile of the organization and that fully addresses the organization’s
compliance risks on a timely and effective basis;
(b) policies to instill a proactive approach throughout the organization in
identifying, communicating, and managing BSA/AML compliance risks;
(c) measures to ensure adherence to approved BSA/AML compliance
policies, procedures, and standards, and ensure the timely completion of related projects and
initiatives; and
(d) measures to ensure the resolution of BSA/AML-related audit, compliance
reviews, and examination findings.
Compliance Risk Management Program
3. Within 60 days of this Order, Citigroup shall submit an acceptable written plan to
the Reserve Bank to continue to improve the governance, structure, and operations of the
compliance risk management program with regard to BSA/AML Requirements and the
regulations issued by the Office of Foreign Assets Control of the United States Department of
the Treasury (“OFAC”) (31 C.F.R. Chapter V). The plan shall, at a minimum, address, consider,
and include:
(a) The structure and composition of Citigroup’s compliance committees and
a determination of the optimum structure and composition needed to provide adequate oversight
of Citigroup’s firmwide compliance risk management;
(b) enhanced written policies, procedures, and compliance risk management
standards; 6
(c) the independence and authority of the compliance functions and related
compliance committees;
(d) the duties and responsibilities of the heads of compliance for global
business lines, the BSA/AML global program, and legal entities, as applicable, including the
reporting lines within Citigroup, and between Citigroup and its business lines and legal entities;
(e) a process for periodically reevaluating staffing needs in relation to the
organization’s compliance risk profile, and management succession planning for key compliance
positions;
(f) the scope and frequency of compliance risk assessments;
(g) measures to ensure compliance and improve accountability within
business lines and legal entities and their respective compliance functions;
(h) procedures for the periodic testing of the effectiveness of the compliance
risk management program;
(i) consistency with the Board of Governors’ guidance regarding Compliance
Risk Management Programs and Oversight at Large Banking Organizations with Complex
Compliance Profiles, dated October 16, 2008 (SR 08-8); and
(j) the findings and recommendations of the consultant engaged by Citibank
pursuant to Article V of Citibank’s Consent Order with the OCC.
BSA/AML Compliance Program
4. Within 90 days of this Order, Citigroup shall complete a review of the
effectiveness of Citigroup’s firmwide BSA/AML compliance program (the “BSA/AML Review”)
and prepare a written report of findings and recommendations (the “BSA/AML Report”). The
BSA/AML Review shall, at a minimum, address, consider, and include: 7
(a) The structure of Citigroup’s firmwide BSA/AML compliance program,
including reporting lines and taking into account the functions that Citigroup performs for the
Banks and Citigroup’s other subsidiaries;
(b) standards for BSA/AML compliance that apply on a firmwide basis,
including business lines and legal entities;
(c) the duties, responsibilities, and authority of Citigroup’s chief BSA/AML
compliance official, including reporting lines within Citigroup and from Citigroup’s business lines
and legal entities to the chief BSA/AML compliance official;
(d) communication of BSA/AML-related roles and responsibilities across the
organization;
(e) coordination among corporate BSA/AML compliance and the BSA/AML
compliance functions of the Banks, Citigroup’s other subsidiaries, and business lines;
(f) processes for monitoring business line and legal entity compliance with
Citigroup’s BSA/AML policies and procedures and BSA/AML requirements;
(g) policies, procedures, and processes, including, but not limited to, those for
identifying and investigating suspicious activity, and for filing suspicious activity reports;
(h) the scope and frequency of reporting with respect to BSA/AML compliance
within Citigroup, at a minimum, to senior management and board committees, as well as between
Citigroup and its business lines and legal entities;
(i) BSA/AML-related risk assessments;
(j) measures to ensure that any BSA/AML compliance functions, including,
but not limited to, transaction monitoring and suspicious activity reporting, that are performed by 8
Citigroup’s nonbank subsidiaries for the Banks or the Edge Act corporation are performed to meet
regulatory requirements;
(k) independent testing within Citigroup entities subject to BSA/AML
Requirements;
(l) training; and
(m) the findings and recommendations of the consultant engaged by Citibank
pursuant to Article V of Citibank’s Consent Order with the OCC.
5. Within 120 days of this Order, the board of directors of Citigroup shall review the
BSA/AML Report and shall submit an acceptable written plan to the Reserve Bank that includes a
description of the specific actions that Citigroup will take to continue to strengthen the
management and oversight of Citigroup’s firmwide BSA/AML compliance program, taking into
account the requirements of the appropriate federal or state supervisor of Citigroup’s functionally
regulated subsidiaries.
Progress Reports
6. Within 30 days after the end of each calendar quarter following the date of this
Order, the board of directors of Citigroup or an authorized committee thereof shall submit to the
Reserve Bank written progress reports detailing the form and manner of all actions taken to secure
compliance with this Order, a timetable and schedule to implement specific remedial actions to be
taken to address the recommendation in the Report, and the results thereof.
Approval and Implementation of Plans
7. (a) Citigroup shall submit written plans that are acceptable to the Reserve
Bank within the applicable time periods set forth in paragraphs 2, 3, and 5 of this Order. 9
(b) Within 10 days of approval by the Reserve Bank, Citigroup shall adopt the
approved plans. Upon adoption, Citigroup shall promptly implement the approved plans and
thereafter fully comply with them.
(c) During the term of this Order, the approved plans shall not be amended or
rescinded without the prior written approval of the Reserve Bank.
Communications
8. All communications regarding this Order shall be sent to:
(a) Jonathan Polk
Senior Vice President
Federal Reserve Bank of New York
33 Liberty Street
New York, New York 10045
(b) Kevin L. Thurm
Chief Compliance Officer
Citigroup, Inc.
399 Park Avenue
New York, New York 10022
Miscellaneous
9. Notwithstanding any provision of this Order to the contrary, the Reserve Bank
may, in its sole discretion, grant written extensions of time to Citigroup to comply with any
provision of this Order.
10. The provisions of this Order shall be binding upon Citigroup and its institutionaffiliated parties, in their capacities as such, and their successors and assigns.
11. Each provision of this Order shall remain effective and enforceable until stayed,
modified, terminated, or suspended in writing by the Reserve Bank. 10
12. The provisions of this Order shall not bar, estop, or otherwise prevent the Board
of Governors, the Reserve Bank, or any other federal or state agency from taking any other
action affecting Citigroup, the Banks, any nonbank subsidiary of Citigroup, or any of their
current or former institution-affiliated parties and their successors and assigns.
By Order of the Board of Governors effective this 21st day of March, 2013.
CITIGROUP INC. BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM

Full Text

Federal Reserve releases information highlighting their January FOMC meeting. They see moderate growth with the goal of ‘maximum employment with price stability’. Fed will maintain fed funds rate 0-.25% as long as unemployment remains over 6.5% and report projects inflation stable over next couple years in a 2% range. The committee also has decided to,

“continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”

Full Article

Release Date: March 20, 2013

For immediate release
Information received since the Federal Open Market Committee met in January suggests a return to moderate economic growth following a pause late last year. Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy has become somewhat more restrictive. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

FOMC Report

Banks and the financial systems around the globe are still recovering from the banking/real estate crisis of 2008 and many banks particularly in Europe suffered losses and levels of insolvency, could this weekend’s ‘mini-emergency’ in the small island of Cyprus and their banks be another fire starter?

The Eurozone in conjunction with the IMF for the first time required a depositor tax or confiscation of deposits in lieu of a bailout. At this writing it stands at under 100,000 Euros 6.75% and over 100,000 9.9% deposits could be seized. Henry Blodgett of the Daily Ticker summed it up this way,

Some of Cyprus’s banks, like many banks in Europe, are bankrupt.

Cyprus went to the eurozone to get a bailout, the same way Ireland, Greece, and other European countries have.

The eurozone powers-that-be (mainly Germany) gave Cyprus a bailout and insisted that the depositors in Cyprus’s banks pay part of the tab — a startling condition that has never before been imposed on any major banking system since the start of the global financial crisis in 2008.

The deal did not touch the bondholders. Why the depositors? These are folks who had their money in the banks for safe-keeping.

When Cyprus’s banks reopen on Tuesday morning, every depositor will have some of his or her money seized. The current plan is that accounts under 100,000 euros will have 6.75% of the funds seized. Accounts over 100,000 euros will have 9.9% seized. And then the eurozone’s emergency lending facility and the International Monetary Fund will inject 10 billion euros into the banks to allow them to keep operating.”

This leads to the question, “Could this spread to other banking systems? Particularly where banks are as insolvent or as in Ireland, Greece and even Spain where depositors had been calmed from bank runs through EU/IMF intervention with no threats to their deposits. The new game is if banks suffer further capital problems, deposits are fair game. Will depositors start to move their money?

While someone could say, “That’s why I keep my money in a highly rated bank or financial institution?” The reality is that no bank in the world (fractionalized banking) could survive a bank run and with the global financial markets as linked as they currently are, exposure and risks could change exponentially.

Wait! There may be good news. Like most systems (political, economic, etc) around the world, the ‘global financial system’ has become complex, monolithic and threatened by ‘fatal failure’ over the past 70 years, where a depositor run on a small Island bank in Cyprus or as we saw 5 yrs ago, a larger commercial investor run on a financial services firm like Lehman Brothers could lead to global financial collapse.

In recent history we’ve been seeing the unwinding of centralized government like the USSR in the late 1980s-90s which has led to decentralization and more autonomy in smaller nation groups like in the eastern block of Europe. We’ve also seen talks and moves away from a Britton Wood style reserve currency system as the US Dollar has enjoyed since 1944. Russia and China and other nations have entered into trading arrangements that don’t require settlement in USD. In addition, countries like Russia, China and India have made unconventional moves to pursue trading agreements in South America, Africa and other places.

These new trading and monetary policies may seem like a threat to the US in the short term as they may decrease the demand for the US Dollar and affect the ability of the Federal government to finance its debt, but that may be a blessing in disguise.

A decentralized system leads to robust, competitive and failure absorbing entities in governance, economics and monetary policy. Open or freer market opportunities facilitates this.

 

Christopher M. Mahon, Editor

editor@ambidextrouscivicdiscourse.com

 

 

 

 

“Do you want a government run by majority rule or a government restrained by its own documents?” Senator Rand Paul

The President last week was challenged by Congress to be specific in its ‘Drone Policy’ and other military permissible actions on US soil. Through Attorney General Eric Holder, he admitted it was ‘inappropriate’ and after Senator Rand Paul’s 13 hour filibuster of CIA Director nominee John Brennan, admitted in a letter the next day, “It has come to my attention that you have now asked an additional question: ‘Does the President have the authority to use a weaponized drone to kill an American not engaged in combat on American soil?’ The answer to that question is no.”

Was the President’s answer adequate enough and by what authority is that ‘NO’ tied to?

Senator Paul framed the issue in the first hour of the filibuster, “If there’s a gentleman or a woman with a grenade launcher attacking our buildings or our Capitol, we use lethal force. You don’t get due process if you’re involved with actively attacking us, our soldiers or our government. You don’t get due process if you’re overseas in a battle shooting at our soldiers. But that’s not what we’re talking about. The Wall Street Journal reported and said that the bulk of the drone attacks are signature attacks. They don’t even know the name of the person. A line or a caravan is going from a place where we think there are bad people to a place where we think they might commit harm and we kill the caravan, not the person. Is that the standard that we will now use in America?”

“I will speak today until the President responds and says no, we won’t kill Americans in cafes; no, we won’t kill you at home in your bed at night; no, we won’t drop bombs on restaurants. Is that so hard?”

Senator Paul’s response to AG Holder’s letter the day after the filibuster was ‘Hooray!’ as he felt that those who staged the filibuster received the answer they were looking for and the American people are better off in hearing it. But while the Administration was dragged from ‘inappropriate’ to ‘No’, and there may even be an implied constitutional principle rather than arbitrary power that makes that decision, it is vague at best.

A definition of ‘Arbitrary Power’:

“Having unlimited power; uncontrolled or unrestricted by law; despotic; tyrannical: an arbitrary government.”

John Locke, a seventeenth century philosopher that some refer to as the ‘Father of Classical Liberalism’ who’s ideas the founding era fathers called upon in creating the US Constitution said, “This freedom from absolute, arbitrary power, is so necessary to, and closely joined with a man’s preservation, that he cannot part with it”. The mortal sin of government is arbitrary power, while a government restrained by law (constitution) will survive.

This has been the history of the United States, even while constitutional boundaries have been slowly broken down and powers arbitrarily assumed by Washington have become more prevalent, the ‘SS America’ though her belly full with assumed authority in Washington still navigates and protects its precious cargo and passengers to some degree. But what transpired last week is very important in understanding the condition and restoration needed to right this Republic.

While the week started out very interesting as Washington rarely does, ‘aired its dirty laundry’ it became even more so as Senators John McCain and Lindsay Graham criticized Senator Paul and his colleagues that staged the filibuster the next morning. Senator McCain called some of Paul’s comments ‘Ridiculous’ and said,  “So we’ve done a, I think, a disservice to a lot Americans by making them believe that somehow they’re in danger from their government They’re not. But we are in danger. We are in danger from a dedicated, longstanding, easily replaceable leadership enemy that is hellbent on our destruction. And this leads us to having to do things that perhaps we haven’t had to do in other more conventional wars.”

Senator Graham added a rebuke and challenge to why now, “We should be talking about it. I welcome a reasoned discussion. But to my Republican colleagues, I don’t remember any of you coming down here suggesting that President Bush was going to kill anybody with a drone.”

To help Senator Graham’s memory, there were those in Congress (not many GOP) that criticized the Patriot Act and violations of FISA (Foreign Intelligence Surveillance Act) in unwarranted monitoring of emails and cell phone calls as there was a great public shift in tolerance at the time to give up personal freedoms for security. Many of the legislative and executive actions back then have paved the way for more aggressive legislation that could possibly violate state non delegated power and personal liberties like due process today. NDAA 2012 is a good example of that as around 20 states are in the process of creating resolutions and laws to ‘nullify’ it.

Senator Rand’s response to McCain and Graham was, “They are on the wrong side of history on this one. They believe that war is everywhere and there kind of with the President who believes there’s no geographic limitations. They also say that the laws of war apply, what the laws of war apply means is that you don’t get Due Process and I can understand that in a battlefield, you don’t read Miranda Rights, if you are shooting at me, we kill you. But they say America’s a battlefield and that’s a huge mistake. If we bring what is in effect Marshall Law to America, Americans will be really upset. These are the same people (McCain and Graham) that want to detain American citizens indefinitely without a trial.”

While to the ‘untrained eye’ these last few days may seem like a lot to do about nothing and they may automatically tune out politics or just can’t see drone strikes or other military actions on American soil. But consider, in ‘broad daylight’ we have an administration that can only muster up ‘inappropriate’ to describe the act of the federal government killing Americans without due process and many in Congress berating the questioners. If this is the response in public, what could happen in the ‘Fog of War’? Isn’t it important to tie these arbitrary powers to law and a system of authorization?

While filibusters are unique in that they happen infrequently, the filibuster by Senator Rand Paul and others was unique in that it called for less federal military intervention which we haven’t heard from in more than six decades. Interesting, a filibuster in 1917 by Republicans to kill pro-intervention into World War 1 was defeated by senate Democrats through cloture at the urging of President Woodrow Wilson.

Up until the early 1950s, many conservatives were non-interventionists and the ‘Old Right’ was committed to restraining executive powers until the late 1960s when neoconservatives began to endorse interventionism in opposition to the USSR.

The Right were generally dragged kicking and screaming into both world wars and as McCain et al demonstrated this past week, neoconservatives are having a very difficult time justifying the precious lives of our children, the destruction of important military assets and the sacrifice of individual liberty in a futile effort to buy off world support through aid and occupation and the pretense of security at home through paternalism.

As Ecclesiastes 1.9 says, “There’s nothing new under the sun.” What has been done is being done and whether it’s Conservative or Progressive ideology that you think is ‘new’, you are mistaken my friend.

But there is a ‘Plumbline’, a measuring stick that allows these old ideas to be rehashed and it protects liberty in the process. It’s the US Constitution, which says ‘No’ to federal power except for which has been specifically delegated and ‘Yes’ to the states for all other non delegated power.

James Madison writing in Federalist Papers 10 warned against the loss of personal freedoms in a ‘centralized government’, “A pure democracy can admit no cure for the mischiefs of faction(s) (special interests).. Hence it is, that democracies have ever been found incompatible with personal security or the rights of property; and have, in general, been as short in their lives as they have been violent in their deaths”.

Missing from the President’s and AG Holder’s response, as well as the media coverage and the critics of the filibuster is the US Constitution and a discussion of the limits of government power under it. Washington as we know it HAS TO live under arbitrary power to consolidate more power and the money that goes with it. For Individual Liberty to prevail and a healthy society as a result, constitutional authority must be reestablished.

To be blunt, it is the ‘Rand Pauls’ and Ron Wydens (sole Democratic Senator to speak at filibuster) whose job it is to dismantle (not change) Washington and it is the state legislatures around the nation whose job it is to resurrect State Authority in order to bring back Constitutional alignment.

Christopher M. Mahon, Editor

 

Christopher Mahon is the Editor of Ambidextrous Civic Discourse, ‘Where the Right and Left meet’; a place where you can find information about economics, philosophical and political issues that challenge those on the ‘right’ or the ‘left’ on what works best in society. At ACD you can find articles, essays and book classics on the subjects mentioned above that contrast differences like Keynesian vs. Classical Economics or the function of government – Negative vs. Positive Liberty. Please peruse our Library and videos. Chris has a Masters in Accounting and Financial Management. Learn more at –  www.ambidextrouscivicdiscourse.com

 

Federal Reserve just released their ‘Flow of Funds Accounts of the United States’ for the last quarter of 2012. The report measures increases in total domestic debt, including debt of the federal government. Total Domestic Non financial debt increased by almost 150% from the 3rd quarter and 28% from 2011 4th quarter. Within the debt category are: Households, Businesses, State and Local governments and the Federal government. Federal spending in the last quarter of 2012 increased by 11.2%.  For 2012 debt, households rose by  0.2, business 5.7, state and local contracted slightly at a rate of  -0.2 and federal debt increased by 10.9 for the year.

Since 2008 federal debt has increased each year by 24.2%, 22.7%, 20.2%, 11.4%, 10.9% respectively. Over the five year period 2008-2012 while total debt (as mentioned above) increased an average of 6.12% the Federal debt increased by an average 17.88%. The state and local government debt has decreased an average -1.4% during same period.

The stark reality is that creditors (and taxpayers) are no longer lining up to lend to household, business or even state and local governments. The federal government however has an open window to borrow continually and by many around the world is still seen as a safe harbor when assessing risk. The question is when will this end?

For a copy of the full report

 

Christopher M. Mahon, Editor

 

As the President and Congress face Sequestration, an imposed cut on spending increases of roughly 2% which would amount to $42 billion in FY 2013 according to the CBO (Congressional Budget Office). Most would agree that cutting 2% out of their home budget is no fun, as evenings out and other discretionary spending would suffer but it wouldn’t warrant the reactions coming from the Media, the President and other politicians in Washington.

Some  have argued against federal spending cuts and would say the more important issue is a ‘balanced budget’ and that raising taxes would be the better way to accomplish this, as you can pinpoint those taxes toward the wealthier class of citizens. Economists like Paul Krugman of the NYTimes go even further by inferring that private and government spending in the economy make no difference and that he could argue that money in government hands can be ‘invested’ more fairly. Free market believers on the other hand would make the point that Laissez-faire “an economic environment in which transactions between private parties are free from tariffs, government subsidies, and enforced monopolies, with only enough government regulations sufficient to protect property rights against theft and aggression,” is more efficient, less fragile and as a result of competitive markets allows for success, failure and the reallocation of resources to their most productive positions.

Today, if you are in the ‘Middle Class’ you might be expecting something from Washington as both parties in the 2012 election out did themselves in making promises to this class of people.

In two recent studies by Harvard Professors, they show that levels of public spending affects private markets and the economy in a negative way, (maybe Harvard Economic chairman Greg Mankiw is making some influence in the pro-Keynesian college curriculum). In the studies  ”Large changes in fiscal policy: taxes versus spending“, Alberto Alesina and Silvia Ardagna and “Do Powerful Politicians Cause Corporate Downsizing?” Lauren Cohen, Joshua Coval, and Christopher Malloy (all of  Harvard Business School), the ‘public versus private economy’ is taken into consideration on how they perform and interact. In the ‘Large Changes’ study, they look at OECD countries (Organisation for Economic Co-operation and Development) from 1970-2007 and identified periods of austerity where government was slashed and periods when government grew in proportion to the private market. While there has been criticism of the study, the study supports the Classical Market (Laissez-faire) concept that less government intrusion leaves the private market to ‘self regulate’, while isolating failures (which become systemic in centralized/government dominated markets) and through competition, creative models result that are more efficient and tailored to consumers’ wants and needs. In the second study, they track politicians in the US Congress that become Chairpersons or influential leaders of their party and whether or not that affects the amount of federal spending that flows to their home state and the effects of that spending. The study finds that there’s an almost 50% increase in federal spending that flows to the home state of the Congressman and that the change in public:private ratio (increase in public) has a dramatic negative influence on the state’s private industries with layoffs and economic slow downs resulting many times. In the first study, when public spending has been cut, and there were some isolated incidences of initial slowdowns, vibrant growth has followed. The argument being made by the White House and some in Congress is that if you cut federal spending the ‘fragile US recovery’ will stall. Many believe this has already happened and that the opposite should prove true that if you cut federal spending, putting more money in the hands of the individual and the private market, and if Washington gives clear signals to the credit markets and private capital sitting on the sidelines that Washington will ‘stand down’, that sustainable recovery is more probable.

Over the last Eighty years, Washington has built an intricate ‘Welfare and Warfare’ system that provides regulation and subsidizes to almost every area of society through business, individual and foreign aid. “Government spending at the start of the 20th century was less than 7 percent of GDP. It vaulted to almost 30 percent of GDP by the end of World War I, and then settled down to 10 percent of GDP in the 1920s. In the 1930s spending doubled to 20 percent of GDP. Defense spending in World War II drove overall government spending over 50 percent of GDP before declining to 22 percent of GDP in the late 1940s. The 1950s began a steady spending increase to about 36 percent of GDP by 1982. In the 1990s and 2000s government spending stayed about constant at 33-35 percent of GDP, but in the aftermath of the Crash of 2008 spending has jogged up to 40 percent of GDP.” USGovernmentSpending.com

While many Conservatives have warned of a growing ‘Socialization’ of  US society through federal domestic intervention into commerce, education, family and other areas of civilian life that in their view ‘robs personal freedoms’, Progressives have warned about a growing military complex as a result of protecting the US against terrorism abroad and more recently even domestically as we ‘hunt down’ homegrown terrorists. The US has been transformed from a predominantly ‘private society’ where most transactions happen without government intervention to a ‘mixed society’ where a considerable amount of daily transactions (direct and indirect) include government influence.

Washington has proved what the founding era fathers feared, that the nature of federal power and spending  is to grow and that they can’t police themselves. There are only two likely outcomes:

One is given in this illustration by Stan Druckenmiller a former ‘well heeled’ Hedge Fund Manager, ”The bond market is the banker for the federal government. Imagine if you will, your banker comes to you and you’re making $40,000/yr and lends you money at zero interest – no cost. Later, after you’re in debt $5 million, they realize, ‘He’s making $40,000 and has $5 million in debt!’ Suddenly your interest rate goes to 16% and carrying cost goes through the roof. That’s what will happen to the US government over the next 10 years, and it will happen suddenly like Greece. Greece was in good shape in 2010.” The market eventually gets it’s revenge.

The second, is happening but slowly as several states for various reasons (anti-NDAA and Gun Control legislation for example) are standing up to federal power that the states believe violate constitutional authority and are reclaiming those powers to protect their citizens. As Lincoln era legislation was passed in the 1860s: National Banking Acts, Legal Tender, Morrill Grants (education) and railway acts (early corporate cronyism) intended to nationalize power for a greater purpose of the ‘American Experience’ which was followed years later by FDR New Deal federal expansion of power as mentioned earlier in the article, popular sentiment has started to change as Americans are looking for relief and protection from a capricious federal government that it is out of control.

After World War 1, Presidents Warren Harding and Calvin Coolidge were met in 1920 with one of the worst Depressions in history as prices fell almost 20% (Wholesale by more than 36%). Some blamed it on returning troops from the war, others on monetary policy as interest rates were almost doubled and even some blamed gold and the anticipation of inflation (Federal Reserve policies). Harding and Coolidge cut  federal spending by more than 20%, considering government spending a burden on the private market, and the devastating depression of 1920 lasted approximately 18 months. Economists will point to the austerity cuts of the 1920s and Laissez-faire policies of Coolidge as the path to follow, while some instead will point to the aggressive spending of the New Deal era as the better solution for today. Keep in mind that the 1929 depression didn’t show ‘green shoots’ until 1937 and the stock market took 25 years to recover to its pre-crash levels.

The real question is more philosophical and goes to the core of Platonic and Hobbesian differences. Plato illustrated three classes of citizens in his Republic: A ‘Ruler’ class, ‘Warrior’ class and ‘Worker’ class. Washington today has become that Ruler class, while the courts and law enforcement could be the Warrior class and all others fall into the Worker class. Hobbes believed that ‘all men were created equal’ in the sense of potential and ability of each man to find life, liberty and to pursue happiness. In that philosophy our Declaration of Independence was forged and won, the US Constitution was built upon this principle that ‘men’ can find their way and through the voluntary and free association and exchange in the marketplace society is regulated and healthy, while government can play a small part in a negative position (stands down) to defend man’s property and individual liberties. These rights remain with man until man forfeits those rights when taking them from another. Which will we choose going forward?

Even if we took the advice of Coolidge and the studies mentioned above seriously and were able to make substantial cuts in federal spending and a robust recovery resulted; wouldn’t we find ourselves in jeopardy again as soon as the next crisis appears and the federal government steps in? In order to solve our spending problems we need to be fiscally responsible and we need to mend our Constitutional Fence.

Tell us what you think.

Christopher M. Mahon, Editor

editor@ambidextrouscivicdiscourse.com

 

 

 

Jerome Powell, board member of the Federal Reserve teed up his speech on ‘too big to fail’ At the Institute of International Bankers 2013 Washington Conference, Washington, D.C. on March 4, 2013 by saying, “In broad terms, these reforms (Dodd-Frank) seek to eliminate the expectation of bailouts in two ways–by significantly reducing the likelihood of systemic firm failures, and by greatly limiting the costs to society of such failures. When failures are unusual and the costs of such a failure are modest, the expectation at the heart of too big to fail will be substantially eliminated. My focus today is principally on the second of these two aspects of reform–containing the costs and systemic risks from failures, a goal being advanced by work to create a credible resolution authority.”

Powell who was appointed to the position May of 2012 and served as an Assistant Secretary and as Undersecretary of the Treasury under President George H.W. Bush and had worked for the Carlyle Group 1997-2005 graduated from Princeton and received his law degree from Georgetown went on to say,

“It is worth noting that too big to fail is not simply about size. A big institution is “too big” when there is an expectation that government will do whatever it takes to rescue that institution from failure, thus bestowing an effective risk premium subsidy. Reforms to end too big to fail must address the causes of this expectation.”

Powell remembering back to the Savings and Loan debacle, goes on to justify Fed intervention, “It happened in January 1991, at a time of great stress in the financial system and the broader economy, and only days after 45 depository institutions in the region had been closed and 300,000 deposit accounts frozen. My Treasury colleagues and I joined representatives of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board in a conference room on a Sunday morning. We came to understand that either the FDIC would protect all of the bank’s depositors, without regard to deposit insurance limits, or there would likely be a run on all the money center banks the next morning–the first such run since 1933. We chose the first option, without dissent.”

Powell believes that between the capitalization requirements in Basel III and the new oversights produced through Dodd-Frank of creating a ‘Single Port of Entry’ and a ‘Living Will’ type liquidation through Orderly Liquidation Authority (OLA) which he describes as similar to the bankruptcy process, that a banking systemic failure is less likely and that generally the financial markets are healthier today as a result.

“Under single point of entry, the FDIC will be appointed receiver of only the top-tier parent holding company of the failed financial group. Promptly after the parent holding company is placed into receivership, the FDIC will transfer the assets of the parent company (primarily its investments in subsidiaries) to a bridge holding company. Equity claims of the failed parent company’s shareholders will be wiped out, and claims of its unsecured debt holders will be written down as necessary to reflect any losses in the receivership that the shareholders cannot cover. To capitalize the bridge holding company and the operating subsidiaries, and to permit transfer of ownership and control of the bridge company back to private hands, the FDIC will exchange the remaining claims of unsecured creditors of the parent for equity and/or debt claims of the bridge company. If necessary, the FDIC would provide temporary liquidity to the bridge company until the “bail-in” of the failed parent company’s creditors can be accomplished.”

Critics of the OLA and other Dodd-Frank legislation say that basically the legislation promotes further Moral Hazard and ‘enshrines the taxpayer’ in the bailout process. In addition, it firmly places the federal government in the position of ‘choosing winners and losses’ as JP Morgan did himself during the Bank Panic of 1907, settling grudges and eliminating competition.

The ‘Living Will’ legislation requires ‘too big to fail’ entities to create a financial/legal document that outlines how the entity should be liquidated in case of ‘death’. Kind of like today’s Medical Proxies where care and decisions are given to someone else (receivership). It’s ironic that ‘end of life’ decisions, medical (Affordable Care Act) and financial (Dodd-Frank) all are ending up in the control of the federal government.

It was noted above that Mr Powell worked for the US Treasury prior to the Fed Reserve position which is fairly common and some view as producing a myopic view of financial problems and solutions. In addition, his work at Carlyle in Global investments reinforces the potential to maintain the status quo of a centralized financial system rather than alternatives that would diversify and minimize ‘long tail’ risks and systemic failure. As with many of our problems today, more government stands in the way of market solutions that allow failure that is not systemic, that is productive and the process reallocates resources to their more efficient uses rather than sophisticated ‘Crony Capitalism’.

To read the speech by Jerome Powell in its entirety.

Please share your thoughts with us and comment below. Thanks.
Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

Under the Dodd-Frank Act (2010) they’ve created a ‘financial utility’ called the Financial Market Utility (FMU) which is a system that helps manage counter party exchanges in the hybrid marketplace that has been created over the past 20 years or so. “Section 806(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act” or “Act”) permits the Board of Governors of the Federal Reserve System (the “Board”) to authorize a Federal Reserve Bank to establish and maintain an account for, and through the account provide certain financial services to, financial market utilities (“FMUs”) that are designated as systemically important by the Financial Stability Oversight Council (the “Council”). In addition, section 806(c) of the Dodd-Frank Act permits a Reserve Bank to pay interest on the balances maintained by or on behalf of a designated FMU.”

It was this system (FMU) that was part of the infrastructure in 2008 where the undisclosed risks that banks and other financial institutions were exposed to at the time that neither the institutions themselves or investors knew who were holding those risks. The government now through the Federal Reserve underwrites and regulates that risk through interest deposit influence and even ‘funding on behalf’ if needed.

This new language and function by the feds doesn’t protect you and I but rather exposes us to greater loss because it incrementally opens up even more moral hazard. What government does best is to create more efficiency in a bad system, which creates unintendeds and malinvestment that contributes to the next crisis.

In the 1939 Frank Capra fictional movie classic, ‘Mr Smith Goes To Washington’, we find after the death of a US Senator named Samuel Foley of a western state, the Governor of that state Governor Hubert “Happy” Hopper through pressure from his children appoints their Boys Club leader Jefferson Smith played by Jimmy Stewart to ‘go to Washington’ and take on the corruption and to build a boy’s park in his home state. Unfortunately for Mr Smith, being wet behind the ears and not knowing the harsh realities of the Belt Way and how favors and projects are bought and paid for, his efforts are challenged; as his colleague, also of the same state, senior Senator Joseph Pain played by Claude Rains and a powerful media magnate Jim Taylor who ‘runs the state’ plot Mr Smith’s demise through accusations of fraud and self aggrandizement in stealing the Boy’s Club money.

While Mr Smith is vindicated to some extent at the end of the film as the political graft of his state’s senior Senator Paine and media magnate Taylor is exposed, still you turn the movie off thinking that nothing really changes in Washington, DC.

I highly recommend the movie to our younger generation, and while it is in Black & White (for some reason that’s a ‘deal breaker’), you’ll enjoy it very much. But let’s modernize this story for today and address what most think – that ‘nothing really changes’ in Washington. Whether it’s a new President every four or eight years or even a grassroots movement like in 2010 when the GOP picked up many Congressional House and Senate seats, the frustration of most is the same as they see continued: budget deficits, US debt, and monetary policy that Washington uses to unconstitutionally over promise on yet more social, economic and foreign policy intervention at the expense of the Individual.

Enter Ron Paul stage left, arguably a ‘modern day Jefferson Smith’. While Paul raises the volume of conversation on both sides of the aisle and can even dominate a family dinner conversation; love, hate or ambivalence toward him, most would agree he has been consistently promoting the dynamics of applying the original meaning of constitutional limited powers, that there are specific delegated powers that belong to the federal (General) government and the non delegated powers belong to the states, municipalities and the Individual.

Representative Paul, retired last month and while we could discuss his failure/success in passing ‘constitutional’ federal legislation, he was known as ‘Dr NO’ where Washington tried to pass overreaching legislation that tread on state non delegated powers and he brought a voice to the forefront of the need to get back to limited government. Like Smith in the movie, Paul was marginalized by government collusion, insider deals and ‘Greater Good’ promises of national security, healthcare for all, and equality for the good of the ‘General Welfare’.

While it is important to send Congressmen to our US Capitol that understand and will vote pro-Constitution in an effort to protect Individual Liberties, it is even more important to send them to the state houses to resist federal overreach into non delegated powers.
Federal policies like the National Defense Authorization Act, Affordable Care Act and new federal Gun Control legislation are generally written in Washington and while they include invitations to special interest groups that can have influence in ‘authoring’, getting behind and supporting the legislation, the bill drafting rarely include the states or citizen groups of which they will have the greatest impact. The good news is that many states are standing up to these bills that while well intended, take away the non delegated powers of the states and create unintended results as have been seen through education, retirement, healthcare and employment.

The founding generation understood that limited enumerated federal power and all other power left to the states protected against a fragile and monolithic government structure that would be impervious to change and market dynamics. To paraphrase David Brooks, his recent comments on Meet The Press regarding the Newtown, CT shooting and federal gun control bills, “‘in New York City there’s literally a police station around the corner, a few minutes away, while in a small town in Wyoming, it could take 45 minutes to an hour if you are lucky..’” Brooks was emphasizing the differing needs and wants throughout the country and that to create ‘one size fits all’ policies are not practical and can be counterproductive.

Robert Natelson of the Goldwater Institute writing in The Original Constitution (2010), “One of the great achievements of the federal convention (1787) was the idea of dual sovereignty. Previously, people had conceived as sovereignty as an attribute always located in some one place. The Framers, however, drafted a document that divided sovereignty between states and federal government—or more precisely between the American people as a whole and subsets of the American people operating through their state governments.” Natelson goes on to use the Ratifiers’ understanding of what they were signing as delegates of the Colonies (States) at the time. He digs into rare documents of the colonial conventions that expose their fear of a runaway federal government that would eventually create one sovereign government and the rights of the people would be lost. While the states and local governments had the power to create or support churches, currency and covenants on how to live, they did not want that falling into the hands of a ‘General Government’.

Unfortunately for the signers it wouldn’t be long before those constitutional lines would be challenged as both Virginia and Kentucky in 1799 created resolutions written by Madison and Jefferson in opposition to the Alien and Sedition Act in part but also as the seeds of a monolithic process were already at work as the Federal Government proposed that they could regulate their own power through their three branches of Government. These resolutions were a wakeup call that the states had sovereign powers and that it was within their constitutional rights to defend them.

Madison warned, “Though clothed with the pretext of necessity, or disguised by arguments of expediency, may yet establish precedents which may ultimately devote a generous and unsuspicious people to all the consequences of usurped power.” Big Government if sold properly galvanizes a constituency of a majority over a minority only when the states shirk their responsibilities.

At the website Tenth Amendment Center, you can see which states have started to resist federal overreach into the non delegated powers of the states. Between ‘Health Freedom Acts’, Nullification, No Medicare Expansion and outright Rejection there are more than 40 states involved in resisting federal power in the Affordable Care Act. There are 17 states currently in different stages of nullifying the National Defense Authorization Act (NDAA 2012) legislation that allows the federal government to violate Due Process rights and potentially to commandeer state resources without state authorization.

Unfortunately, these success stories of the States standing up for their rightful powers and responsibilities are not covered on national news outlets and there is an obvious need for more resources and involvement in each state to resist a growing federal government and its overreach into state non delegated powers.

If, like after watching the 1939 classic ‘Mr Smith Goes To Washington’ you find yourself saying, “What can I do? Can there really be change?” The answer is yes but it’s not in Washington politics but at your State House or in your local legislative District. The powers of Nullification, Interposition and other Article V tools have lain dormant for years, but today is the day for states to take action. Get involved by getting local in your politics. You can find out what’s going on in your state by visiting the Tenth Amendment Center.

For years Wall Street and Washington has siphoned off our ‘best and brightest’ to concentrate power, isn’t it time through the sovereign powers of the states to diffuse Washington’s unconstitutional stranglehold on society?

Christopher M. Mahon, Editor

A very interesting exchange on Foxnews Sunday with Chris Wallace as Karl Rove, one of the panelists is asked about recent comments from Talk Radio host Mark Levin who said, “He’s also up there with that stupid little third grade white board of his, with his fourth-grade writing style, talking about how they committed $30 million to Tea Party candidates. Bring on your little white board. We’re ready!”

Levin, like many other media critics, grassroots Republican Party groups like the Tea Party are still hurting from the devastating loss the party suffered in 2012 and who blame Rove in part with supporting nominees and a ‘runaway platform’ after the convention last August that many states, local districts and the grassroots like the Tea Party didn’t support.

Karl Rove, a ‘Republican Strategist’ has been involved with the political process since 1968 and has worked with mostly ‘modern traditional’ Republican candidates whose policies generally support a large military footprint and supply side business incentives. Rove has played a part in both George H and George W Bush campaigns and other campaigns like Ronald Reagan’s.

Rove has been in the news lately when it was announced earlier this year that he was starting up the Conservative Victory Project, which is described on Wikipedia as, “the prominent Republican political activist, and the super-PAC American Crossroads. Its purpose was to support “electable” conservative political candidates for political office in the United States. The effort was prompted by embarrassing failures of several Tea Party and independent conservative candidates in the elections of 2012. The project has been strongly criticized by some other conservative activists.”

Rove goes on to make the point later in the Foxnews show, “Right. And our (Conservative Victory Project) object is, to avoid having stupid candidates who can’t win general elections, who are undisciplined, can’t raise money, aren’t putting together the support necessary to win a general election campaign, because this money is too difficult to raise to be spending it on behalf of candidates who have little chance of winning in a general election.” Wallace then goes on to ask this question to Bob Woodward, “Bob, what does it say about the Republican Party when you have Karl Rove stepping in there to say we have got to try to police those Republican primary voters — I mean, it’s part of the process, I’m not saying there is anything wrong with that, but they are trying to police who Republican primary voters are going to pick to go up against Democrats (interrupted).. and let me just finish the question. And, when you have Marco Rubio, who is pretty conservative and a Tea Party favorite giving the Republican response and the Tea Party thinks they have to have somebody else to give a response to the response?” Woodward then responds, “My last book is going to be called “Some People Never Go Away,” and Karl is going to get his own chapter (LAUGHTER) because he never goes away.”

Woodward goes on to point out, “I think the problem in the Republican Party is really not money. I think they’ve got lots of it. I think it is – theory of the case, why are we here, what is our message, how to connect to the real world and this idea about 30 million here, we’re going to do that, I think is the wrong track…you’re going to set yourself up as a kind of politburo, vetting these candidates …I mean the whole theory of Republicanism is to let the local state or a district decide.”

Is Karl Rove or other party advocates needed to sift out ‘unelectable’ candidates or can that be done through the ‘primary marketplace’ (as Rand Paul suggested) or from the ground up through local and district support for candidates and issues? If Rove is a problem is he merely a symptom of a greater problem that lies at the feet of the Republican National Committee (RNC)?

Many have tried to pin down a reason for the GOP’s victory in the 2010 election results: An economy in crisis, a rejection of Obama and the Tea Party and other grassroots movements that were calling for ‘limited government’ and ‘fiscal responsibility’. While incumbents were fair game, it was generally a big year for Republicans. Among record turnout, the GOP saw increased numbers in most categories and young people in particular.

The college students that were turning out for Tea Party and other grassroots movements that centered on ‘Liberty’, ‘Limited Government’ and the Constitution seemed to strike a chord with the message. But then they saw their candidate Ron Paul vilified and marginalized in both the news media and the debates. The issues that were important to them – limiting federal power, free markets, keeping federal government out of social issues and a ‘constitutional compass’ weren’t taken seriously. But they were told, even though their candidate was battered and bruised all was not for nothing as the Convention in August (2012) would show that they were heard loud and clear and that some of those issues would make it onto the RNC platform.

In ‘RNC Rule 12: The Death of The GOP?’ during the RNC Convention last year I wrote about the latest RNC rule change to control the national platform. “The RNC Rule 12 that was enacted yesterday gives the ability of the GOP establishment in Washington the power to change rules and regulations quickly to destabilize grassroots movements that have less funds and influence in order to centralize power and the platform. Tea Party-type fires will be extinguished way earlier and if you happen to be in a majority interest today, good luck when the majority changes tomorrow due to special interest winds – platform will follow favor and money. Any creative grassroots movement going forward unfortunately will occur outside the GOP brand.”

The history of the Republican Party starts in 1854. The history of the RNC starts in 1856, launched with the goal of equal representation throughout the states through one representative from each state. The idea was that through local and diverse representation the people would be heard and constitutional liberty would be protected and ideas and solutions would germinate locally and arrive in Washington to create a national platform. As years have passed that representation has changed and power has moved from the rural and urban locales to Washington, DC. Ironically, Woodward unlike some of the GOP panelists picked up on that.

If the Republican Party can solve their problem of representation and the irresistible urge to centralize power in Washington, maybe that can be reflected in their national platform that puts the authority of the Constitution first in governing under the delegated powers and protecting the non delegated powers that were to remain in the states. Is the fate of the ‘Grand Ole Party’ the fate of a Nation?

Christopher Mahon, editor

 

Remember Bowles-Simpson? They are back with a new plan and are the GOP getting ready to announce a ‘Flat Tax’?

Erskine Bowles and Alan Simpson of  the President’s  National Commission on Fiscal Responsibility and Reform which released a budget proposal on December 1, 2010, proposed $4 billion in deficit cuts and to a balance budget by 2035, Congressman Paul Ryan(R) was also on that committee and came out with his own plan that proposed to eliminate the US deficit in 30 years and to reduce the US debt, the 2012 version passed the House along party lines in 2011. Unfortunately nothing passed the Senate and nothing made it to the President’s desk to sign.

The new Bowles-Simpson plan is a little lighter as it would cut $2.4 billion over 10 years, cutting $600 billion from Medicare and Medicaid, $600 billion from new tax deductions and tax revenues, while $1.2 Billion in discretionary spending would be cut. It would also consider changes to slow increases in Social Security and other federal retirement payouts.

Last night at an Arizona Maricopa County Legislative District meeting, US Congressman David Schweikert(R), former Committee Member on Financial Services, shared his frustration in solving the budget and deficit problem and spoke of the urgency of a budget and how four years without one has meant no formal financial decisions made and that borrowed money goes to post budget commitments or status quo which compounds many financial problems within government.

Schweikert also hinted at a ‘news making’ tax policy announcement to be released by the GOP later this month, that would be ‘Flat tax’ in nature and could be a game changer in the Sequestration drama. Could mortgage interest, 179 deductions (accelerated depreciation) for business be on the table? Would GE (years ago paid no taxes on profit) or Face Book this year have to ante up? Schweikert believes this will force the Democrats to have to use logic and numbers in approaching spending and not emotional appeal to the public that he says quite frankly has been working.

The skeptic in me thinks this may be more of another stall to kick the can down the road a few more months for another ‘financial cliff’ or sequestration crisis. We’ll see.

Christopher M. Mahon, Editor

 

Federal Reserve Governor Elizabeth A. Duke spoke At the Southeastern Bank Management and Directors Conference at the University of Georgia today commenting on the state of and future of the Community Banking system. In her speech this morning she said, “Just as the seeds of a crisis are often sown in earlier boom times, strength can be forged during the tough times that follow a crisis. As we did in the early 1990s, bankers and regulators today have learned from the lessons of the crisis and are determined not to repeat the mistakes of the past.”

She also refers to the 1991 Savings & Loan crisis and the federal banking regulations that followed. “I hear from a lot of community bankers who are concerned that the community banking model might not survive. Many paint a picture so bleak that they see only personal retirement or sale of the bank as viable strategies. I completely understand how tiring it is to fight a financial crisis and survive a deep recession followed by a weak recovery only to confront what seems to be a tsunami of new regulations.

I felt all of those same emotions in 1991. I was a community banker then. We had survived the savings and loan crisis with some bruises, but we were still standing. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) had been followed by the Federal Deposit Insurance Corporation Improvement Act (FDICIA) in 1991. I had more new regulations stacked on my desk than I had employees in the bank. My bank had just reached the $100 million mark in total assets through the purchase of two branches from a failing thrift. Even more daunting for me personally, was the sudden death of my bank’s chief executive officer (CEO), leaving me as the new CEO. Frankly, I didn’t know how I was going to tackle all that lay in front of us. But those dark days in 1991 were followed by 15 years of exceptionally strong performance for all banks, including my own. And those experiences–the good and the bad–give me confidence in predicting a bright future for community banking today.”

What she fails to recognize is the affect that interest rate and monetary policy manipulation have on ‘less regulated’ and ‘less centralized’ entities like credit unions and other community banks. The supply of credit and the understanding of risk in evaluating the underwriting process is greatly skewed.

She goes on to say, “The Consumer Financial Protection Bureau (CFPB) recently released final rules defining “qualified mortgages” that include safe harbors for mortgages that meet specific loan term and pricing criteria, including certain balloon loans made by community banks in rural or underserved areas.2 At the same time, they issued a new proposal that contains additional community bank exceptions, as well as a question about the treatment of loans to refinance balloon payments on mortgages that community banks may already have on their books.3 Noting that smaller institutions have already demonstrated that they generally do a good job of servicing the loans they originate and that the investments necessary to meet the requirements would be unduly onerous for institutions that service a small number of loans, the CFPB also exempted most community banks from many of the provisions of new servicing requirements.4 I think such exceptions are especially important because, as I discussed in a recent speech and will touch upon later in my remarks, Federal Reserve research has shown that (1) community banks are important lenders in the mortgage market, (2) those mortgage loans represent a significant portion of community bank lending, and (3) community banks are quite responsible in their practices.”

These recent changes and the capricious nature of government in general and Federal Reserve policy specifically stalls capital on the sideline as investor groups are hesitant to make long term commitments while government has the power to change policy almost at any moment.

For the complete text of Board Governor Duke’s address or additional FRB publications click here

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

While I’m not a professional fly fisherman, I have slept at a Holiday Inn Express. I’m obviously joking and appreciate Holiday Inn’s commercials. But I was on a trip last year with a couple of fly fishermen and I’ve been in a social gathering where the sport has been discussed.

What has stood out to me is the hypnotic stare and elevated excitement as the stories unfold of catching fish and the different techniques. The interesting thing is to hear about the fly lures they put at the end of their fishing rods depending upon the type of fish they are after. Some look like literal flies, while others like worms or mimic the environment where they hang out. You almost can’t see the hook hiding behind the design. Also they’ll tell you where to wade – ‘over by that rock’ or in ‘deeper current’ in determining ‘best location’ for different fish.

Politics is very much similar to this. The hypnotic stare and elevated conversations that can happen around a holiday table, bar or even a senior citizen centers as you and I give our opinions and expertise on what Washington needs to do and what the important issues are; which of course generally run along side our particular proclivities: Pro Life/Pro Choice, Education, Social Security, Entitlements, Social Issues, Defense, etc.

Both the national Republican and Democrat parties like professional fly fishermen also choose specific fly lures (issues) and look to wade in specific areas of our nation in order to find you and I and ‘hook’ us, drag us into their boat or box to be filet, gutted and cooked later on. OK enough word pictures, I’m hoping you’re following this.

Except for Defense and squabbles that arise between the states and the states and foreign entities in which the Federal Government takes on the role of agent, all the issues above were intended to be functions of the states/colonies and even more importantly the function of a free market. A central system becomes monolithic, fragile and resistant to ideas and change; and when (not if) failure results it is catastrophic. Decentralized systems (the states retaining most powers) on the other hand, allows for competitive models to social and economic problems, failure is actually beneficial as unproductive resources are reallocated and success is imitated. Also, democracy can exist in the lower levels of government as the potential for homogeneity and similar interests are more likely ‘closer to the ground’ than at ’40,000 ft in Washington’.

When you and I drool like a fish and leap for nationalizing social issues of banning drugs, homosexuality or economic issues of ‘tax the rich’, wealth redistribution, universal healthcare or promises of better government Social Security and Medicare we really are leaping for a disguised hook of central government control of our lives that will limit individual freedom and just like the mirage of the hook will never deliver the promises made. It’s the free market of voluntary association and exchange that best accomplishes the goals (proclivities) you seek. Even in the controversial areas of Drugs, Marriage and even Abortion (which I believe is murder at some point) should be decided at the state, local and personal levels as was the intent of the Constitution. The Constitution delegated very few powers to the federal government but the feds have usurped more power through our weakness in seeing our beliefs ‘nationalized’.

In the movie ‘Finding Nemo’ the warning was to watch out for the nets that the commercial fishermen lowered from their boats. But for some it was irresistible as they swam into captivity. You and I MUST resist the ‘captivity’ of more central power even if the mirage seems so real.

I think my new slogan for 2013 is, ‘Don’t Get Hooked!’, and if you are currently dangling from a GOP or Democrat party promise of Equality, Justice, World Peace or whatever your proclivity, I hope that you can set yourself free. This starts by understanding the ratifiers intent in the US Constitution and why a ‘runaway’ federal government is dangerous to Liberty.

Christopher M. Mahon
editor@ambidextrouscivicdiscourse.com

As America returns to work today, nursing hangovers, fatigue and wincing at FaceBook pictures, so Washington and the media return to figure out what exactly happened in the wee hours of the night of the ‘Fiscal Cliff’.

If the Chinese Zodiac proclaimed 2012 the ‘Year of the Dragon’, politically it was the ‘Year of the Donkey’ as Progressives and the Democrat Party celebrates a pretty good year: Affordable Care Act upheld by SCOTUS, a vanquished GOP Presidential candidate, winning most national congressional challenges and a potential budget deal (sequestration aside) that raises taxes on 77% of Americans and virtually no spending cuts.

As we entered into 2012 and considered the consumer confidence level, unemployment, debt and a sluggish economy it seemed more likely the ‘Year of the Elephant’ but, that was a year that wasn’t. Just as Tony Romo or a Mark Sanchez were able to clutch defeat from the hands of victory, so at the beginning of 2013 after approving what one analyst called a ‘Hobson’s Choice’ in the budget bill in the midnight hours closing out the year, GOP politicians run for cover, and the Republican Party ponders not only it’s future but also it’s purpose.

Contrary to Jay Leno’s skit ‘Jaywalking’ where Leno asks people questions about current news and other topics in public areas around Los Angeles and get answers like: ‘Abraham Lincoln was the first President’ or are stumped when asked, ‘What color is the White House?’; the ‘Man on the Street’ is a lot smarter and intuitive regarding what’s pertinent to his/her world and what is on their life’s ‘windshield. While they find most of Washington irrelevant, they will make the necessary adjustments to react to a ‘Gamed system’. Welfare recipients will stay on Welfare regardless of any public condemnation because the math tells them that the effort expended through employment has no net benefit than receiving cash and benefits through government subsidies. But it is not only the individual who is intuitively smarter than Washington, it is the small employer groups too. As they watch big business, industry groups and unions cut deals in Washington through their invitations to K Street, the smaller business owner/investor seeks out shelter and creative accounting to avoid paying growing levels of tax and regulations. Just today I witnessed a conversation on a social network of avoiding the Affordable Care Requirements and increases in payroll taxes by creating ‘Independent Contractor’ (1099) relationships with their current employees. Even under reporting revenues is becoming increasingly morally acceptable.

In an article in the NYTimes by columnist Maureen Dowd, The Man Who Said ‘Nay’ that references Senator Michael Bennet’s (D-CO) tough decision to part with his party’s support of the last minute budget deal in the Senate. Bennet says, “The burden of proof has to shift from the people who want to change the system to the people who want to keep it the same,” he said. “I think if we can get people focused to do what we need to do to keep our kids from being stuck with this debt that they didn’t accrue, you might be surprised at how far we can move this conversation.

“Washington politics no longer follows the example of our parents and our grandparents who saw as their first job creating more opportunity, not less, for the people who came after. My mother’s parents were refugees from Warsaw who came here after World War II because they could rebuild their shattered lives. But the political debate now is a zero-sum game that creates more problems than solutions.”

While we can understand Senator Bennet’s frustration in Washington as power and the game goes back and forth from one side of the table to the other with little accomplished, as the GOP wins in certain years (1968, 1980, 2000) while the Democrats win in other years (1992, 2008, 2012). The frustration of the ‘Jaywalker’, small business owner, ‘Man on the Street’ is that power and choice remains in Washington and that ever increasing Federal power and potential to intervene into his/her life further is readily apparent with no evidence of abatement.

Washington power elites scoff at individuals and small businesses as they tin foil and duct tape their lives around the latest Federal Laws that threaten to encroach their personal liberties, threatening fines and incarceration; meanwhile there’s a growing resentment around the country as more and more are figuring out that the ‘Utopian Promises’ of both parties aren’t being delivered, only excuses and demands for more money and more control. The Right’s promise of a ‘Moral America’ and a better ‘World Order’ through laws like Defense of Marriage Act, stronger Drug enforcement and foreign Military intervention has wrung at best hollow while the unintendeds are readily apparent. The same is true on the Left as Progressivism of the late nineteenth century through private initiatives like: the Settlement Houses, Mutual Aid and other private charities went a long way to solving social problems as workable solutions were funded and others either adapted or failed. However, this drastically changed as Progressivism became entrenched and made it’s home in the political process; the idea was, what works on a local level in Chicago, should work on an even grander scale through Washington. Of course the disappointment and failure of this theory continues to come home to roost as Progressive goals of Education, Poverty and Equality continue to be missed with the excuse: ‘More money and control needed’.

The good news going into 2013 is that just as people outside of Washington go about their business and figure ways to ‘creatively’ cope and adjust to overreaching policies in Washington, so the States are becoming more proactive in the process. Controversial concepts like: Nullification, Interposition and Article V Conventions are being bantered about more and more. While even more encouraging is that many states are actually exercising those powers, as Michigan’s state house approved 151-0 to not comply with NDAA 2012 that allows for the Federal government to commandeer state resources and many states refuse to create an Insurance Exchange as required by the Affordable Care Act and draw up language in their state’s charter/constitution to prevent further federal intervention.

A year from now how will we close out 2013? Will it be the ‘Year of the Elephant (GOP) or the Donkey (Democrats)? Or could this be the ‘Year of the Eagle (Individual Liberty) through state initiatives and individual’s who refuse to comply with federal mandates, taxes and regulations?

Wishing you a great year!

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

As we finish out 2012 we can reflect on ‘the year that was’ like a Time Magazine expose or as the media outlets are doing even as I write this. But as we look back and take an account, shouldn’t we look forward and apply what we’ve learned?

To be sure it was an interesting year as the President won reelection fairly handily and the GOP was hit hard with a loss that the political consultants are having a hard time reconciling, let alone explaining.

We had a devastating hurricane on the east coast where too many lost their lives and many more their homes, cars and even today remain homeless. On the positive side of Sandy, which unfortunately is less reported, we saw so many step up and volunteer their time, finances and expertise in helping their neighbors. Even fire fighters from Louisiana who were at the receiving end of a fire truck and volunteers when they went through Katrina in 2005, returned the favor and flew into NYC to help with the disaster. Also unreported is the under performance of Federal aid and programs like FEMA which dropped the ball during Katrina and by all accounts today have dropped the ball in Sandy as well.

There was the Sandy Hook Elementary School shooting that tragically left 27 dead, including 20 children, 7 adults, including the shooter himself (suicide).

While we point out these tragic events, there were obviously many more we haven’t mentioned but there were also exponentially even more positive events and ‘average day’ occurrences that are left out by the media and quite frankly taken for granted by you and I. Contrary to what the media reports: food, clothing, work and play is for the most part readily available and that even with market distorting intervention from government that has lead to higher unemployment, prices and an unacceptable quality of education and level of poverty, the reality is for most of us the markets adjust and allow for volunteer (free market) exchange and association that allows for a ‘robust’ society and continued higher quality of life. Is political change needed? Absolutely. Has government failed us and morphed into a centralized system that is resistant to change and more prone to monolithic ideology? Again – absolutely.

The funny thing about human nature is that most of us are inherently critical and like to voice our ’2 cents’ worth of criticism. Whether it’s ‘giving advice’ to our spouse or children from our lounge chairs about how to perform housework, yard work or even just to scream at Tony Romo and the Dallas Cowboys with beer in hand, we all subscribe to being ‘Amateur Critics’ to some degree. Even regarding how society works or doesn’t and the role of government and what we think about the political system, most of us are more than willing to voice our opinion about political parties, personalities and Washington in general.

We’ve often heard that, ‘if you are not part of the solution, you are part of the problem’ or that ‘you can’t complain unless you’ve participated in the process’ with the idea that you and I should be engaged in creating a better society rather than only complaining about what we have.

Here’s a suggestion for the New Year that will cost you time and resources – Volunteer.

First, find out what you find yourself complaining (criticizing) about most. If it’s ‘those blood sucking welfare recipients’ then volunteer your time at a food bank or charity like Salvation Army where they give out clothing, economic and housekeeping advice. If education (or lack there of), offer to volunteer at your local schools: tutoring, mentoring or even as a crossing guard – get involved. If you are ‘rupturing blood vessels’ over politics and the inefficiencies (in your mind) of government then volunteer your time to go to local district meetings like precinct committees where you’ll find out that most there would welcome you as there hasn’t been a continuous flow of ‘new blood’ and unfortunately many of these groups are bogged down in myopic self examination and could benefit from greater diversity and fresh ideas.

There’s a Bible verse, Luke 6.68 “give, and it will be given to you. Good measure, pressed down, shaken together, running over, will be put into your lap.” While our motivation shouldn’t be self aggrandizement and Ayn Rand if she were alive might criticize you for being ‘altruistic’, the reality is that as you invest your time and resources, like any investment there will be a return; and part of that return comes back to us in the experiential knowledge we gain, the character changes that happen and the valuable process of becoming ‘other person centered’ and as the Bible suggests – ‘a servant to all’.

We at Ambidextrous Civic Discourse wish you a Happy New Year and an enriched 2013, full of life, love and contentment which I have personally found through Jesus Christ.

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

The recent shootings in CT this past week has brought to the forefront the call for new Federal Gun Control legislation to ‘Criminalize’ certain types of gun ownership. Will the cost of removing further personal liberties of the Individual and the rise of centralized federal power be effective in diminishing firearm deaths? Has it been effective in the ‘Drug War’ or Alcohol Prohibition of the Past? As I write this article this morning, 10 were shot in Chicago, a city with some of the toughest anti-gun laws, but a city that remains one of the most violent in gun injuries and deaths.

In a Cato Institute Study, Alcohol Prohibition was a Failure, of 1920s Prohibition, they found the federal law besides being an infringement on Individual liberty was quite ineffective in what it set out to do: Reduce Alcohol related deaths and the social ills that are associated with the freedom to imbibe alcohol and that the unintended consequences were horrifically worse. Organized crime, prostitution and other social maladies prospered under the well meaning legislation. The Temperance Movement supported by churches, mutual aid societies and government proved to be a disaster and was later rescinded in 1933.

Arguably the Drug War a much larger war than Alcohol Prohibition is at least if not more unsuccessful as Billions of dollars and half the prison population full of ‘drug offenders’ lay society’s resources wasted and the ‘unintendeds’ of a border war, hybrid drugs that kill and the increase in ancillary social maladies are the byproduct. This begs the question, “What would society look like with harsh Federal Gun legislation that ‘Criminalizes’ gun ownership?”

There are two assumptions that many people make about government and social problems in arriving at a ‘Remedy’. The first is that in taking a position against using Federal power (either through a strict Constitutional interpretation or pragmatic position that lower levels of government like the States can do it more effective) means that you are sympathetic to what is perceived to be a social ill or cause like in the case of marriage, drugs and lifestyle choices. The other assumption is that laws and public policies are built around that the individual will obey the laws and there won’t be unintended consequences that result from government intervention.

Both of these assumptions are wrong and history has shown the unintended consequences are terrible. When the ‘Free Market’ is violated by government intervention, the values in that marketplace will be distorted as in the case of Alcohol Prohibition which due to lack of supply (the demand while reduced somewhat due to legislation was still high enough to create a market) sent prices soaring and both an underground and ‘illegal’ supply resulted and a para-industry was born – Bootlegging. The same is true today for drugs, again the assumption is law will eliminate demand and solve the social problems but the unintended is that behavior adapts to circumvent the law as happens with federal regulations over business or even tax legislation and the cost to comply or not.

Unfortunately, if harsh federal gun criminalization is the answer to this past week’s horror, the result will not only be the steady stream of Drugs and Prostitution over our borders but firearms as well, and just as we’ve seen the awful hybrids of alcohol (moonshine) and today’s dangerous drugs (Meth, Ecstasy) that result from prohibition as users want the ‘biggest bang for the buck’, can you imagine the potency of firearms that will be available in your neighborhoods and schools in the near future?

The Second Amendment was part of the Bill of Rights, 12 (10 ratified) Amendments over federal powers to protect the natural rights of individual liberty and property and to answer the concerns of the holdout colonies/states yet to ratify the Constitution. It is very important to understand that the Second Amendment didn’t apply to state powers, those powers are delegated through the states’ Constitutions. So each state or municipality if their constitution permits can pass legislation whether it will help or not.

While there will always will be social maladies among us, the best way to handle them are through the ‘friction’ of the marketplace and when deemed necessary by local government where there is the potential for greater homogeneity, cooperation and the potential to maintain greater individual liberty.

Let’s be ready for what Rahm Emmanuel says, “Don’t let a good crisis go to waste” and for federal government to infringe on personal freedoms (for a greater good), instead let clearer heads and rational thinking rule the day.

Christopher M. Mahon, Editor

Yet another unfortunate and terrible shooting incident that brings to the heart the fears of so many parents – the loss of a child.

The shooting in Newtown, CA December 14th 2012 was heart breaking as families and a nation have been grieving.

Unfortunately, while many focus on the incident in consoling those who’ve lost so much and examining the security and whether procedures were followed correctly, others are using the ‘crisis’ as opportunity to push a polemic agenda of more (or less) government involvement.

As our country’s founders understood that the ‘natural process of Government was to grow’, this is particularly cogent when a ‘crisis’ occurs. But how do we as Individuals and citizens of municipalities, states and a Federal Government sleep at night knowing that we could be at the mercy of the next crisis which through well meaning public policies could further limit our freedoms for a ‘Common Good’?

While many understand that the Constitution was designed with two systems of government in mind, Federal and State powers, there is disagreement on what powers each possess. Does Federal trump State and if there is belief that the Federal or a State has ‘overstepped’ and abused it’s power as in the recent conflicts with ‘Obamacare’ or in Arizona’s battle with SB1070 on immigration, who or where is the governing body to make an impartial decision on which party is correct?

Thomas Woods writes in his book ‘Nullification: How To Resist Federal Tyranny in The 21st Century’, “When the Constitution was ratified, the people were assured that it established a government of limited powers (primarily related to foreign policy and the regulation of interstate commerce), that the states retained all powers not delegated to the new government, and that the federal government could exercise no additional powers without their consent, given in the form of constitutional amendments. This is not a peculiarly conservative or libertarian reading of the historical record. This is the historical record.”

Today, we see many States resisting what they perceive as Federal overreach in prescribing policies for social and economic ills through Washington. Almost thirty states have either said no to creating Insurance Exchanges or have taken a wait and see approach regarding ‘Patient Protection and Affordable Care Act (2010)’ (Obamacare) and just this week Michigan’s House voted unanimously to defend itself against NDAA 2012 which it deems unconstitutional regarding the commandeering of State assets. Add to that the Sheriff Initiative Act and other individual States acting through ‘assumed’ Nullification powers have decided on their own not to enforce certain Federal laws.

Washington and many in the media challenge the constitutional legitimacy of Nullification and it’s even more evil sister ‘Secession’. For the last eighty years the universities have taught that these issues were decided through Civil War and subsequent court precedent. However, Robert Natelson in his 2010 book, ‘The Original Constitution’ approaches the split powers of the Federal and State governments slightly different as he draws upon what the ‘Founders-era’ intents were and their understanding of law, reason and the dialogue of the state conventions that the ‘Ratifiers’ understood when signing the Constitution.

Natelson, brings out an important question that would help to define better the relationship of the States and Federal governments and the proper recourse when Federal power abuses the States as many have come to believe is happening today. While ‘Nullification’ is the buzz on twitter and other social networks, Natelson takes us through the Founders-era understanding of the Constitution and how the states defended their sovereign powers through ‘Article V Conventions’ which were different than a ‘Constitution Convention’; Article V allows for specific issues and text to be addressed while not jeopardizing the whole document. He points out, “To be sure, the question of whether there was an “American people as a whole”—or only the peoples of separate states—has been the subject of much debate. Some contend that the Constitution created merely a compact (contract) among the thirteen states—or, more precisely, a compact among thirteen separate political societies. According to this “compact theory,” each of those societies gave up certain aspects of sovereignty to the federal government, retaining the rest. Advocates of this theory point out that the states ratified through individual conventions. Some have employed the compact theory to argue that if the federal government breaks the terms of the contract by exceeding its powers, the states have the right to void (“nullify”) the offending federal actions or even secede from the union. Others argue that the Constitution was less an interstate compact than a popular grant—that is, a grant from the American people of certain powers to the new central government. Powers not given to the central government and already lodged in the respective state governments remained there. What was left was retained by the people. Advocates of this theory contend that ratification by state conventions was merely a concession to practicality, not to imply that states were the parties (or at least not the only parties) to the Constitution.”

As dark clouds of economic and social crisis’ gather, the threat of the abuse of Federal power looms but the silver lining in those clouds is that many States are becoming proactive in blocking what they perceive as harmful and unconstitutional Federal legislation through Nullification and Interposition which has historical precedent, but will the real war engage when we define the relationships of the States and Federal government as Mr. Natelson has suggested, through ‘Compact Theory or Direct Grant’?

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

For those of us old enough to remember ‘Supply-side’ Economics during the Reagan years can appreciate the nostalgia as it is being bandied about in the media as either an economic pariah or last hope in solving the ‘Fiscal Cliff’. In some ways as most other public policies for either party, this is the other side of the tennis match for Republicans.

The two economic philosophies at play in the budget/tax/spending negotiations is ‘Demand-Side’ economics or Keynesianism (John Maynard Keynes) that the Democrats believe if you stimulate demand by putting money in the consumers’ hands you can spend your way out of a recession. The other philosophy as mentioned earlier is ‘Supply-Side’ economics that believes if you instead put money through tax breaks, credits, subsidies in the producers hands that they will produce more product and presumably less expensive which will in turn cause the consumer to show up in the marketplace.

Both of these philosophies and economic principles are flawed and here are some reasons why:

First, the presumption that belies these beliefs is that government can manage the complexities of the market and has the knowledge of both how much and what the market needs and what the demands and wants are from the consumer.

Second, neither system accounts for malinvestment and human behavior responses, that results from market intervention and neither allows for the correction that the market provides which leads to a healthier economy.

Third, both systems and beliefs are latched onto by the parties precisely because they support the need for larger government that oversees all market activity, rather than the federal government playing a more passive and negative position that ‘stands down’ until the freedoms of the individual and the markets are violated. The private sector through competition, success and yes – failure, does a much better job in regulating economic activities and where necessary states and local government could get involved with the Fed as a far away ‘watch dog’ mostly interceding where there’s disputes between the states. The recessions and depressions of the past where there were no centralized banking or financial systems saw failure but they were decentralized, diffused for the most part and allowed for the market to clear resources more efficiently.

Finally, the `Fiscal Cliff’ and the choice in solutions offer an interesting dialogue regarding ‘Tax Cuts, Credits and Deductions’. As was mentioned earlier, Supply-Side uses incentives through tax cuts but also credits and deductions to pass money through to Producers and Higher Income Earners with the philosophy that they would do better with it than the consumer. So a $2,000 car purchase credit would make consumers show up at the local dealerships or a mortgage deduction on Schedule A would make consumers purchase homes. This month around the nation, clients are showing up in Accountants’ offices seeing what new equipment needs to be purchased in order to take advantage of ‘Section 179’ deduction, which allows for certain asset purchases to accelerate depreciation as a ‘onetime expense’ instead of over the life of the asset.

The problem with Section 179 and other deductions is that it creates malinvestments, as market dynamics are temporarily thwarted through government planning and intervention. Just like you and I show up at Costco and buy tins of stuff we don’t need or over purchase, when this is done collectively it leads to malinvestments. Businesses misread the market and see demand rise so they build bigger facilities (tying into long term debt) and start to hire. This can be seen through the housing market crisis as consumers and investors purchased homes, builders built, lender lent, as prices skyrocketed and lost their fortunes as the market (which it always does) brought correction. Both the builders and purchasers suffered greatly as they signed onto long term debt agreements while both prices and demand were artificially inflated. Unfortunately the government which created the mess rather than allowing for the market to clear, thinks it has another solution.

Of course we haven’t touched on spending which is a function of the size of government and should be constitutionally aligned and restrained but that’s for another article. Tax Policy in general should be based on a low (flat) rate, with no deductions or incentives which distorts the markets as we’ve seen. If the GOP could understand this and present lower marginal rates for individuals and corporations but the elimination or phase out of deductions this would go a long way to signaling to the marketplace that a capricious runaway government has been at least for now restrained. This would free up capital on the sidelines (which there’s a lot of) to consider risk and long term investments once again.

Tell us what you think.

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

In an article in the Wall Street Journal, In European Crisis, Iceland Emerges as an Island of Recovery Charles Forelle describes an unlikely phenomena, a national recovery inspite of the EU crisis. But why isn’t the media covering it more and everyone talking about it?

“In 2008, Iceland was the first casualty of the financial crisis that has since primed the euro zone for another economic disaster: Greece is edging toward a cataclysmic exit from the euro, Spain is racked by a teetering banking system, and German politicians are squabbling over how to hold it all together. But Iceland is growing. Unemployment has eased. Emigration has slowed.”

The Iceland dilemma was well covered in 2008 as we witnessed bank runs and young people fleeing the country for other opportunities; but today the reverse is happening, the young are returning, businesses are humming and jobs are more plentiful. Now, don’t be mistaken, this is a ‘European style’ recovery where inflation is high and there’s still substantial debt costs, but it is a very positive scenario in a bleak region as Greece teeters on solvency while the EU caves to lending it more money and other nations like Spain are close behind.

“Iceland—with its own currency, its own central bank, its own monetary policy, its own decision-making and its own rules—had policy options that euro-zone nations can only fantasize about. Its successes provide a vivid lesson in what euro countries gave up when they joined the monetary union. And, perhaps, a taste of what might be possible should they leave.”

In some ways Iceland and Greece’s problems could be compared to California and other state hampered budgets in the US and bond defaults and bankruptcies at local levels. Where Iceland made a bold move to allow the banks ‘to fail’ and had its own currency (whether wise or not) to devalue, the reality is that it gave clear signals to investors and the market what its intentions were – less government intervention and the allowance for clearance of malinvestments and resources.

That rescue, in turn, weighed on the financial system. But unlike Ireland, for example, Iceland let its banks fail and made foreign creditors, not Icelandic taxpayers, largely responsible for covering losses.

Iceland also imposed draconian capital controls—anathema to the European Union doctrine of open financial borders—that have warded off the terrifying capital and credit flights that hit Greece, Ireland and Portugal, and now test Spain and Italy.

While Iceland is an unusual example of financial recovery of a nation and as their 320,000 citizens is a very small sampling to apply across broader populations, that’s just it; what works there may or may not work here or other places. Financial systems that are centralized are inherently vulnerable to monolithic elements of corruption, fragility and fatal failure. Failure of a city does not have the effect of a gigantic centralized structure, though tragic and harmful just the same. But competitive elements and options are open in a decentralized system that are closed off to a centralized one.

Finally, is the reason you won’t hear this success story on the nightly news, the Daily Show or Colbert because it exposes the real villain in our financial and social problems – government itself?

Policies and Philosophies like Keynesian Economics and Plato’s Utopia which elevate collectivism and government as the underpinning of social harmony grabs the attention of the powerful, while the importance of the Individual and that the ‘inequalities’ in society itself create opportunities for real social cooperation are discarded quickly as nonsense or fairy tales. The true ‘Romantics’ in US history were not the writers of a Constitution who designated limited power to the Federal government and those who followed in defending the restraint of centralized federal powers but instead the believers in a Utopian society and Nationalism, where through a benevolent government all are equal but none are free.

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

“It’s like church over here. It’s like church in here. First of all, give an honor to God and our lord and savior Barack Obama.” Jamie Foxx

Is Jamie Foxx a poet but he just don’t know it?

Apparently many on the ‘Right’ are taken back by Jamie Foxx’s prophetic irony on Soul Train last night. The State has supplanted Religion and the Individual him/herself as the answer to their problems. While the GOP points a finger to Democrat (Progressive) Income Redistribution, the four fingers of Social Engineering, Supply Side Stimulus, Military Adventurism and Monetary Easing are pointing back.

The GOP suffered a substantial loss this year, when considering the Obama administration’s past four years of economic and social planning failures (including Obamacare) it should have been a successful political year of not only winning the Presidency but the Senate as well and additional seats in the House. But instead of ‘soul searching’ and finding where there was ‘brush fires’ of enthusiasm, the GOP is doing what it chided the Democrats for doing after their losses to the Bush administration, “It’s not the explaining your message better, IT’S THE MESSAGE!”

What is interesting and telling is, while the Democratic Party’s local chapter meetings are stock full with young doe-eyed believers who are brain washed through the Universities and Celebrity endorsements that are ‘Coool’, the GOP meetings are thinning quickly as the well over sixty crowd dies off with few youth in their ranks. If the GOP did an honest assessment they would find the ‘brush fires’ of not only young but the aged as well in the Liberty movement that wants to see a true ‘beat back’ of federal power. They were disappointed in the party for the bank bailout in 2008, they dislike the overreach into the powers of the states by the GOP on social issues such as drugs, marriage and abortion (murder mostly state issue) and they are questioning the wisdom and apparent failure of the near 70 year ‘Neoconservative experiment’ in military expansion and US intervention that overreaches into the sovereignty of nations.

There is a prevalent lie going through both parties and it goes like this: “If you want to ‘Decriminalize’ Federal Drug Law you’re condoning Drugs” or “If you are not in favor of a Federal Law for ‘Equal Wages for Women (or substitute any class of people here)’ you’re against women (minorities) being paid equal wages”. This is a lie, whether it is expressed by the Left or the Right to support their particular proclivity: Abortion, Drug Prevention, Education, Poverty, etc. The best regulator of behavior and protecting against the ‘Bad actors’ is the marketplace itself and where deemed necessary government closer to the ‘ground’: family, community, municipalities and state governments that are exposed to competition and the free movement of private resources. Unfortunately the seeds of ‘Hamiltonian Nationalism’ have matured very well in both parties and the ‘Duopolistic’ political system in general.

James Madison in Federalist Papers #10 and #51 warned against the abuses of factions (Special Interests) but also explained why in a free market or through the colonies (states) and competitive markets they could be very useful. When Special Interests are centralized and managed through federal powers the unintended consequences are great and the freedoms lost are even greater.

A Left Wing or Right Wing ‘State Messiah’ is not the answer but a turning back to Divine/Natural Law and the Constitution is. While the Constitution was designed to restrain using Federal power to intervene into social and economic causes, it allowed for much latitude at the state and municipal levels to experiment.

It is for our elected officials in Washington and at the state levels to protect the defined boundaries of Federal power in the Constitution but unfortunately come election time, there’s no ‘Special Interest’ money for that.

Tell us what you think?

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

In Obama’s Soak-the-’Rich’ article in Cato Institute, the writer Daniel J. Mitchell says,

“Tax Hikes are Worse than the Fiscal Cliff

America actually will fall off two fiscal cliffs in January, but only one of them is bad. The good fiscal cliff is the so-called sequester, which is the inside-the-beltway term for automatic spending cuts. These aren’t really spending cuts, just reductions in the growth of spending. If the sequester takes place, total federal spending will climb by $2 trillion over the next 10 years instead of $2.1 trillion. But anything that restrains the growing burden of government spending is a good idea, so a small step is better than nothing.

The bad fiscal cliff is the automatic tax hike, which exists because the 2001 and 2003 tax cuts are scheduled to expire at the end of the year. This means higher tax rates for all taxpayers, as well as increased double taxation of dividends and capital gains.”

What many economists and politicians don’t recognize is that there is a difference between money saved or spent in the private sector versus the public sector and the ‘unintended consequences’ of behavioral changes by the individual and the marketplace as a result of public policies that increase taxes, create more regulations and which usually means tax avoidance and spending decisions that are short term and counterproductive.

Unfortunately, as government does with most ‘hard political decisions’, politicians in Washington after much saber rattling will compromise on the important decisions of redefining the role of the Federal government and making some significant spending cuts and policy changes in Defense, Social Security, Medicare and other entitlement programs that for the most part should be remanded back to the states. Instead there will be a mirage of spending decreases from the baseline budget as mentioned earlier and there will be a phase out of tax deductions at an income level of $250,000 or so, which like the AMT was never bracketed or indexed and eventually inflated its way into the ‘Middle Class’ where most of the money is. As a result the market response will be to hide more income and investment strategies that moves more capital into the ‘shadow economy’ and overseas.

This past week in a ‘Farewell to Congress’ retiring Rep. Ron Paul took some time to reflect on his 40 year contribution to raising a warning of abusive federal power, “Dependence on our government is the worst it has been in US history..Why does the changing of parties and politicians not change policies, could it be that both parties are essentially the same?..Real Patriotism is challenging the government (and your party) when it’s wrong.”

While we appreciate past generations like those who grew up during the Great Depression and fought in WW2 and Tom Brokaw nicknamed the ‘Greatest Generation’. With deference to that generation, I believe the Greatest Generation is ahead of us, growing up before our eyes, rejecting today’s Historicism being taught of our past and embracing instead the original underpinnings of Individual Liberty that were forged in the US Constitution and which sailed a great Republic.

Hip Hip Hurrah for Elections and Representation! The Status quo won again and as Rep. Ron Paul slips out of public office, will there be a GOP or Democrat party that realigns itself to the Constitution and will there be new voices crying in the wilderness, “This is the way to Liberty, Walk Ye in it!” or are we inevitably headed down the slippery slope of more centralized government?

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

In the movie ‘The Wizard of Oz’ a book written by L. Frank Baum and first published in 1900, there’s a scene at the end of the story in which the main character Dorothy Gale from Kansas is trying to get back home unsuccessfully only to be told that she had the answer all the time, it was the ‘Silver Slippers’ (Ruby Red in the movies, Silver in Novel) on her feet. As the US wraps up contentious elections that after billions of dollars produced a ‘Status quo’ result with maybe even more centralized government power and less Individual Liberty there’s been expressions of great disappointment and radical talk of secession. As of this writing the White House website that invites petitions has fulfilled requests from all 50 states petitioning for ‘secession from the Union’. It harkens back to the Civil War movie classic, ‘Gone With The Wind’ and Rhett Butler bidding his abusive relationship with Scarlett good bye after she asked, “Where will I go? What will I do?”, he retorts, “Quite frankly my dear, I don’t give a damn.”

Some in the media have pointed out that we’ve become a ‘divided society’ with the Left expressing it in racial terms that a ‘White Majority’ no longer exits and what has been traditional, cultural and acceptable in the past will no longer, going forward. While many on the Right see it more as an attack on the traditional values that have governed the nation since its inception. Where both groups come together ironically is on the legitimacy of Secession, a State leaving the Union, which they believed is not possible.

Much of today’s anti-Secession belief held in the minds of leadership in Washington, the media and taught in the Universities stem from the result of the Civil War and SCOTUS rulings in the aftermath. In ‘Texas v. White’ 1869, the court ruled over the sale of US Bonds and in their decision (for expediency) determined that unilateral ‘ordinance of secession’ is ‘absolutely void’.

The irony of this ruling in the wake of Postbellum Reconstruction is that the US through it’s States (Colonies) less than a century earlier ‘Declared their Independence’ and seceded from Great Britain. Are there within this sacred doctrine the seeds for secession? Declaration of Independence:

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.—That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed,—That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.”

Anti-secessionists might argue, “Well OK, but theoretically you would need the consent of the majority of the nation (governed) and the consent of the Federal government.” This is where the Constitution and its design speaks and if you wonder why many in Washington today emphatically call America a ‘Democracy’ rather than a Republic you can see why it is important and not semantics. A lot happened as a result of the Civil War to not only suppress ‘rebellious States’ but also to attempt to redefine the structural design of our Republic and ‘States’ Rights’. In Federalist Papers #39, Madison eloquently sums up at the end of the publication the design and powers of the States in relation to the Federal government. If you recognize the sovereign powers of the States as originally determined, you can see that each state can through democratic vote, if you will, decide to secede. But if instead, partly as the result of war plunder that the States no longer have those sovereign powers and are in effect agencies of the Federal Government, then you would side with the anti-secessionists.

“The fact is that our Union rests upon public opinion, and can never be cemented by the blood of its citizens shed in civil war. If it cannot live in the affections of the people, it must one day perish. Congress possesses many means of preserving it by conciliation, but the sword was not placed in their hand to preserve it by force.” James Buchanan, State of Union Dec 3 1860

Former President Thomas Jefferson, in a letter to William Crawford, Secretary of War, under President James Madison, on June 20, 1816: “In your letter to Fisk, you have fairly stated the alternatives between which we are to choose : 1, licentious commerce and gambling speculations for a few, with eternal war for the many ; or, 2, restricted commerce, peace, and steady occupations for all. If any State in the Union will declare that it prefers separation with the first alternative, to a continuance in union without it, I have no hesitation in saying, ‘let us separate’. I would rather the States should withdraw, which are for unlimited commerce and war, and confederate with those alone which are for peace and agriculture.”

Secession seems antiquated and more of a theory than ever practiced, this isn’t really true, from Australia to Malaysia to Yugoslavia, it is well documented and numerous in history (While I don’t recommend Wikipedia for research it can be a good start or lookup). In 1990, after free elections, the Lithuanian SSR declared independence. Other SSRs followed and consequently the Soviet Union collapsed. (Wikipedia)

While Secession is a serious matter and like War a last resort, it is an important tool of the State just like its other underused relative ‘Nullification’. “The natural progress of things is for liberty to yield, and government to gain ground.” – Thomas Jefferson to Edward Carrington, Paris, May 27, 1788.

I don’t want to take too much time here in this article on Nullification and would like to expand on it in a separate article as it is arguably the most important tool of the States in fighting federal encroachment. During the ‘Nullification Crisis’ in the 1830s South Carolina refused to support the federal tariff act and used Nullification as a tool to protect its citizens and their businesses, eventually the Federal Government capitulated with a compromise. This has happened in more recent times like with national ID legislation through uniformity of Driver’s Licenses which are regulated through the states; the Feds have attempted to coop that power but states have nullified these efforts through noncompliance, the Feds like in the past when forced to lay their cards on the table have passed (bluffed). It will be interesting to see how Nullification plays a part in recently passed state laws on Marriage and Marijuana (which are legitimate powers belonging to the states), and the `roll out’ of Obamacare ‘Insurance Exchanges’ in the States. It is vital that you play a part in contacting your state representatives to fight against creating exchanges that compromise state power and to see how vulnerable the program is and what you can do visit `Obamacare is Still Vulnerable’. Also, future elections of state representatives will become even more important. For a very good exploration of Nullification I recommend a book by Thomas Woods of the Mises Institute, ‘Nullification: How To Resist Federal Tyranny in The 21st Century”.

Here’s a different perspective on your vote and government power, “Voting, however, is at best, an inefficient instrument for self-defense, and it is far better to replace it by breaking up central government power altogether.” Murray Rothbard

If States were to take their proper roles in ‘regulating federal power’ in light of the limited powers ascribed to it under the US Constitution there would be much less conflicts between factions (special interest) which Madison while proposing factions as good and serving a vital purpose, warned against their abuses when enforced through centralized government (Federalist Papers 10, 51) and not exposed to competitive forces.

Individual Liberty and social cooperation are threatened by an unregulated Federal public sector and need to be met head on by State Nullification challenges regularly where Federal policies and law tread into State domain, and when all else fails Secession.

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

So what do you get when you combine an eleven year 9/11 hit on an American Embassy where you lose 4 lives, implications of moral failure by two well respected military leaders in Central Command in the Middle East, add in a female confidant with military experience who’s writing a book on one of the Generals and has access to sensitive information (some of which has been found on her computer) and add in another woman who hosts social soirees to support the troops, happens to be of Middle Eastern origins (Lebanon) and is involved with the other General? A great mystery book or Harlequin Romance? 50 Shades of Washington? Or are we about to see centralized corruption that will take down years of well respected and time honored military heroism but in the process expose what our founding fathers warned, that centralized systems of government lead to nefarious and egregious acts that result from unlimited and unchecked power?

Besides the affair and stunning fall from grace of General David Petraeus and his lover and biographer Paula Broadwell, we find out this morning that current in command General John Allen has been linked to a possible affair with Jill Kelley a socialite in Tampa, FL and that the nominating process for him to replace General Petraeus would be put on hold.

These new revelations come to light as we find out that an unnamed FBI agent and friend of Jill Kelley’s reported harassing emails from Paula Broadwell to Mrs Kelley accusing her of hitting on General Petraeus. The unnamed FBI agent is also under scrutiny as it has been found out that he sent inappropriate emails to Mrs. Kelley, including shirtless pictures.

Questions have been raised since this story first broke just a few days after the election as to whether this was a cover up to protect the election results but also regarding General Petraeus’ position on the video that was being initially promoted as the cause of the Libya, Benhgazi attack, when it was found out that the CIA knew very early that the attack was most likely premeditated and trained forces were involved.

The addition of Jill Kelley into the story makes it even more intriquing as her family originally from Lebanon, settled in Philadelphia in the 1970s where her and her twin sister Natalie Khawam lived. The story gets more interesting as General Petraeus had written a recommendation to the courts regarding a custody battle for Khawam’s 4 year old son in which Khawam was being evaluated as ‘psychologically unstable’. Khawam often accompanied her sister Jill in her Socialite events and planning.

While this story continues to unfold, and with the elections still fresh in our minds, many media pundits explain the tea leaves of the past election as ‘Americans want bigger government’ but this should make us take pause as big isn’t always better and centralized, monolithic systems are prone to fragility and fatal errors.

While the GOP licks it wounds and some flee what they perceive as a ‘sinking ship’, the son of the ‘Father of NeoConservatism’ (Irving Kristol), Bill Kristol says on FoxNews Sunday November 11, 2012:

“The leadership in the Republican Party and the leadership in the conservative movement has to pull back, let people float new ideas…Let’s have a serious debate. Don’t scream and yell when one person says, ‘You know what? It won’t kill the country if we raise taxes a little bit on millionaires.’ It really won’t, I don’t think…I don’t really understand why Republicans don’t take Obama’s offer to freeze taxes for everyone below $250,000 — make it $500,000, make it a million…Really? The Republican Party is going to fall on its sword to defend a bunch of millionaires, half of whom voted Democratic and half of them live in Hollywood?”

While holding the line on taxes by the GOP might be a Pyrrhic victory at best, Kristol’s and other Conservative’s budging on tax policy (increasing) but giving no leeway on social and foreign policy issues belies a much larger problem. Punting on tax policy keeps the ball on the field of big government (federal), while giving up social policies to the states and shrinking US foreign policy engagements and footprint loses the ball from Washington and federal central planning as the canvass.

The history of the GOP is that of having it’s origins in the Progressive movement and it’s nature is to believe in ‘big government’. So while they Mea culpa on increasing taxes which is big government, it still keeps the federal government ball in play; while the GOP leadership resist inevitable changes in social and foreign policies, as states ratify marijuana and marriage laws and the public and US monetary conditions scream for changes in foreign policy. More taxes stays within the auspices of federal power, while decreases in military engagements and on social issues decrease federal power.

The Conservative and Progressive movements today are twin sons of different mothers. Birthed in the late nineteenth century postbellum and with different ‘step dads’ of both parties (in and out of office) siring along the way. The real question and the true sign of GOP capitulation is whether RNC Washington leadership is willing to discuss the purpose and limits of federal power going forward and welcoming Constitutionalists, Libertarians and Classical Conservatives in the vein of Edmund Burke to the table, who believe strongly in the individual and the free market to regulate not only economic values but social values as well.

In Federalist Papers, 10, 39 and 51 Madison eloquently expressed the limited powers of the federal government and the sovereignty of the states. Madison also gave instruction that while factions (special interests) could be dangerous to Individual Liberties, that in a competitive market both private and public (between the states) it allowed for the best ideas and solutions to step forward, failures to be isolated with it’s resources best reallocated and for ‘bad actors’ to be marginalized.

The question today might be asked by John Kennedy’s favorite poet Robert Frost in the 1920 classic ‘The Road Not Taken’,

“Two roads diverged in a wood, and I— I took the one less traveled by, And that has made all the difference.”

The road of ‘Limited, decentralized and constitutional government’ which protected Liberty rather than creating Utopian outcomes was more traveled earlier in US history but the path is today overgrown and distrusted by most in power and in the Universities; can party leadership turn with courage and determination down this path once again? Is there a post-Tea Party Movement waiting in the wings instead?

Please, tell us what you think.

Christopher M. Mahon, Editor

The GOP didn’t just lose the 2012 election. The Democrats ate their lunch, danced with their wives and slept in their beds.

Even in ‘red states’ like Arizona and Florida, results of Democrat wins are still trickling in. As of this writing it looks like Alan West has lost his reelection bid.

The knee jerk reaction of Hamiltonian Conservatives who bring in federal power for their own proclivities and ‘Damn the Constitution’, has to change.

No one likes a bully, whether it’s a Liberal or Conservative.

US Neoconservatism as a world dominant solution (proselytizing of American Excellence) tried over and over again (50+ yrs) is like the NY Yankees thinking they’re going to win the series with ARod, it’s a failed policy and the unintended consequences continue to mount; and Conservatism’s brand of morality has just as much unintended consequences as Progressive values when ‘Weaponized’ by federal power.

The genius of the Constitution was (and should be again) the limited role of the federal government to Article 1 Section 8 (20 planks) with limited interpretations of the ‘Supremacy and Commerce Clauses’, and most importantly leaving all other power to the states to fail or succeed, but not ‘fatally’ as would happen at the federal level. The great social issues of our day Abortion (murder), marriage (lifestyles), drugs, etc should be decided at the state and local levels which follows the wisdom of the Constitution that decentralization protects liberties better and you find greater chance of representative government closer to ground. Our financial systems should be deregulated and decentralized (as before) to protect against moral hazard, cronyism and centralized system failure. The USD should compete in a freer market that would determine true value and protect us against inflation and remove the printing press from Washington.

We are finding that women, Latinos, Independents, Libertarians and even ‘white’ men are walking away from the GOP in greater numbers, the answer is not what Karl Rove and Washington pundits are calling for, “reach out (cater) to these groups for greater constituencies” like the Democrats, because we can’t compete at that level and freedom and big government solutions are mutually exclusive.

The Tea Party and Liberty movements that started after the banking bailout of 2008 point us in the best direction, these were groups of volunteers (thousands), organically organized for the greatest good – Individual Liberty. The Democrats ‘ground game’ is what beat the GOP: there are more registered Democrats than Republicans and through union organizers, special interest that pounded the pavement, they got the vote out, because the workers had a stake in the election. Literally thousand upon thousands who perceived (and were told) their very livelihood and dependence was the State took to the streets and the polling booths. It was as Jefferson and Hamilton (who agreed on very little) would say (paraphrased), “When the voters recognize that the public treasury has become a public trough, they will send to Washington not persons who will promote self-reliance and foster an atmosphere of prosperity, but rather those who will give away the most cash and thereby create dependency.” You can’t compete with that by promising an end to Terrorism and a quasi-Just society through lifestyle prohibitions and abortion regulated at federal levels – butter beats guns, hands down.

We are at 1854 all over again, and as splinter groups like the ‘Free Soilers’ and most of the Whigs walked away from their party due to a prevailing issue of it’s time the Kansas Nebraska Act (Slavery/State Sovereignty), so the prevailing issue of our day which limits all citizens, ‘Individual Liberty’ (self determination and to be left alone) that an unyielding government wishes to suppress; will the outcome be a ‘revamped’ GOP party or will the party like the Whigs be remembered by school children in history books?

Tell us what you think?

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

As the dust settles this morning from election 2012, the Democratic Party celebrates a decisive victory, the Republican Party licks it’s wounds, and Independents and Libertarians still sleep in cots outside the political process.

While Prognosticators who got it wrong come up with the ‘Whys’, here’s some thoughts going forward for the GOP and more importantly the grassroots movements that started with a cry out for Liberty and back to the Constitution.

What Americans basically decided last night was that sending our young men and women onto foreign soil to die and government as a moral agent in our personal lives was worse than taking our hard earned wages and redistributing them to someone else in benefits and entitlements.

The irony was that the same reason the GOP told you to support the ‘lesser of two evils’ the nation decided right or wrong that the President was just that: kinder, gentler and surprisingly, more able to handle the financial crisis which when you dig down, includes factoring in military expenditures that the GOP refuses to recognize.

When you consider the win by the President and the DNC it is pretty impressive:

Barack Obama: 50% 303 (most likely FL too: 332)
Mitt Romney: 48% 206
House: Dems most likely +8
Senate: Dems most likely +2

At the risk of saying ‘I told you so’, I personally foresaw this coming over the past two years and have written about it but knew it was fait accompli after the RNC August convention of this year when ‘Rule 12′ was enacted and the two years of grassroots work at the state and local levels by party line GOP, libertarian and even independent voters who aligned with the Tea Party movement were cast to the side for a Washington-style backroom deal that was carved out on K Street with special interest groups.

When reading the Tea Leaves however, one needs to be careful to not fall into the same Neoconservative/Religious Right dogma, “The country is heading to hell in a handbag and Islam will take over America”. When you consider the historic ballot initiatives in several states that approved marijuana and gay marriages, one might become very discouraged and interpret these results as a hedonistic society headed to the brink, rather than a response to government intrusion into the personal lives of Americans. The Federal ‘Defense of Marriage Act’ is unconstitutional and an awful law that allows a national government to reach into the most intimate part of each of our lives and further divides us as a nation. Social mores are much more effectively defined in the private marketplace between individuals and by state and local governments closer to the ground, where necessary. The same is true of Marijuana laws, that it is at the state level where authorized powers set by the Constitution reside to regulate drugs as was true of alcohol. If the GOP or a third party gets behind the rational process of decriminalization (not condoning) at the federal level it would be a courageous feat of ending the savage border brutality and the unintended consequences of more than half our prison population locked up for drugs. See Cato Institute’s article, ‘Alcohol Prohibition Was A Failure’ for further insight.

So where do we go from here? I personally would like to ‘throat punch’ the ‘GOP face painters’ who teased Ron Paul supporters with juvenile retorts like, “Paulbots”, but that’s for another day, maybe a few beers and a dark alley.

Just as in 1854 when the nation was settling into a two party system of the Whigs and Democrats with a few splinter groups residing in different states like the ‘Free Soilers’ of New York that splintered off of the Whigs because of slavery, there arose a large enough issue in the Kansas Nebraska Act, which extended slavery into more territories, that there was a birth of a new political party. The question today is can the Grand Old Party find her roots in freedom as it did back then? Then it was to free a race of people unjustly treated, even stripped of the most basic personal liberties to not only own property but being treated as property themselves. Today, unfortunately ‘we’ve come a long way baby’ and through government mischief the Constitution has been turned on its head from an important document of ‘Original Intent’ that limits government, ‘Thus far and no further!’ to a ‘living document’ that regulates man and his freedoms.

Like Jefferson who understood the annoyances and inconveniences that comes with Liberty as people make poor choices in life, those choices are ably offset in the private social and economic marketplace through the friction of voluntary association and exchange rather than a government ‘managed society’ that we find ourselves in today.

Do you really believe that less government in regulating drugs or lifestyle choices will result in more drug use or an increase in alternative lifestyle choices? If that reasoning were true, then with ever increasing government intervention, wouldn’t we see less of it today? If Homosexuality is practiced by less than 10% of our population then why is it a bellwether issue come election time? Because fair minded individuals will come to the support of those being suppressed by government. So if you want more of something then go right ahead and subsidize it or let government regulate it.

Will a new message and direction rise from the embers of the GOP’s defeat in 2012? Today, pundits are rehashing a bad night and like the Democrats after their trouncing in 2010, convincing themselves it wasn’t their message of ‘big government that regulates morals at home and spreads American Democracy abroad’, but the consumer of the message and maybe their strategy in explaining it.

Partly as a result of the banking bailouts of 2008 which most Americans realized was flat wrong and unjust and the ever growing entitlements and unfunded liabilities, there was a spontaneous uprising for less government and re-examining the role of federal power within the restraints of the Constitution that lead to victories in 2010. There were threatening propositions like: ‘Audit The Fed’, sending education and other federal programs back to the states, redefining our military role in the world that threatened both party’s positions and constituents. This movement was eventually hijacked by the GOP and discarded in August at the convention like a prom date. Who will it be that takes up the mantle of Individual Liberty and limited government going forward? While it took a Civil War and Postbellum legislation that redefined the Federal role as more central and powerful and has lead us to where we are today, let’s hope it doesn’t take another war to remove those powers.

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

After a feisty two year run partially as a result of the 2008 bank bailout, several Federal Reserve Stimuli, ‘Monetary Twisting’ and crisis level debt and deficits (unfunded wars, social programs) the 2010 elections produced a backlash against Washington and more government solutions – leaving them on their heals. However, the Tea Party and other grass roots movements within the GOP have met their Waterloo through Rule 12 in August that allows the Republican National Committee (RNC) to call their own ‘audibles’ in order to derail the messy process of state and grassroots challenges. While the RNC (as the DNC) ‘negotiated at the bargaining table with special interests and a banking cartel, insiders (from both parties) spoke quietly with their concerns of an ‘Audit the Fed’ movement, entitlement reforms or the ‘silver bullet’ of State Rights that protects their citizens from a capricious Federal Government. Whichever party wins next month, leadership in both parties are resting easier as to use a Pat Buchanan phrase, “The peasants with pitchforks” for now have gone back to their villages. But where does the movement(s) go from here?

In an article in Reason Magazine, ‘Ron Paul: Man of the Left’ Brian Doherty suggests that as the Right has closed the door to true reform is the Left more of a possible avenue to see it happen?

In the article, Doherty who followed Ron Paul’s campaign this past year compares some of the ‘over the top’ rhetoric of the Occupy Movement to Libertarian and constitutional ideology and ideas held by Paul, the Tea Party and other grassroots movements. What he found was, that even far flung leftist ‘green behind the ears’ young people were open to constitutional restraints that protect liberty and limit federal encroachment. Where the struggle persists however with the Left, was in the Progressive Model of Income Redistribution.

Even in comparisons to President Obama, “Paul thinks it’s inherently illegitimate to arrest people for actions that harm only themselves. The Obama administration has deported a record number of illegal immigrants. Paul mocks border walls as essentially un-American. Obama presided over enormous bailouts of the nation’s largest financial institutions, and his economic planning team has been largely run by Wall Street insiders. Ron Paul is opposed to what both he and the Occupiers call “crony capitalism.” Even the president’s signature legislative accomplishment, Obama­Care (which Paul opposed), forces millions of people to buy health insurance from the very corporations progressives claim to despise.”

Obama, despite his rhetoric, has strengthen the Patriot Act, allowed NDAA 2012 and on the eve of St Patrick’s Day tightened up the ‘National Preparedness Act’ through Executive Order. “Civil liberties and peace are the issues that first made some leftist hearts beat faster when contemplating this curious Old Right congressman. Obama has started new wars unauthorized by Congress and greatly expanded a civilian-killing drone program. Paul opposes drones, calls for an immediate end to all our overseas wars, and wants the U.S. military to withdraw from the world. By taking these positions, Paul has done more than even leftist icon Noam Chomsky to normalize discussion of U.S. foreign policy as the behavior of a criminal empire rather than that of the world’s great defender of liberty.”

The question for the Constitutional and Liberty Movements going forward is ‘where is the ground more fertile’? The Left’s ‘Wall’ that needs to collapse like East Germany’s is both Income Redistribution and Government’s role in social welfare, while the Right’s is Military Interventionism and a preference for centralized banking. Because the Right’s predilection of a ‘Patriotism’ woven military policy of foreign intervention has a basis in defense, they might be hard won to limit that endeavor, while the Left and their penchant for redistribution and welfare might be easier to accept those ‘Great Experiments’ done at a State and Local level rather than the Federal, as the genius of constitutional restraint and decentralization allows for success, failure, reallocation and a robust society. To paraphrase Karl Popper, ‘Society from the ground up is rational, from the top down is not.’

Christopher M. Mahon, Editor

While most would agree that Governor Romney did a ‘smack down’ to President Obama and Jim Lehrer, did the design of constitutional restraint of government and Individual Liberty suffer a ‘smack down’ as well? While both candidates agreed on more than they disagreed, were the disagreements more on the application of federal power rather than if it has a legitimate (constitutional) function at all (education, healthcare, retirement, etc)?

Both candidates would maintain universal healthcare (Romney would replace Obamacare), federal powers over education and retirement, and strong military footprint overseas. Regarding balancing the budget: both would work off baseline budgeting that calls ‘cuts’, slow down in future growth, which never leads to debt elimination. In Reason Magazine Nick Gillespie’s article, ‘Romney Won the Debate, But Will the Country Lose?’ Gillespie notes where we lose freedom and choices as Americans:

“Last night’s presidential debate between Democratic incumbent Barack Obama and Republican challenger Mitt Romney was far more substantive and wonky than most watchers would have ever predicted. More important, given Romney’s strong showing and nearly complete domination of Obama,…At the same time, and despite multiple attempts by the moderator of the debate and the participants themselves to stake out radically different visions of the role of government, Obama and Romney were far more similar than different when they talked policy. That’s bad news for the country.”

While the President was caught on a tape several years ago saying he favored ‘Redistribution’ it shouldn’t come as a shock; Progressives in the Democrat party for years have favored social engineering policies and tax policies to accomplish a ‘fairer’ society as an outcome. If there is a shock at all it is that the GOP has favored ‘Redistribution’ policies of their own.

Ironically, President Obama is a byproduct of the Progressive journey from post-Civil War Settlement Houses and Community Organizing centered in the largest cities (particularly Chicago) that advocated for inner city immigrant groups to feed them and teach them to read, write and basic economics. The process started out localized through philanthropic means by the children of the industrialists of the day like the Du Ponts, Carnegies and Vanderbilts; even Jane Addams the co-founder of the Hull House came from a wealthy family. Her father John Huey Addams was an Agricultural businessman with large land holdings. He was a founding member of the Republican Party and a friend of Abraham Lincoln’s.

One can argue that Obama has ‘GOP’ in his bloodline; and that’s the bigger point, the past 150 years has been a progression in not only ‘big government’ but ‘big business’ and ‘welfare’ (the evolution of the settlement house movements) interests that are protected by both parties through government policies that no longer protect access or individual freedom but provide outcomes through government intervention.

While Democratic style takes from the high income earners and redistributes in the form of welfare, education, healthcare and other benefits to the ‘lower rung’ of society and manages business through regulations, GOP style rewards behavior through tax credits and deductions (Filing status, Exemptions, EIC, Mortgage Deductions etc) that is to influence moral decisions, to ‘create a better outcome’ for society. Either way both are outcome based and interventionist in their application and of course as we’re finding out today that whether military, agricultural, economic, monetary or tax policy intervention, it leads to distorted outcomes and unintended consequences as individuals and business entities with their private capital will respond to those policies by protecting themselves.

Policies that come out of Washington are more and more being drawn up on K Street through lobbyists of the largest corporations who contrary to public opinion favor federal regulations, taxes and fees as it protects their market share, and costs are passed along to the consumer who has less choice in the matter due to government intervention that limits competition. Both parties just like US foreign policy of ‘favored nation’ status have their own ‘favored Corporations or Industry’ status and promote those interests and demand support from those receiving the benefits.

In our current 2012 Elections environment the GOP and the Dems in their campaign rhetoric throw off ‘talking points’ and hyperbole to draw the differences but it seems more and more like two identical sock puppets who’s only distinction is one is on the ‘Right’ hand while the other is on the ‘Left’.

The flames of ‘Individual Liberty’ and ‘limited government’ that has been expressed through grassroots movements over the past few years and the protests of the abuse of ‘big government’ and ‘big business’ that cohort together may have been marginalized and silenced for now, but eventually will like water find it’s way through what seems like a nonporous political system.

The reason I’m sure of that is the response of both parties this summer as the roughly 30 state GOP parties in particular expressed those ‘grassroots’ preferences and wanted them represented in the national platform, but were eventually nullified at the national level in Washington through Rule 21 and other party manuevers for the GOP and the same is being considered in the Dem party as well. What will become more and more apparent is that ‘great ideas’ and grassroots movements just as in other less competitive markets will go elsewhere to plant their seeds and eventually we’ll see an erosion of the two party system which will diffuse factions while giving individual liberty a greater chance.

Christopher M. Mahon, Editor

“One of these days you’re going to have to decide which side you’re on.”

“If you saw Atlas, the giant who holds the world on his shoulders, if you saw that he stood, blood running down his chest, his knees buckling, his arms trembling but still trying to hold the world aloft with the last of his strength, and the greater his effort the heavier the world bore down upon his shoulders – What would you tell him?”

I…don’t know. What…could he do? What would you tell him?”

To shrug.”

Many in Europe said it would never come to this, whereby the European Central Bank would buy the bonds of countries like Spain and Italy who have the potential of going down the road of other debt ridden EU nations with rising borrowing costs and the inability politically to cut spending.

In a NYTimes article this morning, Central Bank Sets Bond Plan Meant to Ease Euro Debt Peril “We will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area,” Mario Draghi, ECB President said at a news conference. “The euro is irreversible.”

While such programs will be managed by other EU governing bodies, the ECB will have the power to make decisions on which nations, bonds and the terms for the transactions. They will most likely have a monitoring mechanism to keep track of bond performances as well.

“By forcing governments to impose fiscal discipline on each other and remake their economies along lines dictated by the E.C.B., power will inevitably drift from national capitals to Brussels and Frankfurt.”

The E.C.B. will buy bonds with maturities of three years or less, and it will maintain a policy of ‘Sterilization’ at least initially, where they will match the buying and removing from circulation in their portfolio in order to minimize inflationary affects.

Mr. Draghi said that the vote for the bond buying policy was not a unanimous vote by the board as Jens Weidmann, president of the Bundesbank was the lone dissenting vote, he warned that this was a bad course to head down as nations become more dependent upon ‘cheaper financing’ and relieves the pressure of real spending cuts.

German chancellor, Angela Merkel, expressed similar concerns and cautioned that a continued move to a more rigidly defined and centralized EU system, that both Germany and the UK fought against at the EU’s inception, is a potential threat to national sovereignty.

One can’t help but draw the comparisons to the US Federal Reserve system, a central bank created in 1913, which has stepped more and more into the role of ‘Lender of Last Resort’ who also has potentially similar hard decisions as city and state governments face rising borrowing costs and spending while decreases in revenues. A few cities in California have recently declared bankruptcies.

Recently over a discussion of the function of government with a good friend of many years we came to a crossroad as he expressed how he didn’t understand my ‘faith’ in Laissez-faire, a marketplace with little to no government regulation. While I think it is a legitimate concern as there are potential abuses in all relationships and transactions including the marketplace, my response back should have been, “While I understand your concerns with individuals taking advantage of one another, I don’t understand your ‘faith’ in government to ‘make it right’ and not to be exponentially more abusive as power is concentrated in the hands of a few and they have the force, law and money to do as they will.”

Whom should we fear more, the millionaire across town who can use his money and influence to deny me and a limited number of other people access or the government with unchecked power that can confiscate our wealth, send our children to war and deplete our livelihoods for a Utopian vision? Even the billionaires we read about have limited powers until they hook that power to government influence and coercion.

There are two assumptions made by both the ‘Left’ and the ‘Right’. The Left believes it has a natural ‘Altruistic’ compass while the Right believes it has a ‘Moral’ compass built in. So that both believe if they as a collective are heading the ship of ‘big government’ that even if for a greater good they need to steer into the cliffs of suppressing Individual Liberties they have the internal fortitude to not destroy the ‘Ship America’. Unfortunately this is either a lie or extremely arrogant and naive.

While my friend’s question ‘how do you have faith in Laissez-faire?’ is difficult to answer because historically societies have had government structure to varying degrees; the settling of the ‘Wild, Wild West’ and the ‘Free Banking Era’ are two good examples to consider in US history. We’ve been lied to by Hollywood and Historians  regarding western expansion and the violence it entailed, a study ‘The Not So Wild, Wild West’ by Montana State University Economics Department shows the opposite to be true; the settlements of the western states were a safer place than almost all our major cities today as well as many suburbs. What was unique is that it mostly was settled through private contract law rather than government systems.

Even law enforcement was through private means as they hired Sheriffs and Deputies directly or through contracts like the Pinkerton Services who pursued many ‘outlaws’ like Jesse James. Cattlemen and Frontier Associations and Fraternities were formed out of common interests (voluntarily) to negotiate property rights and easement agreements.

Laissez-faire “is an economic environment in which transactions between private parties are free from tariffs, government subsidies, and enforced monopolies, with only enough government regulations sufficient to protect property rights against theft and aggression.”

Private banking with less government regulation and less centralization of power historically has also worked better. While there were banking crisis’ prior to today’s US centralized banking system, they were generally smaller and the market was quicker to dissolve failures, realign malinvestment and reallocate assets and labor more efficiently. The ‘Panic of 1819′ which was in part due to monetary expansion and debt from the War of 1812 and all other Panics that followed were due to violations of market principles and where economic conditions were less regulated by government the time period for adjustment and recovery was shorter as the market cleared bad investment while determining value. The ‘Free Banking Era’ of 1836-1864 is a bit of a misnomer as there was state regulations at the time but there was competition in the currency market and between banks regulated by the states. During economic growth some banks took greater risks going off species (gold, silver, etc) and offering more competitive portfolio returns and investors bought those risks. When the economy slowed and the market corrected many of the banks who took risk went under and the investors holding those risks took the losses as well. But with less government intervention, the losses, valuations and reallocation of assets was orderly and recovery was quicker. When you consider more recently the history of US banking and Currency laws and the degree of federal intervention since the Bank Panic of 1907 which led up to the Federal Reserve Act of 1913, the last century of centralized banking reveals economic and monetary crises of a monolithic system that lacks competition and is supported by ‘too big to fail’ versus a decentralized system of competitive banks and currencies that allowed for market failure and correction with the latter evidencing more stability. Even as recently as last week Federal Reserve Governor Jerome Powell described the new ‘Single Port of Entry’ provision and ‘Living Will’ that charter banks determine ahead of time to go through a bankruptcy-like procedure that basically enshrines the taxpayer as on the hook for the cost.

Here’s a ‘Jenga’ exercise we should play from time to time. If our Jenga pieces are government structure to maintain a society to protect freedom, how many pieces of today’s government can we dismantle without it falling apart? How many pieces of federal government have centralized power in Washington and created a monolithic system that is impervious to change and fragile to systemic failure? It’s amazing in the game how many pieces we can remove but I think most would be surprised how much of government we can remove that has only gotten in the way, distorted values and restrained the liberties of the Individual. The US Constitution is a good plumb line and starting point.

Christopher M. Mahon, Editor

 

 

 

This morning in Jackson Hole, WY, Ben Bernanke, Federal Reserve Chairman laid out plans to provide new policy initiatives to stimulate the economy. In an article in the NYTimes, Fed Chairman Pushes Hard for New Steps to Spur Growth by Binyamin Appelbaum, Bernanke says, ” It is important to achieve further progress, particularly in the labor market,” Mr. Bernanke said in his prepared remarks. “Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”

While Bernanke didn’t announce specific policy avenues or dates, he did mention asset purchases like treasuries and mortgage-back securities. A recent FOMC meeting minutes suggested, “Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.”

In addition to asset purchases the Fed is also considering even more aggressive actions of cutting interest rates on reserves held by the Fed for the banks which could influence the push of more liberalized credit and money into the market and the Fed is also considering targeting low-cost funding for particular sectors of the economy like housing.

Bernanke quoted a study which suggested that past stimulus has helped, “finding the combined effect of the Fed’s three rounds of asset purchases raised output by 3 percent and increased employment by 2 million jobs.” Although other studies and monetary theory suggests that monetary intervention may produce a temporary stimulative affect, but in the long run it distorts interest rates and other prices in the markets which causes malinvestment leading to further economic troubles.

Christopher M Mahon, Editor

The NYTimes Editorial today criticized the ‘lack of honesty’ in Paul Ryan’s RNC convention speech last night. “Mr. Ryan, who rose to prominence on the Republican barricades with a plan to turn Medicare into a voucher system, never uttered the word “voucher” to the convention. He said Medicare was there for his grandmother and mother, but neglected to say that he considers it too generous to be there in the same form for future grandmothers (while firmly opposing the higher taxes on the rich that could keep it strong). He never mentioned his plan to abandon Medicaid on the doorstep of the states, or that his budget wouldn’t come close to a balance for 28 years.”

The editorial goes on to say, “The reasons for that are clear: Details are a turn-off, at a boisterous convention or apparently in a full campaign. A New York Times poll last week showed that the Medicare plan advocated by Mr. Ryan and Mitt Romney was highly unpopular in the swing states of Florida, Ohio and Wisconsin. As soon as voters find out that the Republicans plan to offer retirees a fixed amount, they disapprove, clearly preferring the existing system.”

The NYTimes should remember the old adage, “for every finger you point there are 4 pointing back”. While it is true that Ryan didn’t mention ‘vouchers’ and specifics on how a transition to a better system would work (assuming that it is best for the federal government to manage Medicare, which is debatable and probably unconstitutional aligned to ‘original intent’), the article doesn’t point out the Ryan plan either, only to distort and hype what it perceives as ‘negatives’ in the eyes of the elderly.

The Ryan plan would like other plans being offered by GOP members create an ‘age line’ of 55, which would give seniors the choice to continue on their current plan or to go to a voucher type system to choose a plan and to participate in choosing their health care options. Below age 55 would go on the new plan, a similar plan that corporate America offers as well as Congress and the President participate in.

The rhetoric on both sides of the isle and both sides of the political ideology of Government vs Private solutions can’t avoid the economic realities of not only ‘Government Healthcare’, but ‘Government Retirement’ programs through public employee union pensions and Social Security’s as well who’s day of reckoning has arrived too.

Outcome based benefit programs create liabilities for employers (government) today for a future promised benefit tomorrow. The plan, whether pension or health care is actuarially ‘made whole’ each year and as the internal calculations in the plan change (mortality, morbidity, interest rate) the plan requires more or less contribution each year. Unfortunately, the discipline for the plan administrator (employer) to segregate and maintain the reserves to fund the promises has always been a problem and the long term costs of the plan make them prohibitive.

In the late 1980s corporate America started to address the funding and cost problems of their pension plans by moving to ‘Defined Contribution’ plans which work almost the reverse of ‘Defined Benefit’ (outcome based) plans. Instead of defining a benefit in an ‘unknown’ future and creating ‘unfunded liabilities’ they define a contribution based on current factors like a percentage of salary, and make the contribution today removing the potential for unfunded liabilities in a commitment to pay out benefits tomorrow and instead bring the employee into the decision making and risk bearing on his/her future.

At some level this will need to happen because ‘business as usual’ or even worse a burdensome redistribution through taxes on the productive members of society will produce a much worse outcome. The framers had it correct and as Madison described the US in Federalist Papers #39 as a ‘mix’ of a Federal and National system, the intent was to leave to the states the great social experiments like how we treat our elderly and sick and to very much limit federal powers (National) to the well defined enumerated powers of Article 1.8. The tearing down of federalist boundaries within the Constitution over the past 150 years has led to the most profound loss of Individual Liberty and government mischief, a price we can longer afford.

Christopher M Mahon, Editor

Over 30 years ago after having a spiritual encounter I went back to the church my family, as Irish Catholics had been associated with for years. I proceeded to ‘bubble over’ with enthusiasm and how I felt the creator through Jesus Christ had brought me into a new relationship with Him. I must have talked nonstop for over an hour after which the priest said to me, “Chris, what you are looking for you will not find here.”

I’ve told that story for years and as you can imagine, I’ve received different responses, some “well that’s to be expected” and others “the Church isn’t like that”. To the Catholic Church’s credit from what I hear from family members, friends and associates who are Catholic, they tell me of how the church today emphasizes personal relationship with Christ more than ever.

That memory came to mind today as I observe the smoke clearing from the RNC Rule 12 established yesterday which consolidates power into the RNC and virtually closes the door to future grassroots movements that start outside (and not adopted) of Washington.

In some ways that Priest did me a favor, as I pursued that personal relationship and other relationships through Bible, prayer and different church and small groups. If he were still living, I should actually thank him.

In the same way as the Priest answered me and my enthusiasm, hasn’t the RNC answered the enthusiasm of the Tea Party, Liberty and Small Government movement within the GOP state party planks that have drawn in old and young alike who believe in decentralized government and the Constitution to protect against unregulated government? I believe they said to us yesterday, “What you are looking for, you will not find here.”

The RNC Rule 12 that was enacted yesterday gives the ability of the GOP establishment in Washington the power to change rules and regulations quickly to destabilize grassroots movements that have less funds and influence in order to centralize power and the platform. Tea Party-type fires will be extinguished way earlier and if you happen to be in a majority interest today, good luck when the majority changes tomorrow due to special interest winds – platform will follow favor and money. Any creative grassroots movement going forward unfortunately will occur outside the GOP brand.

You say “How do you know that?”

Centralized power into the hands of a few, particularly through government which consolidates the ‘ability to take money and use force’ leads to fragility and monolithic structures that consume the freedoms of the Individual to produce a common outcome; a system which eventually leads to dismantlement or collapse as ideas and interests (factions) seek homes elsewhere. In a political party this becomes readily apparent as the door is shut unless you come bearing influence and money.

The ‘democratic process’ in Washington with a two party system that represents ‘the people’ is more like the 2 wolves and a sheep as the wolves fight over how to cook the sheep for the next meal.

Our framers warned against the potential of an ‘unconstitutional’ government that would develop out of self interests (factions) and political proclivities.

In 1854 many abandoned the Whig and Democratic parties to join the Free Soilers, Abolitonists and other groups seeking liberty or a voice and the Republican party was born.

Today’s Republican party in some ways have blown an opportunity to bring unity and allow the competitive ideas and experiments of the states to the forefront; but instead like the ‘chalice drinkers’ preceding Indiana Jones (who chose the lowly wooden cup), chose instead the haughty high road of power to the humble road of servant leadership. As Rule 12 helps to consolidate RNC power and silences many voices outside of Washington, maybe the GOP has done it’s constituents a favor in saying in affect, “What you are looking for you will not find here.”

Christopher M. Mahon, Editor

In an article in Reason Magazine ‘Romney and Ryan Would Return Us to the Bush Years‘ Andrew Napolitano points out that a Romney presidency could result in loss of individual liberties through similar legislation like The Patriot Act, NDAA 2012 and executive orders to continue waging ‘War on Terror’ overseas and on our own shores over this past decade since 911. Would a Romney-Ryan ticket return us to Bush Administration policies of ‘Keeping America safe by fighting terrorism abroad, while preemptively going after it on our streets too? Napolitano makes the point that four more years of Obama could lead to unconstitutional legislation as in the Roosevelt Administration of the 1930s.

Napolitano highlights the failure of both parties to wage war on the US debt, pointing out that the causes are different but the answer is more federal spending, “The federal government has a debt of $16 trillion. We have that debt because both political parties have chosen to spend today and put the burden of paying for the spending onto future generations. The debt keeps increasing, and the feds have no intention of paying it off. Every time the government has wanted to increase its lawful power to borrow since World War II, members of Congress and presidents from both parties have permitted it to do so.”

Napolitano and many Conservatives finding their ‘classical’ roots are turning to the US Constitution for sobriety and answers to what should be the limits of federal power. The question in this election is, should we vote for the lesser of bad government or are there alternatives?

“I am a firm believer that the Constitution means what it says. The federal government can only do what the Constitution authorizes it to do. The modern-day Republican and Democratic Parties have made a shambles of that principle. Nevertheless, I understand the “anybody but Obama” urge among those who fear his excesses, as do I. Obama has killed innocents, altered laws, rejected his oath to enforce the law faithfully, and threatened to assault the liberty and property of Americans he hates and fears.

Even though Ryan is a smart and humble and likeable man who was once a disciple of Ayn Rand on economics, as am I, the Republicans want the Bush days of war and spending beyond our means and assaults on civil liberties to return. The Bush years were bad for freedom; without them, we would not have had an Obama administration.”

Who is John Galt (Allison)?

Cato Institute in legal battle with co-founder Koch brothers agree to change entity structure and elect new CEO. John Allison former CEO of BB&T is an admirer of Ayn Rand, Classical Conservatism and Libertarianism. While publications like Reason Magazine and Mises Institute have along with Cato done the yeoman’s work in bringing about the ideas of ‘limited government, constitutional alignment and libertarian values’ to the marketplace, it has been Cato which has had the greatest potential for volumes of studies and the development of public policy. Unfortunately, as of late the Koch brother’s and the GOP influence has modified this potential; with a new structure and leadership we can hope this will fortify a greater force for Liberty going forward.

“We are given a false alternative in our society: take advantage of other people or self-sacrifice. Taking unfair advantage of others is self-destructive because people won’t trust you. On the other hand, I ask students, do you have as much right to your own life as anyone else does? What (Ayn) Rand is defending is about giving value for value: life is about creating win-win relationships.”

For additional information please visit the Cato Institute and a recent Forbes article ‘Who Is John…Allison? A Randian, Libertarian Business Icon Takes Over the Cato Institute‘ of which the quote above is taken.

Christopher M. Mahon, Editor

In ‘Money, Method, and the Market Process’ Ludwig Von Mises wrote, “The socialists of Eastern Germany, the self-styled German Democratic Republic, spectacularly admitted the bankruptcy of the Marxian dreams when they built a wall to prevent their comrades from fleeing into the non-socialist part of Germany.” If the East German wall stood as a testament to the failure of German Socialism, then maybe Obamacare and the strict participation into other government managed services like Public Education, Social Security and Medicare stand as a testament to US Socialism failure of the FDR administration and subsequent policymakers who built upon it.

Of course today’s US Socialism is more subtle and genteel as it uses the weapons of regulation, fees and taxes instead of direct public ownership to coerce participation and to make alternative choices punitive.

To be fair, both parties do it. There are GOP socialists as well as Democratic ones, who believe in government support (subsidies) of particular industries (companies) and managing behavior that their policymakers and intelligentsia believe are appropriate for the Utopian common good.

The headline going into the fall election isn’t ‘Romney vs Obama’, that was the safe bet; the headline is the ‘Big Win’ by the national GOP, which marshaled corporate and social activist contributions to defeat those looking for change in party positions. DC GOP policies of a ‘Managed business environment’, ‘Federal power to manage social value goals’ and the continued ‘War on Terrorism’ was on the ‘primary voting block’ over the past year. Some wanting to realign the GOP party to Constitutional principles and others, Libertarian or even more to the Right than the current party positions, but going into the fall it looks like the national party has survived.

Unfortunately for Mises, he did not see the day when the German wall would be torn down, hopefully for us and our children we’ll see the day when the social experiments of a government managed society in education, health care, retirement and even as it dangerously careens into more intimate areas like what we eat and lifestyle choices, we’ll see inroads in the 21th Century that allow Individual Liberty and markets to choose.

Government as Washington warned was a `fearful master’and as Jefferson also suggested, that it’s `nature was to grow’; the US Constitution was designed to limit federal powers and restrain it’s natural encroachment into state sovereignty. Those voices have been silenced for now in the 2012 election, the question going forward is where and when will they surface again in the form of party representation. The Whigs died in the mid-nineteenth century giving rise to the Republican party, will another party rise to replace a current one or will as Nick Gillespie suggests in a coauthored book, ‘Declaration of Independents’ see the death of a `duopolistic’ party system.

Christopher M. Mahon, Editor

Nevada this Saturday July 14th is an important day regarding the GOP nomination process but you haven’t heard that while tuning into FoxNews or other GOP influenced media mouthpieces. If Ron Paul wins Saturday’s race, he will qualify as a nominee in the Tampa convention and will have a speaker’s spot at the event. Some like MSNBC are calling it Ron Paul’s Last Stand. There has been a boat load of national GOP and Romney campaign money directed into Nevada to prevent that from happening.

While the Tea Party movement with its clarion call of ‘limited government’ and focus on Individual Liberty that resulted in a spectacular gain for the GOP in 2010 and initially embraced by the national GOP in Washington, has been slowly divided, conquered and marginalized by the party today; Libertarians, Independents and ‘free market’ fundamentalists are treated carefully but with a watchful eye of suspicion. The national party today is designed like a sports team to win elections no matter what. Special interests that will support GOP candidates are favored over what many in Washington consider ‘non-money raising’ issues like limited government and the Constitution as a plumb line. The liberties of the Individual which are protected by the Constitution fall just as easily through the GOP cracks of a greater Utopian good of a moral society or a society protected against terrorism as they do through Democrat ones of equality and justice like, universal health care.

This is not to say that the national party has scored an uncontested victory even if it seems like they spike the ball on FoxNews every week. There are several states partly as a result of Paul’s candidacy most recently and the Tea Party movement over the past few years that has activated interest at the grass roots to participate in local politics through precinct and delegate involvement. The result has been a healthy friction between the state/local GOP and the national party in deciding economic, social and defense policies, and choosing candidates.

The national GOP in Washington doesn’t like it however and in some states are looking to bypass the state party and go directly to the voter; while the active participation of some in local politics could have much greater influence on their neighbors, family and friends. As in the last line in Casablanca Sam says, “Louis, I think this is the beginning of a beautiful friendship”, so the GOP, in a more market driven manner might just illustrate to our nation the answer to our problems. One can only hope.

Christopher M. Mahon, Editor

In Sunday’s NY Times column, Modesty and Audacity, David Brooks writes, “Washington is full of arrogant people who grab power whenever they get the chance. But there is at least one modest minimalist in town, and that’s John Roberts Jr.” Brooks of course is referring to the 5-4 (or 4-1-4) ruling of SCOTUS last week that produced a surprise ruling in some respects and some interesting tea leaf reading days later.

Brooks goes on further to frame what he and most in Washington believes is the game, “And here’s the biggest gift that Roberts gave to the nation: By restraining the power of the court to shape health care policy, he opened up space for the rest of us to shape that policy through the political process. By modestly refraining from rewriting health care laws himself, he has given voters and politicians more room to be audacious.” Does that sound dangerous to you? How much of your life do you wish to depend upon politicians to ‘manage’ and activities to exclude?

While it could be argued on both sides of the Health Care debate that they won a victory in the Roberts decision, on the one hand health care goes through but on the other there’s been a potential boundary drawn around the Commerce Clause which has taken on a power of it’s own since the Hughes court of the 1930s (Charles Hughes, Chief Justice, like Roberts nominated by a Republican, Hoover). But ‘at the end of the day’ (hate that saying) it still leans toward a pro-government interventionist game that doesn’t open the gate as much to non-politicians and lawyers and leaves the individual at the mercy of all branches of the federal government.

In Brooks’ summary he says, “Personally, I think the Republicans’ defined-contribution approach is compelling. It’s a potentially effective way to expand coverage while aligning incentives so that people make cost-conscious, responsible decisions. But the truth is neither I nor anybody else really knows what works. We’re going to have to go through a process of discovery. We’re going to have to ride the period of rapid innovation that is now under way.” While admitting the efficiency of aligning cost to benefits, in the article he doesn’t recognize the most efficient way that can be done and is done through competitive markets, without having to compromise the greatest attribute and foundation of this ‘Nation/Federalist’ system and that is the Freedom of the Individual and the Market to arrive at what Man cannot ‘Manage’ his/her way to.

Brooks even admits at the end of this statement “But the truth is neither I nor anybody else really knows what works.” So with that statement being true, then why would we take the further irrational steps of limiting personal choice, taking non-homogeneous data (individuals are so different), and from 40,000 feet in the air (DC) make decisions by an elite-ignorant (admitted by Brooks) group in Washington to create policy and manage costs, benefits and features?

If Presidential nominee Mitt Romney and his camp could step away from the ‘GOP handlers’ they would realize that as the smoke clears there’s ground to be staked out or it will be staked out for him. You see he was right in his Federalism but possibly wrong in his policy choice for Massachusetts. He is right in that the US Constitution and Madison specifically emphasizes the importance of leaving Positive Liberty (Government managed outcomes) and powers not enumerated in the Constitution to the states – it can’t be emphasized enough how important that is. He might be wrong as time will show in who stays, flees or goes to MA in part due to their health care system and whether it will crumble under the weight of its debt or survive.

Of course that is the power of the Market, that while as Brooks says ‘Nobody really knows what works’, with a federal government that protects open access into the market and quells disputes between states (not intrastate) it allows for the ‘friction’ of voluntary exchange and association which will in the long run provide access to better health care choices and lead to the ‘Greater Good’ of Liberty which is defined ‘on the ground’ and can be arguably protected in Washington if as Franklin said, “..a Republic, if you can keep it!”

“Can you even dye my eyes to match my gown?”

A line by Dorothy Gale from Wizard of Oz played by Judy Garland, an allegory written by Frank Baum in the late 19th century that parodies the eastern banks’ desire for a gold system vs the mid-west farmers’ desire to keep silver open as that was what they predominantly owned and traded with.

In the story Dorothy makes her way through following gold (follow the yellow brick road) into the government of OZ where they make all kinds of promises not realizing until later that she had the power to get back to Kansas all along because she was wearing silver (changed to red in 1939 movie) shoes which would get her there. The cowardly lion was William Jennings Bryan who made the case for silver but was no match to the eastern banking interests. The banks not only won on the gold issue as they consolidated their power but they would go on to win even bigger as the 1907 bank panic followed which lead to centralizing the bank system under the Federal Reserve in 1913 legislation.

This morning, the Wizard (Bernanke) once again told congress with a wink, wink, nudge, nudge that the banks could get another ‘helicopter drop’ of cash. Yes, you and I are today’s Dorothy, but instead of following the ‘Yellow Brick Road’ we’re following a different ‘Road to Serfdom’ (Hayek).

The question that we can ask ourselves allegorically is what do we like Dorothy already have that we’ve forgotten about, that will get us back to what had been working for us? The answer has been there all the time: Understanding the power that each state has to defend itself and its people against federal encroachment and the importance of decentralized government and currency. Tools like nullification and state’s party insistence that their candidates be held to the responsibility of saying to the federal government, “Thus far and no further” while at the same time resisting the temptation of federal aid that comes with strings attached. It will take readers of this article, getting involved in state and municipal politics to make the difference and educating themselves on the reason why the Constitution separates the powers of government between limited federal and greater state power. Please help yourself to the articles on this website and the Library tab at top that includes many free books, essays and articles regarding why Liberty should be the goal of government based on a  ’Negative’ (nonintervention) posture rather than ‘Positive’ and why free and unmanaged markets do much better in determining value than managed markets.

As the powers in Washington scatter about to preserve their corrupt and crony power that dates back to the Lincoln administration, shouldn’t we start clicking our heels together that a rebalance of constitutional alignment would take place. Find your silver slippers and get going.

Christopher M. Mahon, Editor

 

The Washington Times on Monday May 7th in its article `Romney rejects Ron Paul-style Austerity‘ reported,

“Speaking Monday at a town hall style-meeting event in Cleveland, presumptive GOP presidential Mitt Romney plunged a fork into the idea that he could come around to embracing (Congressman Ron) Paul’s call for deep cuts in federal spending.

“My job is to get America back on track to have a balanced budget. Now I’m not going to cut $1 trillion in the first year,” he said, distancing himself from Mr. Paul’s plan to slice more than a quarter of the estimated $3.8 trillion being spent by the the federal government.”

Later when pushed further regarding Paul’s budget proposal and the spending cut measures, Romney went on to say, “The reason, is taking a trillion dollars out of a $15 trillion economy would cause our economy to shrink [and] would put a lot of people out of work.”   

Here’s why Romney is wrong in his suggestion that this could harm the US economy, wrong in his historical perspective and most importantly wrong on his understanding of the `American Spirit’.

FactCheck, which generally leans progressive, correctly points out that “The biggest (budget) cut, on a percentage basis, occurred in fiscal year 1920 after two years of steep budget increases to finance World War I. That year, spending dropped from $18.5 billion to $6.4 billion, which is $12.1 billion decline or about 65 percent. The $12.1 billion in today’s dollars would be worth $134.3 billion, according to the Bureau of Labor Statistics’ .

Likewise, there was a sharp decline in spending after World War II. Beginning in 1946, Congress cut spending for three straight fiscal years. The biggest drop occurred in 1946, when spending dropped by $37.5 billion or about 40 percent (from $92.7 billion to $55.2 billion). That $37.5 billion would be worth $425.4 billion in today’s dollars — making it the largest cut in adjusted dollars.”

To further the comparison to the error of Romney’s remarks that to `take $1 trillion Federal spending out $15 trillion US economy’ would cause job loss versus what happened in 1920 and 1946, is that in 1920 and 1946 they removed roughly 17% and 16% of federal spending (respectively) while  Ron Paul’s proposal would shift federal spending by less than 7%. But here’s where Romney, policy makers and most economists get it wrong, it’s the `Unseen’. While Federal spending through intervention in military, education, health care and many other areas of the economy create malinvestment and shift purchasing power from the individual to the state, the reverse allows markets to correct and that money doesn’t disappear as Romney suggests but moves through the economy in a more efficient way. Both 1920 and 1946 illustrate that as you had millions of men and women coming home from wars, you had manufacturing shifting from making weapons and bombs to meet domestic and international demands for other products and services.

Finally, where Romney really gets it wrong is calculating the heart of the American worker-entrepreneur on the same plane as in Greece or France. The US small business owners and those who’d like to be are like race horses restrained and thrown off at the starting gate by a capricious federal government that if instead was restrained would allow like in 1920 and in 1946 for the ingenuity of the `American Spirit’ to soar. The greatness of the United States isn’t inherent in her citizens rather as it has been in her law, protection of individual liberty and the access to succeed and fail through the discipline of the US Constitution.

While Federal power has encroached greatly and has been redefined in a positive matter through intervention and defining social and financial outcomes over the past 150 years, there is still a remnant of Liberty, Self Determination and the desire to not only lift one’s self but to help others.

In 1866 Lord Acton of British Parliament viewed the remains of the Civil War aftermath and in a lecture series he exalted the unique qualities of the US prior to the war, a Democratic Republic restrained by state sovereignty, where the lowest man counted but warned of a new federalism to come that would go the way of Rome and France.

The Federal Government has an important but limited role as a referee between the states, the states and foreign entities and to vigilantly protect our sovereignty as a nation. The question for today framed in the backdrop of the 2012 election, “Are there state and national politicians (like Presidents Harding and Coolidge of the 1920s* and the Congress of 1946, 47) who will aid in the process of restraining Federal power and loosening the Individual and the states to experiment as Madison, Jefferson and many of the framers suggested?

This is why it is crucial that the GOP platform adopts Congressman Paul’s classical economic and constitutional principles of limited federal power, social and financial values determined by the market (free and voluntary exchange and association) and sound money.

While President Obama wishes to impose more centralized federal government power in taking over more sectors of the economy and redistribute wealth, if Mr. Romney wins in November, don’t we still lose? Our financial, social and infrastructure problems will not go away. Just as aerodynamics defies gravity briefly through a 3 point landing or crash, so do markets eventually adjust either voluntarily like in 1920, 1946 or involuntarily like in 1929 and 2008. The global systems of the world are decentralizing one way or the other; the Middle East, Greece, Ireland and potentially France are showing how `not to do it’, Paul’s classical economic principles through constitutionally aligned government as we’ve seen voluntarily applied in our past shows how ‘to do it’. Who’s steps should we follow?

Christopher M Mahon, Editor

 

*Unfortunately, the recovery of 1920-21 was followed by Federal Reserve excess in part by the 1st Fed Chairman Benjamin Strong’s friendship to Montagu Norman, Governor of Bank of England to help in Britain’s parliamentary requirement to go back to Gold in 1925 at a fixed price (which is a lesson for today). Modern day Keynesians point to greed and excess of unrestrained markets  to the Great Depression but the reality is that the monetary policies of the Federal Reserve distorted markets and brought about malinvestment. The 1929 Depression that took 25 years should have been a 1929-30(31) Depression if Hoover and/or Roosevelt had taken the same steps as Harding, Coolidge in early 1920s and the 1946 Congress. Hopefully today classical economics (Austrian) will win out.

While the country prepared for St. Patrick Day celebrations on March 16, 2012 Friday night, the White House Press Office discreetly released Executive Order, `National Defense Resources Preparedness‘ which in a time of `national crisis’ arbitrarily determined by the Federal Government, shifts control of private business, industry, travel and even the labor of professionals and specialists that are deemed critical to operations into the possession of the Federal Government.

Now, at first blush and within the backdrop of present day societal economic and foreign diplomatic challenges seems like a radical and dangerous Executive Order (EO); this Order actually has a genesis from an FDR EO from 1939. There have been several additional amendments and several similar orders that were crafted to protect homeland threats from abroad. But what has happened though in the cloak of legislation to protect American Liberties? In 1950 EO10323 (Defense Production Act of 1950) by President Truman, it moved designated business equipment production under federal power during attacks (Korean War). EO12656, under President Reagan in 1988 put language in previous EOs to include Nuclear Engagement. In 1994 under President Clinton, EO12919 entered the language to include Terrorism and recognized the potential for domestic attacks. The National Defense Resources Preparedness by President Obama, the most recent EO, which seeks to broaden even further language to protect US financial, agricultural, transportation, military and utilities structures against the threat of `extremists’ and others as a result of both foreign and domestic crises is arbitrarily defined by the Federal Government; it has dismantled further constitutional separation of power and consolidated federal powers and opens up the ability of the federal government to step in during an economic or civil unrest crisis that it deems potentially threatening to US society.

Also, because of recent legislation through Congress: the Patriot Act 2001, which was resigned by President Obama in May 2011 and the recently passed National Defense Authorization Act (NDAA) 2012 give the federal government even more power to control the freedoms and property of US Citizens, this EO by President Obama is even more potent than past orders. Also, this EO revokes Reagan and Clinton’s EOs which while nuanced is very important to recognize. There was language in those that recognized the US Constitution as the final arbiter between the powers of the federal and state governments. Also, there was language in both that recognized the coordination of powers between the federal and state government. As of President Obama’s EO these `bumpers’ on federal power have been removed. The danger of abuse either by pragmatic overreach of government in a time of crisis or the potential for tyrannical power has just been increased.

Another change that could have great impact is in the Loan section 300, where instead of the Treasury raising money in the market (Import-Export Bank, etc) it is now authorized to go behind closed doors with the Federal Reserve. This means the potential for mischief has increased. Solyndra type debacles could be bailed out without public scrutiny and banks now have `Speakeasy’ access to credit.

In Section 700, it names a `governing committee’ which names most federal agency heads but includes a few private institutions that oversea potential threats and the management of preparedness in the order of a FEMA type operation. Oddly though, there is no state representation on the committee: No Board of Governors, nothing.

Major Changes:

1. Section 300: Loans done through Federal Reserve (banks) coordinated by Department of Treasury so theoretically hidden from public scrutiny and the possibility of Solyndra-type financial problems being buried and the abuse of `Crony Capitalism’.
2. Previous legislation (EO 12656 -Reagan 1988, EO12919 -Clinton 1994) referred to State level coordination and adherence to constitutional design and limited actions to Defense, that would limit the scope of homeland federal abuse, this Executive Order removes that language.
3. Adds the word `Threat’ to the language which could allow for preemptive actions by federal authorities and the possibility of state, local and individual (property) overreach.
4. This Executive Order dovetailed with NDAA 2012 broadens the scope of Homeland (domestic) security to include `enemy combatants’ and non-defense threats with loss of due process protections.
5. Changes to Section 300 where access to Loans by banks and business is through Federal Reserve and opens the door to mischief and abuse.

 

 

Christopher M. Mahon, Editor

 

The Iowa Caucus is less than a week away and political rhetoric by all candidates is at a high level, a good part of that is directed at Ron Paul who currently is the leader as indicated from most polls. He not only pulls from Independent and Libertarian voters but also Conservatives who have become disenfranchised with almost 10 years of military conflict at the expense of a balanced budget and debt. The latest accusations portray Congressman Paul as not only out of the `mainstream’ in his ideas on federal powers (even though by all accounts they are constitutional) but also that a Ron Paul presidency would be dangerous for the US as Iran could go nuclear and Paul is an `Isolationist’.

In a November 2011 Cato Institute article Ted Galen Carpenter makes the opposite claim that Military Interventionists and NeoCons like Gingrich, Santorum and Bachmann do us much more harm than good. For interventionists to not realize the beneficiary of a war with Iraq was Iran was a failure….“For neoconservatves to argue that the withdrawal of the few thousand remaining U.S. troops from Iraq significantly worsens that aspect is either obtuse or disingenuous. If they didn’t want Iran t…o gain significant influence in the region, they should have thought of that danger in 2002 and early 2003, instead of lobbying feverishly for U.S. military intervention against Iraq. The United States has paid a terrible cost — some $850 billion and more than 4,400 dead American soldiers — to make Iran the most influential power in Iraq.”

In another article by Per Bylund, Bylund  makes the case how the `Endowment Effect’ theory, (people place more value on things they own versus things they do not) illustrates the shortcomings of economic and military intervention in not understanding human action (Praxeology) and the unintended consequences. Or why Ron Paul’s theories on domestic and foreign policies while more aligned to constitutional principles are also more sound than policies of the other candidates.

Does US military policy of Intervention into the affairs of other nations (occupation, embargo, etc), prop up the dictators of the world like Hugo Chavez or Mahmoud Ahmadinejad who rally their people and crusade against US military might and US monetary policy? What part did Federal Reserve Quantitative Easing (1 and 2) play in the Middle East uprisings and other struggling nation’s financial affairs?  What part did troops in Iraq, Afghanistan and Pakistan play? Tell us what you think?

Christopher M. Mahon, Editor

“There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating,” A statement by IMF head Christine Lagarde. She later went on to warn of “economic retraction, rising protectionism, isolation and…what happened in the 1930s (depression).”

The speech by LaGarde at the US State Department in Washington was partly in response to the infighting and bickering between the Euro nations and the UK regarding who needs to make sacrifices and who’s more solvent and should be downgraded first. Bank of France’s Christian Noyer addressing rumors of a possible French downgrade said that there wasn’t economic data that warranted that move and if there was a downgrade that the UK should be downgraded first.

François Fillon, Prime Minister of France said that Britain’s debt and deficit position has not been fairly evaluated in it’s triple A rating. Britain has become the whipping boy of the EU nations since it vetoed the European Union Treaty last week and Prime Minister Cameron said there was no chance of the UK participating in any newly negotiated European government or financial system. Many inside Britain fear economic and political reprisals as a result of veto and comments made by Cameron.

Conflicting financial positions in France and Germany have made it difficult as well to negotiate in good faith for long term solutions, LaGarde warned against `quick fixes’ and stated that all countries need to work together, “It is really that Gordian Knot that needs to be cracked, that needs to be addressed as collectively as possible, starting with those at the center but with the support of the international community probably channeled through the IMF,” she said.

In other financial news this morning the Credit Agency Fitch has downgraded several banks, which included Bank of America,  Morgan Stanley  and Goldman Sachs, as well as Europe’s Barclays, Societe Generale and BNP Paribas. Germany’s Deutsche Bank and Switzerland’s Credit Suisse were also downgraded. Fitch was the third credit rating agency to downgrade global financial institutions since September.

Meanwhile the Financial Times on some positive notes has come out this morning in a series, Is America Working, an assessment of the US Labor market and it’s technical skills and how `Creative Destruction’  (Capitalism) has turned US financial markets around in the past.

 

Additional reading:

IMF Chief Warns of 1930s Style Threat

No Country Immune From Rising Risks: IMF’s LaGarde

Why Is There A Euro Crisis? 

 

I was recently reading the history of National Review, a magazine started up in the late 1950s by William Buckley and how he and the magazine back then helped orchestrate a `fusion’ movement to pull – classical, neo, social and libertarian-leaning conservatives together to make a political move which helped to bring about the Reagan Revolution. While there’s disagreement on how successful the Reagan Revolution was, they were able to put aside the rhetoric and started to define boundaries and sensible goals at the time while keeping the Constitution in sight. In light of the heated discussion going on today, is a second fusion possible and do you think that it could help the GOP party in the campaign process?

As a `Libertarian-leaning’ Conservative I want a decentralized government system like laid out in the Constitution that was part of the genius of our founders who understood Montesquieu’s Separation of Powers theory which protects against concentration of monolithic power and isolates failure and allows for better governance (closer and tailored to the citizenry) and as Madison pointed out in the Federalist Papers it permits for the `Grand Experiments’ of the states. I also believe that our military intervention has failed but obviously we need a military footprint but the question is where and how big. Having said all that however, I realize that movement in those directions is not unreasonable but not being able to budge/compromise is. The question is can each group mentioned come away with a sense of `progress’ and success, while still falling short of their goals?

Granted it’s complicated as even within each group there’s disagreement, within the Libertarians for example, there are differences between `Rights’ based and Consequentialists. Rights- based support the Individual and his Rights in the marketplace (Laissez-faire) above the State; while Consequentialist Libertarians will accept the use of the State if it can produce an intended outcome more `efficiently’ while ignoring constitutional barriers.

But there is common footing that can be found like between Social Conservatives and Libertarians, where if you’re on a social networking site or watch some of the political debates on the news programs and witness the hyperbole, vitriol and name calling you wouldn’t think so. Where social conservatives want to see traditional values maintained, like in marriage, family and lifestyle choices, many Libertarians have similar views with the difference being how are those values maintained or restored? Where the Social Conservative sees value in government intervention to create appropriate outcomes (Drugs, Pornography, Marriage, etc) the Libertarian believes the marketplace is a better regulator than the government. Where the canyon can be bridged however is through the Constitution in that it permits state and local intervention for those causes (Drugs, Marriage, etc) but disallows it at the federal level.

So with an open invitation to the different groups of the GOP that basically asks `what realistically are you able to compromise on and what are deal breakers?’, could there be a `buy-in’ to a realistic platform for today that cuts taxes and spending (not only growth), rolls back federal regulations (Dodd-Frank, Sarbanes-Oxley), audits but keeps the Federal Reserve (redefined to a single goal of guarding against Inflation), maintains DOMA and other values focused federal laws and to maintain some of the attrition savings in Defense while at the same time a Congressional review with strong input from our military that looks at our Defense policies and deployment `footprint’ going forward, while long term an eye on future plans to phase out federal laws, programs and departments based on relinquishing unconstitutional  powers back to the states?

Can we like Ron Burgundy in Anchorman, `agree to disagree’ but still work together? How important is it for you and your ideals to win a Pyrrhic victory? You are successful in your favorite candidate wins the Primary only to lose the 2012 election and allow for the US to continue down the slide of financial insolvency and the continued loss of Individual freedoms, through a centralized `one size fits all’ collectivist state that Statesmen like Jefferson, Madison, Lord Acton, Eisenhower and Reagan warned against. As disciplined as you are in being passionate for your cause, can you be as disciplined in controlling that passion and channeling it in a way that not only helps your cause but creates better chances at Life, Liberty and the Individual’s pursuit of Happiness?

Christopher M. Mahon, Editor

 

5,4,3,2,1 BLAST OFF! I remember as a young boy in the heyday of the NASA Space Program the thrill of watching on TV the Apollo missions blasting into space. What pageantry, what courage and what technology! The intellectual capital and cooperative effort that it must have taken. The other day while golfing on one of my local courses, I noticed an elderly couple behind me that was enjoying the afternoon. As we moved from hole to hole I was somewhat surprised at how adept the wife was at maneuvering the golf cart. Though somewhat limited in her physical ability she was able to operate the vehicle quite well.

I contrast those two scenes to highlight the degree of difficulty and the prospects of participation in both of those vehicles. Obviously it takes a high skill set to build and or operate a Rocket Ship, while a golf cart was purposefully built so that the broadest amount of people could participate. The question then is, `Did the framers of the Constitution (our government) construct it so that only very few and those highly skilled could represent it or was it built for the greatest amount of participation?

Today in the GOP race to become the Presidential Candidate the news highlights almost each day the gaffs, stammers and lack of knowledge of the candidates. Even Herman Cain’s question `How to say hot dog in Cuban’? As if assuming he didn’t know it was Spanish while he could have easily meant the different dialect and as in UK or US English there are different words to describe a bathroom, apartment and elevator. Even in the United States, Soda and Sandwiches (Grinder, Hero, wedge) have different expressions in different parts of the country. It seems the election process is more of a weeding out of those who don’t know the intricacies of the `Washington System’  and the very specific international information that one would only pickup if a world traveler or through growing up in certain social settings. Is that what we want in a candidate?

What are the dangers of letting anyone into Office vs narrowing the selection?

Of course the dangers would be scaled to the amount of power available and the potential for critical or even fatal failure. In the UK, the powers of the Monarchy are virtually nonexistent as the Throne is a figurehead position today, so the Brits don’t lose sleep over who’s next in line. The framers discussed this at length as they considered many resources at the time like: Baron Montesquieu’s theory on `Separation of Powers’ which stated that centralized power was more likely to lead to tyranny and cataclysmic failure while decentralized power diffused the impact. They also observed the mistakes made by Europe’s Monarchal and primitive central bank systems. In the Federalist Papers Hamilton and Madison disagreed on the function of government, while Hamilton admired a European Monarchal and Parliamentary system, particularly in banking, Madison preferred the protections of a decentralized Republic.

In a highly `specialized’ system of government that is centralized into a federal system that is far reaching into the intimate lives of each individual and as a result has developed intricate systems of welfare, taxation, regulation and the necessary University structures to support it would have to by nature be very selective and restrictive in candidate selection. On the other hand, in a decentralized system, that has specific and limited powers (enumerated) for the federal system and much broader powers to the states, local and community systems, the selection process can be much broader based, particularly as you get closer to the community levels.

So these two views (Rocket Ship vs Golf Cart) really can change your selection process. If `Rocket Ship’ then as the media suggests, a well educated (in governmental systems), world traveled and leadership-oriented candidate ONLY will do. But if like the founders who understood the potential for the `downside risk’  built instead a `Golf Cart’, isn’t it more of an examination to who can protect that constitutional design and ultimately put the protection of Individual Liberty first?

While the pageantry and beauty of a rocket ship is awesome to behold, unfortunately even in the hands of the greatest minds there’s system errors and they do fall from the sky at a great cost. The framer’s didn’t want to put the fate of a Great Nation in the hands of a few but designed through decentralize powers (in bits) to be put in the hands of many. Think about it, a little grey haired woman (golf cart)  in a small town in Florida as a town alderman could overrule Washington because of constitutional design. Which of today’s candidates and current officeholders are best capable to maintain and restore that design?

 

Christopher M. Mahon

 

 

When discussing `Negative’ vs. `Positive’ government I like to use the illustration of two types of basketball games, in one game the referee theoretically runs up and down the sideline and only enters the game when a predetermined infraction occurs by one player fouling another. While one team might have net advantages on paper, the game played better by either team determines the outcome. In the other game rather than the ref `standing down’ and restricted to only engage when an infraction occurs, the ref is allowed to manage the game to determine the outcome. So if team A on paper is more skilled than team B, the ref can call the game to the advantage of team B to create a more `Just’ outcome. In 2007 shock waves were sent through the sport of basketball when Tim Donaghy a professional referee for the NBA was accused of gambling and `fixing’ games. Serious allegations in the state of Arizona contend that Donaghy had miscalled two road games against the Phoenix Suns when they played the LA Lakers and the San Antonio Spurs. The league itself was called on the carpet as an FBI investigation was under way. Sportscasters and fans alike were bewildered and never could imagine that NBA games could be fixed or players and refs becoming actors playing a part like in professional wrestling. There has been disinterest and disenchantment as ticket sales have plummeted and the league has attempted to repair its reputation over the last few years. While sports lovers understand the differences in talent and teams that are favored or lacking, they like the spontaneity of the game and root for the underdog and bristle at league or game favoritism.

In a `Negative’’ government system, government is limited in its powers to `protect’ or `promote’ individuals or groups based partially on JS Mill’s `Harm’ Principle from his essay `On Liberty’, “That the only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others.” Another rather macabre illustration of Positive government is from Kurt Vonnegut’s short story Harrison Bergeron, Vonnegut foresees a dystopian world of government equality, “The plot is set in the year 2081. Due to the 211th, 212th and 213th Amendments to the Constitution of America, all Americans are mandated equal. “They were not only equal before God and the law. They were equal every which way.” In America no one is more intelligent than anyone else; no one is better looking or more athletic than anyone else. In order to stop any sort of competition in society these measures are enforced by the United States Handicapper General”. The very strong were burdened with weights and objects to severely limit their strength, the intellectuals were encumbered with drugs to distort their minds and understanding, and the beautiful wore masks or the appearance of their beauty was marred.

The `US Handicapper General’ today is Cass Sunstein, Office of Information and Regulatory Affairs, who through his legal and behavioral science background determines the best `Positive’ laws to meet the outcome goals of Social Justice and Equality.

While those in favor of a government that manages the game toward a certain outcome and manipulates behavior towards that end, there are others who believe that the outcome and unintended consequences of a Positive government are tragic and result in less liberties and freedom for each individual. Ludwig Von Mises, the author of Human Action proffers that it is because of the inequalities of men that voluntary association, exchange and cooperation can occur. That when we attempt, even if for altruistic intentions (if possible) to rebalance mankind based on skill sets, intellect, physical prowess, etc that it distorts the abilities of free and voluntary exchange and association to bring peace and harmony to society. Class system strife is the result of Positive government interventions and not the socio-economic differences that will always exist in society. A strong man and an intelligent man can pool their resources and work together. A poor man and a rich man can agree upon employment conditions and work together. While this may sound simplistic and I’m sure you can think of examples of exploitation, in a freer market with more choices, bad actors (employers, business owners) are held in check by the decisions of the consumers and workers.  

The budget and debt battle of 2011 has taken on many themes, pitting the rich against the poor, the elderly against young workers, but isn’t it really about the size and function of government? As we’ve discussed, today’s government is Positive in nature, as it looks to manage the behavior of individuals in order to produce societal outcomes – which never happens. Federal US Education budget has grown at more than 2 times the rate of inflation and the US is at the bottom compared to other nations. Poverty is still unacceptably high (as measured by Fed) even after decades of the `War on Poverty’. The question being asked today by many is not only what are the legitimate functions of the federal government but also couldn’t private resources take care of the social ills of society much better than government?

“Planning by the many not the few”.

It’s interesting, like many big influential works, very few have read The General Theory of Employment, Interest and Money which lays out Keynes’ theory on the government stepping in to stimulate markets and create demand. Like Marx’s theory of Communism, it was meant as a temporary or transitional solution where government intervenes (whether you agree with the theory or not). What’s interesting is that Keynes and Hayek became `combative’ friends over time (like O’Neill/Reagan) and met in late 1945 for lunch. Hayek asked him if he was concerned with rising inflation and the appearance that the world economies were printing money and aggressively stimulating the economy with the appearance the policies would become fixtures for years. He told Hayek that although he was watching it, he still had influence and sway with economists and central bankers and would be ready to step in to avert a crisis. Unfortunately, less than six months later Keynes would be dead.

Today, the `best’ Universities have some form of `bastardized’ Keynesian Theory of a State planned economy with central banking authority. As the video below suggests, Classical (Austrian) Economic theory is not widely taught or recognized. The idea that limited government intervention and broad voluntary social and economic associations and exchanges would produce a vibrant economic system that would `self correct’ as Adam Smith suggested in his Invisible Hand theory is collegially laughed off, chalked up as naivety or marginalized in the Universities, `Think Tanks’ and by the Media.

Thomas Jefferson, in his first inaugural address in 1801 said, “Sometimes it is said that man cannot be trusted with the government of himself. Can he then be trusted with the government of others? Or have we found angels, in the form of kings, to govern him? Let history answer this question.” History has answered this question time and time again, and it is answering it so starkly even today. When the `few’ rule over the `many’ it provides for corruption, fragility, instability and the eventual outright rejection of the ruler. Jefferson later in his address says, “Still one thing more, fellow citizens, a wise and frugal government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government; and this is necessary to close the circle of our felicities.”

Well ladies and gentlemen, it has been the `Circle of our Felicities’ that has been broadsided and burst wide open by encroaching federalist powers that can’t wait to take away every decision and the appearance of risk in our lives. The goal: To minimize the liberties of the individual for the greater good of society.

If you watched the first video of Keynes vs Hayek, you’d have seen a witty rap/documentary of Classical vs Keynesian Economic theory by a group called EconoStories, here’s their second follow up video and in the Genre of successful film series (Godfather, Rocky), they’ve done a great job.

In an article last year we warned of a possible Muni default crisis, this is an update to that article which you can find at ‘The Coming Municipal Bond Collapse’.

The recent Wisconsin stand off between the GOP Governor Scott Walker, his legislature and the teacher’s union has now started to break out in other states like Ohio who are battling budget deficits. Yield spreads are starting to reflect growing possibilities of defaults. Meredith Whitney of Whitney Group, bank and Muni analyst had came out early and suggests short positions, but even PIMCO says, “Now, however, with many states and local governments struggling to close large deficits, it’s time to acknowledge that defaults could happen, even in large and systemically important municipal issuers.”

In a CNBC article by John Carney, ‘The Bulls and Bears Agree’, ”The debate underway now is about the likely severity and scale of Muni defaults. Or, more precisely, we have a debate about how to fairly price the default risks inherent in Muni credits. On the one hand, there are analysts like Meredith Whitney and hedge fund managers like Jim Chanos who warn that investors are taking on too much risk for too little yield. Whitney has predicted a “wave of defaults” that could be in the hundreds of billions of dollars. On the other hand, there are the bond fund managers and economists like CNBC reporter Steve Liesman, most of who are more bullish on Muni credits.” As a footnote, Whitney has been fairly accurate in forecasting banking and real estate crisis, while Liesman has not.

John Carney in a second part of the Muni Series explains why he doesn’t trust muni managers. He reflects back on the 2008 financial crisis and points to overconfidence in models and risk assessment which were exposed to be flawed as the dust clears from the subsequent collapse. Carney says, “The reason I find this so striking is that this is the same sort of thing we’re now hearing about muni-bonds. The “muni people” are pretty much united in the view that munis are safe, that talk of large losses is irresponsible and the product of novice minds looking at a market they don’t understand. After all, investment grade munis never default.I’m worried that the same kind of tunnel vision that blinded so many of the smartest minds on Wall Street to the fragility of the mortgage market may be operating in munis.

Of course, as Nassim Taleb, Peter Schiff and Nouriel Roubini have pointed, modern portfolio management theory is vulnerable to fragility due to models that underestimate risk. Taleb goes even further in his NYTimes Best Seller, ‘The Black Swan’ saying that our current financial system is designed to ‘blow up’ every 25 years or so. With growing unrest around the world and in US States, the shift in currency and credit markets, it’s a good idea to reassess risks in our portfolios.

For more info:

Why I Don’t Trust The Muni Bond Experts, John Carney

The Two Faces Of Ben Bernanke, Peter Schiff”

“France will help the transition to a global financial system based on ‘several international currencies”, Christine LaGarde, the French Economy Minister said today.

France has joined a growing chorus of G20 countries who have starting to go public with plans to transition off dollar denominated global reserves to Special Drawing Rights, which are several currencies that would be held in place of USD to stabilize the currency markets. “At the same time, international capital flows should be better regulated and the role of the Special Drawing Rights issued by the International Monetary Fund should be reinforced by the inclusion of China’s yuan in the system.” Says the French economics minister.

China currently the 2nd largest economy in the world to the US, is holding $2.5 trillion in mostly USD as a hedge under the current monetary structure, the real question is what will happen to China’s and other monetary reserve portfolio balances and the USD’s value as they move to the new system.

In domestic news, housing prices plunged over 5% in 2010 and some traditionally insulated markets like Seattle and Atlanta are showing erosion as many prepare for the next level of price decreases. “Seattle is down about 31 percent from its mid-2007 peak and, according to Zillow’s calculations, still has as much as 10 percent to fall. Stan Humphries, economist for website Zillow, estimates the rest of the country will drop a further 5 and 7 percent as last year’s tax credits for home buyers continue to wear off.

See more below

Housing Crash Hit Cities Traditionally Not Considered Vulnerable

France Wants New Global Financial System

In a NYTimes article last month, David Brooks makes the case for why it is difficult for totalitarian regimes to make the transition toward democracies. Brooks points out, “But in 2002, Thomas Carothers gathered the evidence and wrote a seminal essay called “The End of the Transition Paradigm,” pointing out that moving away from dictatorship does not mean moving toward democracy. Many countries end up in a “gray zone,” with semi-functioning governments and powerful oligarchies.” Is the US currently in that ‘gray zone’? In another NYTimes article a few days ago Bob Herbert boasts that Democracy is breaking out around the world.

The assumption that Brooks, Herbert and many in the political class and media make is that the opposite of a totalitarian regime is democracy or to put it  in contrast: totalitarianism is to bondage as democracy is to liberty. The founders of the United States and history has shown that Democracy without restraint, leads to tyranny. A Democracy impregnated by special interest, elitism and powers gives birth to a ‘Rosemarie’s baby’. “Democracy… while it lasts is more bloody than either [aristocracy or monarchy]. Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There is never a democracy that did not commit suicide” John Adams

Lord Acton (John Dalberg-Acton) a Member of British Parliament in the mid 19th Century also saw the danger of Democracy. In a lecture given after visiting the US at the end of the Civil War in 1866, Acton extolled the beginnings of the ‘Great Republic’ of America but warned of democracy. He defined the US’ early strengths in couching democracy within the restraints of law through a republican design of electoral college, state legislatures and separation of powers between State and Federal governance  inherent in her Constitution. He warned that as a result of the necessities of the recent war that Lincoln and the winning north had endured, the stage might be set for an erosion of a Republic and the unhindered growth of federal powers in the name of Democracy.

Acton applauded the founders and Constitution, “In practical politics they had solved with astonishing and unexampled success two problems which had hitherto baffled the capacity of the most enlightened nations: they had contrived a system of federal government which prodigiously increased the national power and yet respected local liberties and authorities; and they had founded it on the principle of equality, without surrendering the securities for property and freedom.” But warned about centralized powers and democratic abuses, “Above all, a democracy has never even attempted to adopt the system of representative government which is the supreme and characteristic invention of the British monarchy. Therefore it had become almost an axiom in political science that that which ancient Rome and modern France attempted and failed to accomplish is really impossible; that democracy, to be consistent with liberty, must subsist in solution and combination with other qualifying principles, and that complete equality is the ruin of liberty, and very prejudicial to the most valued interests of society, civilization, and religion.”

Acton pointed out that it was America’s founders themselves like Washington, Adams and Hamilton,  that feared Democracy itself was the potential uprooting of individual freedom. “It has been observed that a pure democracy, if it were practicable, would be the most perfect government. Experience has proved that no position in politics is more false than this. The ancient democracies, in which the people themselves deliberated, never possessed one feature of good government. Their very character was tyranny, their figure deformity” Alexander Hamilton. Acton concluded that the early `American Experience’ was successful because individual freedoms were protected through natural law and limited government powers that were less on the federal level and increased along the way down (not decreased) to the States until most powers resided in the individual. Decentralized power provided for checks and balances as successful efforts were reinforced and replicated while unsuccessful ones died quickly.

Lord Acton, goes on to cast a prescient insight, “All governments in which one principle dominates degenerate by its exaggeration. The unity of monarchy gravitates towards the despotism of a single will. Aristocracy which is governed by a minority inclines to restrict that minority into an oligarchy. In pure democracies the same course is followed, and the dominion of majority asserts itself more and more extensively and irresistibly. We understand liberty to consist in exemption from control. In America it has come to mean the right to exercise control.”

In Brooks’ NYTimes article he says regarding Democracies, “Since then, a mountain of research has established that countries with strong underlying institutions have better odds of making it to democracy. Some scholars argue that political institutions matter most — having independent political parties. Others say social institutions matter most — having a cross-cutting web of citizen, neighborhood and religious groups.” Hence the growth of NGOs(Non-governmental Organizations), Think Tanks and University Projects that operate out of public view with financial support from the likes of George Soros or the Koch brothers who influence economic and social policy decisions of both parties. Progressives in the US believe more government power can bring about social justice and equality, the beneficiary - society and the individual. Conservatives believe the use of government power is just to `conserve’ and manage the values of society - traditional marriage and family values . But popular opinion and choices are fickled and can change with the wind, and the will of the majority can be manipulated and can abuse the liberties of the individual.

Many around the world today fear religious extremists like the zealots of Islam who have declared a Jihad upon most of the world. But if a group was really interested in controlling the world wouldn’t the sublimity of Democracy be more effective? Democracy could meld different cultures, social and economic classes and interest groups around the world into a homogeneous group that can be centralized, controlled and ruled, for the greater good of a global society. Acton and unfortunately only a few in 1866, saw as the smoke of war cleared that while wars were to be fought at times, so was a democratic peace that robbed those left of the liberties that the fallen had fought for.

 Today as the cry for Democracy beckons around the world and the IMF, BIS, UN and other international groups decide upon better global financial, currency and regulatory governance, be prepared to defend national, city and local sovereignty, and in turn individual  liberties that our founders and subsequent statesmen and soldiers fought hard for. Join the effort to re-stake constitutional principles back firmly into the ground of US governance and resist the `zeal of the weal’ which myopically places social causes and interests ahead of individual freedoms.

While unrestrained Democracy truly is a mirage, Negative Liberties protected by a Republic are not.

American Federalism And The Civil War, Acton

The 40 Percent Nation, David Brooks

When Democracy Weakens, Bob Herbert

As Ben Bernanke heads to Congress on Wednesday, many in the financial community are hoping he will be asked the question that many are thinking. “Are we seeing an upward trend in Inflation?” and “What is your exit strategy?”

As world food and energy prices are starting to soar and we’re seeing 2 and 10 year bond yields at record proportions is Bernanke behind the curve of stopping runaway inflation?

In a CNBC article ‘Is Bernanke Behind the Curve When it Comes to Inflation?’ Jeff Cox points out that critics of Fed Policy like Ron and Rand Paul point out that it is impossible to predict and control true markets and that what has happened before by previous fed chairman will most likely happen again – closing the door after the horse has left.

Meanwhile, the Chinese have raised their interest rates by another quarter percent, the third such move in 4 months to combat the rise in commodities prices.

Bernanke, a student of the Great Depression, believes that quantitative easing (liquidity) can help spur economic growth in times of stagnation. Bernanke, like many economists believe in Keynesian and Monetarist monetary policies which purports that money supplies should be managed and matched against economic activity. They also don’t make a direct connection between money supply and prices, using the Velocity of Money Theory to explain why in down trending economic periods inflation is less likely to occur and the concern should be deflation. The theory is challenged by classical economists who argue that the model is measured in constant dollars and doesn’t take into account the movement of physical goods.

For more information please visit our Library and the articles below:

ACD Library On subject: Book – Economics in One Lesson, Hazlitt and Article – Cheap Money, Benjamin Anderson. You can also download Keynes’ General Theory on Employment, Interest and Money

Is Bernanke Behind The Curve?

China Raises Interest Rates

As Egyptian banks reopened on Sunday the conditions have been relatively stable all things considered, as the US dollar has made a 2.3% gain on the Egyptian pound (EP) according to the BBC, since the crisis started. Rumors are that while the Egyptian government hasn’t intervened directly that state-owned banks have been selling USD to support the EP. The Egyptian stock market will remain closed until next Sunday.

When bank doors initially opened there were a significant amount of customers waiting. But withdrawals have been limited to 50,000 EP ($8,400) and $10,000 in foreign currencies.

The Egyptian government had to pull back on a treasury auction, looking for 15bn (Euro), they had to settle for 1bn as foreign investors are reluctant to buy and borrowing costs have risen for the government around 1.5% from the last auction.

The domino effect to Tunisia’s and Egypt’s political unrest that has been taking place in some respect to other neighboring countries like Jordan and Yemen, is now feared to also destabilize currencies and financial markets as well.

While the Middle East tries to rebound from unrest, Europe is still cautiously waiting for a turnaround in some of their country-states like Greece and Ireland who have undergone renovations and Portugal, Spain and Italy who are on watch lists for now. China has made overtures to purchase European bonds and help in reworking debt.

Meanwhile, the US struggles with mounting national debt, stalled talks on budget policy and cutting spending, and unemployment which remains stubbornly high at 9.0%.  

For more information

Last week world business, political and government leaders met in Davos Switzerland to discuss the next steps in globalization, the integration of national economic and social policies. World leaders have become more and more concerned with how to create a world class governing body to set up regulatory policies to manage national interests as they interconnect to and at times conflict with competing interests of other nations.

In a CNBC article reporting on the week long meeting a survey of the attendees concluded, “The world is no position to face major, new shocks. (World Economic Forum’s annual risk survey). “The financial crisis has reduced global economic resilience, while increasing Geo-political tension and heightened social concerns suggest that both governments and societies are less able than ever to cope with global challenges.”

WEF founder, Klaus Schwab stressed, “We should not look to old-world recipes, since unfettered capitalism and state-directed collectivism have both been bankrupted as guiding ideologies,” he said in a recent media briefing. “Our only way out is the stakeholder concept. The pursuit of our own interests can only be substantially realized by incorporating the interests of all those with whom we have a mutually dependent relationship.”

The article goes on to point out that leaders attending Davos believe that the failure of international governance to grow into the role of global regulator and market planner contributed to the financial failures in the US and EU economic crises and allow for growing world tensions in trade and currency conflicts.

But stepping back for a moment – What is the `Stakeholder Concept’ Schwab alludes to and should we so quickly attribute current world economic conditions to failure in (unfettered) Capitalism?

The Stakeholder concept, is a term used by corporate and more recently government management to broaden an organizations responsibilty and scope; where the term Shareholder is a legal and contractual term that narrowly defines the interests of an entity to those who have a direct financial investment. This terminology can be dangerous as it attempts to bring different  investor, beneficiary and third party interests which are unequal and treat them `equally’ or to discount the differences when creating regulatory, economic and social policies. Through a global governing body, the idea is that disinterested policy planning experts can determine what is the greater good and weigh the competing interests of the `Stakeholders’.

Schwab and the world banking community in general didn’t like the rollercoaster ride of this past economic crisis. While most banking risk has been offloaded through centralized banking systems in each nation, the exposure created through complex Derivative products that link different markets and different countries and different regulatory bodies almost destroyed an already fragile system. The idea is to create a global governing body that would have enough power to dictate regulatory and financial policy to participating nations with the hope of offloading the risk from these more complex financial products.

Regarding Schwab’s comment that `unfettered’ Capitalism failed. Crony Capitalism, where the state chooses winners and losers has always produced adverse effects like higher prices, economic bubbles and misallocation of capital. It has been a long time however, since we’ve seen market driven economies with minimum disruption by government entities with prohibitive regulation that reduces competiton and interventionist monetary policy that distort supply and demand. Nassim Taleb, author of `The Black Swan’ recently wrote an article in The Economist that the world institutions are on a trajectory of decentralization. He equated it to how nature works against centralization, which causes fragility and system failures; nature he writes builds redundancy and robustness instead, which is sustainable.  

Many years ago man’s cooperative effort to build a better sociey was the Tower of Babel and that did not end well. Let’s be vigilant to be aware of governments and other institutions who say, “Let us put our purses together” to make a better society; time and experience has shown that free and voluntary association and exchange (whether individuals or institutions) allows for best results as markets self correct and determine value and best practices.

To read entire article

Nassim Taleb Looks At What Will Break And What Won’t – The Economist

Thursday morning the New York Times put a positive spin on initial meetings with China, suggesting that China could make concessions on human rights, “More surprisingly, perhaps, Mr. Hu said at a White House news conference that China “recognizes and also respects the universality of human rights,” a palpable shift for a government that has staged a two-year crackdown on internal dissent and imprisoned a Nobel laureate. Until Wednesday, recognizing credos like democracy and human rights as “universal values” had been all but taboo in Chinese political discourse, although China has signed the United Nations convention that enshrines the principle of universal human rights.”

While Congress and pundits speak harshly about Chinese human rights, monetary and trade policies, the White House and business leaders met behind closed doors to secure whatever `crumbs’ President Hu and China were willing to drop. They are hoping for China to tighten up its monetary policy, something the US is unwilling to do, but it looks like both parties reached a bilateral agreement on a modest trade deal worth $45 billion for some US companies, like Boeing, Goldman Sachs, and GE.

Senator Charles Schumer (D-NY) chided China Monday, saying that “the US has put up with unfair trade advantages and currency manipulation for too long.” That would be fine and we love when Washington gets aggressive with our interests in mind, but unfortunately it isn’t fully true and we are not in a position of strength to negotiate or make threats. 

President HU over the past few days has made comments, particularly written comments in answers to questions posed by media outlets including the Wall Street Journal, regarding potential conflicts between the US and China on trade and currency valuations. Mr. Hu said that the current world currency system which benchmarks the USD as a reserve currency is a `product of the past’. Hinting that the Yuan and Renminbi [RMB] could be a competitor in the not so distant future. He also pushed for more banking and financial reforms through global regulations and universal standards that could make USD less attractive to investors and make US companies less competitive in global markets.

Peter Schiff, Founder of Europac an investment fund, and one of the few economists to have seen the housing crisis, In his newsletter from January 19th 2011 comments on the real problem that China finds itself in regarding monetary policy, “The global economy has become so unbalanced that even government ministers who would normally have trouble explaining supply or demand clearly recognize that something has to give. To a very large extent the distortions are caused by China’s long-standing policy of pegging its currency, the yuan, to the U.S. dollar. But as China’s economy gains strength, and the American economy weakens, the cost and difficulty of maintaining the peg become ever greater, and eventually outweigh the benefits that the policy supposedly delivers to China. In the first few weeks of 2011 fresh evidence has arisen that shows just how difficult it has become for Beijing. 

Twenty years ago, China’s leaders decided to ditch the disaster of economic communism in favor of privatized, export-focused, industry. The plan largely worked. Over that time, China has arguably moved more people out of poverty in the shortest amount of time in the history of the planet. But somewhere along the way, China’s leaders became addicted to a game plan that outlived its usefulness. 

In order to maintain the peg, China must continually buy dollars on the open market. But the weaker the dollar gets, the more dollars China must buy. And with the U.S. Federal Reserve pulling out all the stops to create inflation and push down the dollar, Beijing’s task becomes nearly impossible. Last week, it was announced that China’s foreign exchange reserves, the amount of foreign currency held at its central bank (mostly in U.S. dollars), increased by a record $199 billion in 4th quarter 2010, to reach $2.85 trillion. These reserves currently account for a staggering 49% of China’s annual GDP (if the same proportional amount were held by the U.S., our measly $46 billion in reserves would have to increase 163 times to $7.5 trillion).

In order to buy these dollars, the Chinese central bank must print its own currency. In essence, China is adopting the Fed’s expansionary monetary policy. In the U.S. the inflationary impact of such a strategy is mitigated by our ability to export paper dollars in exchange for inexpensive Chinese imports. Although prices are rising here, they are not rising nearly as much as they would if we had to spend all this newly printed money on domestically produced goods. The big problem for China is that, unlike the U.S., the newly printed yuan are not exported, but remain in China bidding up consumer prices. As a result, inflation is becoming China’s dominant political issue.”

China’s economy has heated up, with a GDP of 10.3% in 2010 (while US GDP for third quater was 2.6%), but its CPI rose 5.1% with food prices rising more than 10%. China has to do something.  

While many in the White House, Congress, Federal Reserve and the Treasury Department point fingers at China’s stubborness in addressing conflicts between the two nations, China and the rest of the world point back at the United States and say, “Get your fiscal house in order”. The US and the States’ budgets must be cut substantially and the Feds policy of quantitative easing must be discontinued if for no other reason than through the Basel Accords (3) held this past fall, there’s become a general consensus to move away from USD reserves and to a basket of currency reserves (Special Drawing Rights) which could reduce demand for USD and send the US economy into a downward tailspin. Meanwhile China, the Middle Kingdom marches forward to take what it believes and has started to disclose publically – its rightful position as world global leader. It has already taken small steps in that direction, as China and Russia have agreed to negotiate new trade and currency deals, cutting out the need of the USD as a reserve. They have secured trading deals in Africa and South America, the US’ backyard, and to the surprise of the global community, China has also stepped out boldly to offer guarantees and purchase agreements of Euro nation debts, a move that in the past would have been the role of the US.

Meanwhile, the news being peddled by the US media and government officials is that the decline that the US is seeing is temporary and that it will remain the world’s Superpower, yet to read the European and Asian news, the US’ decline has been anticipated for some time.

As we ring in 2011, we look back at a year that was in some ways a culmination of the three previous years that saw banking, housing and debt crisis’ and an unpopular bailout that resulted in a Democratic 2008 landslide and a federal government on steriods that in 2010 lead to a reversal of fortunes for the Dems as the GOP won big. In 2010 the GOP took the majority in the House and narrowed their deficit in the Senate, in addition they enjoyed big wins at the state level in gubernatorials and state houses around the country.

As we ease into 2011, a skeptical voting population weighs the prospects of more government to solve dire economic and social problems that lie on the horizon or considers a different direction of less federal government intervention, and more state oversight, allowing freer markets and private capital to determine price and value.

Around the world, the news of China’s decision to actively use its overseas investment fund to buy EU assets and bonds, and of new trading and currency pacts that China has made with Russia as well as South American countries hint at political and economic realignments to come. The recent Basel III meetings also suggest a move away from the USD as the world’s reserve currency.

In 2010, Americans watched as a man jumps from a balcony in the Romanian Parliament, protesting 25% cuts in wages and prophecying that government policies would lead to the ruin of his children’s future as he falls to the floor. In Rome bomb packages are delivered to embassies to protest budget cuts. All around Europe in places like England, France and even Germany there’s growing unrest and distrust of government policies as governments are forced to renege on generational promises. Americans ponder in their heart, could this hit our shores too.

In 2011, there’s a growing likelihood that the PIGS crisis of the EU will hit US shores in the form of Municipal Bond defaults and State budget crisis’ that will put pressure on the Federal Government to guarantee State and Local debt. State governments are looking at increasing finance costs of budget shortfalls in 2011 as many have bonds coming due, and are facing the stark reality of cutting budgets as much as 30% and laying off hundreds of thousands of state employees. Regional banks with no quantitative easing or stimulus options from the Treasury or Federal Reserve, have seen a significant increase in bank failures and mergers this past year and will likely continue into 2011. According to a recent Case-Shiller Report and forecasts by Meredith Whitney a economist specializing in the banking sector, suggest that housing prices still need to fall as much as 25%.

While there are dark clouds gathering and many have already suffered from job losses, home foreclosures and business failures, there may be good news on  the horizon. As mentioned in the second sentence above, “A skeptical voting population weighs…more federal government..or…less federal government..”. The economic and social ills we’ve suffered over the past few years might just be the very initiative that the US population needs to reexamine the role of government and what the US Constitution has to say about separation of powers between the Federal, State, Local and Individual governments.

Let’s raise a glass to the rollback of an overly centralized federal government that is out of step and out of bounds with the US Constitution. Let’s play a part of getting our States to challenge federal powers  that violate constitutional boundaries by state ‘civil disobedience’ or as its better known as, Nullification. Let’s take personal responsibility in what our part is in bringing about change in the direction of Liberty. Become proactive and get involved this year and be a part of the solution.

On Chris Matthew’s Hardball show on December 21, 2010 Matthews commented on what he believes is a growing phenomena across the country, the concept that each of the 50 States have a fundamental right of protection to exercise ‘Nullification’ against unconstitutional federal power. In his closing comments he muses about Jefferson’s agrarian society and “healthcare decided in the town square”, as if to say, the people are too ignorant to make basic decisions on their own without elitists from the federal government as caretakers.

Here’s Matthews closing comments, “Why on god’s earth, why here in these united states to which we all pledge allegiance are men talking loosely of nullification and cessation? Have they no feeling to our country, how it grew, the pain it suffered to grow to this great republic that it is today? There must be something malicious. Don’t people know the power of the words — nullification, cessation? Request a state nullify, overrule an act of congress? Can a group of states nullify an act of congress? Not according to the constitution. Why are we hearing voices raised against the federal government as if this were 1860? I ask this as a question for the basic reason that people around me don’t talk like this. Is that the way people talking this way want us to go — a confederacy? Is that their dream? A country of little farms and loosely allied states, decisions like healthcare are made at the town square? Let’s go back to the old days when we thought of ourselves as citizens of separate colonies and not the united states. Before we complicate life by thinking of americans pledged to certain fundamental values under a strong constitution that protects the rights of individuals. Now, wait a minute. Is that what the states’ rights is about – substituting states’ rights for individual rights? Now it makes sense, doesn’t it?” (You can see full transcripts below)

Matthews’ response is not uncharacteristic of many on both the left and right who view federal powers as an agent for good and the  Constitution as securing that power in order to regulate individual behavior in society. Unfortunately for them, that was never the intent of the framers and as Thomas Woods put it, “In a free society people do not require Constitutional Authority to act, the government does”. Matthews and the Washington elites view the federal government as the best protector of individual freedoms, while history has shown the opposite.

It was Massachussetts that stood up to the federal government against the Slave Act in 1850s, which required free states to give up slaves who took refuge in those states. It was the federal government who came up with discriminatory immigration legislation like the ‘Wetback Act’ of 1952. It has been the federal government in conjunction with the federal reserve that has devalued our currency by more than 95%  since the Federal Reserve Act of 1913.

While States can make wrong decisions just as well as the Federal Government, the difference that the framers saw was that the States could never become a monopoly and pure sovereign in the same sense as the potential for the Federal Government. Because of the benefit of decentralization and redundancy in there being many states, competition would spur creativity and best practices; while a single monolithic entity like the Federal Government would be more prone to monopolisitc aspects and insulate failure and be resistive to change. A centralized federal system, resistive to change and protected from competition, would more likely use public policy to alter the behavior of its citizens to produce a government-favored outcome. We’ve seen this recently in healthcare and the new FDA bill that regulates food, but also in tax and welfare policies and through regulation of industry.

Both Jefferson and Madison toward the end of the 18th Century wrote about the states’ power of nullification through the Kentucky and Viriginia Resolutions of 1798,99. Jefferson, strongly believed in the right of each state to validate federal powers and could exercise negation of federal law if it didn’t fall under a constitutional power. Madison, on the other hand, while fully believing as Jefferson did in nullification and the need for states to hold the federal government to constitutional standards; he was more cautious in his approach and saw the benefit in enlisting the cooperation of his ‘fellow states’ in either an appeal if not outright nullification of federal law.

Wisconsin Supreme Court Ruling 1859, “Resolved, That the government formed by the Constitution of the United States was not the exclusive or final judge of the extent of the powers delegated to itself; but that, as in all other cases of compact among parties having no common judge, each party has an equal right to judge for itself, as well of infractions as of the mode and measure of redress. Resolved, that the principle and construction contended for by the party which now rules in the councils of the nation, that the general government is the exclusive judge of the extent of the powers delegated to it, stop nothing short of despotism, since the discretion of those who administer the government, and not the Constitution, would be the measure of their powers; that the several states which formed that instrument, being sovereign and independent, have the unquestionable right to judge of its infractions; and that a positive defiance of those sovereignties, of all unauthorized acts done or attempted to be done under color of that instrument, is the rightful remedy.”

As we move into 2011, it will become more apparent that the election of 2010 while a positive result was not the answer to our nation’s ill. To reduce the size and more importantly the sphere of power of the Federal Government, can only come from an outside force – the individual through the States. Power has rarely been relinguished voluntarily. Nullification is one of the tools that must be exercised. I believe you’ll start to hear more and more criticism and villification of the concept as its idea starts to spread and gain traction.

Tools like nullification of unconstitutional federal powers by the States, and decentralization of our banking system in order to bring back value and stability to our currency, are two goals that we should plan for through the Tea Party movement and other grass roots movements that want to see real structural change with the protection of individual liberties as its goal.

HardBall’s Chris Matthews comments

Visit msnbc.com for breaking news, world news, and news about the economy

In a recent Reason Magazine article, John Stossel says that over a quarter of Americans believe in magic and astrology, but that a much higher percentage are gullible when it comes to the ‘voodoo’ out of Washington. They fall for the shell games of sociopolitical experts and politicians who claim to have the cure for everything from poverty and health care to how the FDA can keep you alive.

Stossel, a TV Consumer advocate in his past says,

“But after I did that for 25 years, I concluded that the harm done by those hucksters is minor compared to the scams perpetuated by politicians.

They promise fiscal responsibility. Then they spend like drunken sailors.

They promise to cure poverty. Then their programs make it worse.

They promise to create jobs. But then they make life so complex and unpredictable that entrepreneurs are afraid to create jobs.

Almost none of their promises come true. But few people approach government with the skepticism it deserves.

Whether you believe in God—or psychics, or global warming—that’s your business. I may think you’re stupid, but if you waste your money on, say, a “strength” bracelet, you only harm yourself.

But being gullible about government hurts everyone. Government is force. When it sells us bunk, we have to pay even if we don’t believe in or want it. If we don’t pay up, men with guns will make sure we do.

It’s good to be skeptical. It’s really good to be skeptical about government.”

Why Do People Believe In Fantasy – John Stossel, Reason Magazine

After leaving college in the early 1980s I worked for my father in the insurance business through his independent insurance agency that sold property & casualty insurance. I remember him telling me that one of the soundest institutions was the insurance industry because it was regulated through 50 independent states and had made it through wars and financial crisis’ for centuries and in fact had been a stabilizing factor during the bank panics of the 19th and early 20th centuries and both World Wars. Many of us have borrowed on our life and annuity policies to pay bills, send kids to colleges or when between jobs.

I experienced first hand the insurance industry’s handling of a crisis through the financial turmoil of the late 1980s into the 1990s working for a life insurer. My father eventually sold his insurance agency and I had left to go into sales management with Monarch Life out of Springfield, MA. Monarch like many insurers started purchasing commercial real estate and High Yield (Junk) bonds to make their investment portfolios more competitive as money started to pour out of insurers’ annuities and life insurance products for bank CDs that provided higher interest rates. At the time there was a split in investment strategy between those conservative insurers who didn’t jump into RE and Junk and others that did. The conservative insurers emphasized the stability and financial strength of their companies while pointing out that people bought policies for protection and not speculation.

The Savings & Loan and Junk bond crisis of the early 1990s hit and many of the insurers who decided to take on more investment risk started to experience captial erosion; but it wasn’t until Wall Street Journal columnists Susan Pulliam’s and Mitchell Pacelle’s article, ”Loans May Burn Builders and Insurers” hit the news stand on February 26th, 1991 that the news of the extent of exposure many insurers had became apparent. Almost immediately, policyholders started surrendering policies and withdrawing cash values from those company they perceived in trouble. Those were dark days if you worked in the business or had policies with companies that were insolvent. But after the smoke had cleared and over a relatively short period of time when compared to recent banking crisis’ the insurance industry was able to adjust quite well. There were failures, with companies going out of business, but most was orderly with mergers, purchases and in worst cases, state intervention. Because the insurance industry was relatively free to respond to market forces with little federal and even state intervention (except where necessary) there was little distortion and markets where able to clear assets from failing companies to successful ones. Unfortunately the same can’t be said on the banking side as we will look at below. I personally moved from the ‘fire into the frying pan’ as I went from Monarch which later filed bankruptcy and the State of MA putting its assets into receivership for policyholders, to Mutual of NY which suffered a similar fate, being bought by Equitable which was acquired by AXA a french insurer.

In my experience with my policyholders (many of which are still on the books – even Monarch policies) not one of them lost a penny and not one was denied a legitimate claim; and just as important, there was no bailout of insurers or policyholders who either knowingly or not took on additional risk to get better returns or ‘fatter’ policy benefits. This was true of our banking industry also when our banking system was run by the states and relatively decentralized. Unfortunately, to quote the former Chief of Staff, Rohm Emmanuel, “Never waste a good crisis’; the federal government through progressive and conservative policy wonks, has always been more than willing to jump the fence of constitutional limits to come to the aid of industry during economic struggles and gobble up ’rights’ and individual liberties.  

The Bank Panic of 1819 involved risky loans, experimentation by certain states with fiat currency and aggressive westward expansion. Even large banks back in NY and MA were acting as clearing houses for smaller banks in OH and IL, many of which were heavily invested in these hapless ventures. Eventually the bubble burst, homesteaders started to default on loans, many licking their wounds and heading back east. Banks that had the most exposure (particularly those in states who could go off gold) started to lose depositors and capital. In an 18 month period many small banks and a few large ones went under , but the crisis was over and the banking industry survived and was the stronger for it. During the height of the crisis depositors sought out banks with strong capital structures, particularly in gold and other hard assets. They traded their non-gold backed currencies and notes (even at a significant discount 70%+) for bank notes and currencies that were with well capitalized banks that (coincidentally) were backed by gold and silver.

The ’takeaway’ here is that centralization through federal powers creates fragility and the potential for large scale collapses that gives opportunity for government mischief; while decentralized systems don’t necessarily prevent failures, but rather reduce the size and influences of them and create a laboratory for risk experimentation which when successful replicates through the system and when it fails it dies at initiation. Also, local regulations are more effective than federal as the dynamics and resources in one area of our country could be significantly different than in other areas. Even in systems that are successful, the application in one state and locale could be tweaked differently than in others. I’ve linked Murray Rothbard’s excellent analysis of the banking crisis of 1819, it gives the reader a better understanding of the solutions we need today.

The Bank Panic of 1819, Murray Rothbard

The European debt crisis continues to grow, as healthy states bit the bullet and bailed Greece out earlier in the year, as they hoped for an economic recovery. Now with economic conditions around the world still sluggish, individual European states find themselves at odds with their own interests and saving the Euro and maintaining the union. 

In the NY Times today: “European officials, increasingly concerned that the Continent’s debt crisis will spread, are warning that any new rescue plans may need to cover Portugal as well as Ireland to contain the problem they tried to resolve six months ago.”

“Stronger countries and weaker countries using the common currency of the euro are being pulled in different directions. Some economists wonder if unity will hold or if some new system that allows countries to move on one of two parallel financial tracks is needed.”

“The bureaucratic machinations in Brussels highlight one of the main concerns that grew out of the establishment earlier this year of a rescue fund of 500 billion euros (about $680 billion at today’s exchange rate) by the European Union after the Greek budget crisis: What happens if, in the next crisis, multiple countries need aid at the same time?”

There was also this sobering note regarding Ireland, “In Ireland, banking troubles lie at the root of what many in Europe are now calling a solvency crisis, reflecting long-term concern over Ireland’s ability to repay its debts, as opposed to the lack of short-term funds that forced the Greek rescue last spring.

“This policy of saving banks at the cost of breaking the back of entire countries is a disaster,” said Daniel Gros, director for the Center for European Policy Studies in Brussels. “Ireland is beyond fiscal plans as long as one cannot see the bottom of the losses in the banking sector,” he said. The only way to “stop the rot,” he added, “would be to let the Irish banks go under” and then use the European funds to “tide over the government until markets and the economy recover.”

“Ireland is unlikely to let its banks fail, but it has been unable to accurately forecast its banking losses — or say whether bondholders will pay part of the bill.”

“Irish banking losses are estimated at up to 80 billion euros ($109 billion), depending on the forecast used, or 50 percent of the economy. As long as housing prices continue to fall, these losses cannot be capped.” Read the full NY Times article below.

Europe Fears Debt Crisis Growing

Alan Greenspan, former Federal Reserve Chairman, in the Financial Times, was quoted as saying the US was “pursuing a policy of currency weakening.” Geithner, Treasury Secretary, said that while respecting Mr. Greenspan, he was wrong and the the US would never seek monetary policy to give them an advantage in world trade. He went on to explain in a convoluted statement that the reason their’s been a devaluation of the US dollar had more to do with the confidence in the currency and slight improvements in the economy rather than recently announced quantitative easing policy. This of course flies in the face of most economic monetary models.

Geithner Rebuffs Greenspan over the Dollar

As Irish government bond yields have spiked to new records, and riots breaking out in different parts of Europe in response to austerity measures as governments see few solutions in addressing mounting debts and diminishing revenue streams, except cutting pensioner and worker benefits and compensation; it is looking more likely of the possibility of government bond insolvencies. In particular, the exposure is greatest for the PIGS (Portugal, Ireland, Greece and Spain) but the UK is faced with similar threats as it considers Classical Economic models, in reviewing spending, tax and banking policies to address its fiscal house. Recent elections have seen a shift to the right politically in the UK and other countries, and criticism from some in the political class, like Daniel Hannan, MEP from South East-UK, in his now viral address before Parliament to the UK Prime Minister as,“A devalued Prime Minister in a devalued nation”. (see bottom of post)

In The Economist on November 8th 2010, Ireland’s Dr. Doom, Morgan Kelly is quoted, “As a taxpayer, what does a bailout bill of €70 billion mean? It means that every cent of income tax that you pay for the next two to three years will go to repay Anglo’s losses; every cent for the following two years will go on AIB, and every cent for the next year and a half on the others. In other words, the Irish State is insolvent: its liabilities far exceed any realistic means of repaying them.”

‘Across the pond’ the ‘Piglets’ in this scenario are the States in the US which are amassing unsustainable debts and suffering the highest levels of unemployment among the 50 States, like California, Illinois and New Jersey. Growing state government pension and health care obligations and interest on the debt service are squeezing budgets and challenging lawmakers for solutions. Layoffs, cutbacks in benefits and wages are in the offing, but will US workers march and riot in the streets as we’ve witnessed in Europe? Promises made by governments in the past, met by worker cooperation, have an unforgiving ability to cast strong judgments in the ballot box and in public reactions when those promises go unfulfilled.

There are really only two possible directions: Government downsizing by privatizing services and cutting governmental departments and jobs, while disengaging from quantitative easing monetary policies. This does come with dislocation and individual suffering as history has shown – around 18 months: US 1819, 1920. The other direction is by consolidating more power in government, taking more freedom and resources from its people and through quantitative easing, trying to stimulate short term economic activity. This has also come with dislocation and individual suffering as history has shown as well – Great Depression (several years) and tyrannical regimes like in Russia, Italy and Germany.

European Debt Crisis

World Bank’s Zoellick stresses discussing Gold and solutions to the exchange wars

So where is the Christian Moral Majority movement today?

What started out thirty years ago as a crusade to drive Christian morality into politics and thus into the laws of our nation and statehood, has ended not with a bang but in a puff of vapor. Its leadership is gone or faded into the social background and where as political parties desperately courted the movement, today there’s a definite disassociation. So what happened and what has it left behind in its wake? I would suggest that the antithesis of the Moral Majority is the Progressive Movement that now shepherds universal health care, environmental legislation and re-distributive policies designed (in their minds) to bring about social justice and equality. Being a part of the Moral Majority Movement in the 1980s and 1990s, and reflecting on what the movement was trying to accomplish, I unfortunately today realize it was misdirected. Some of it might even seem obvious now: ‘The majority forcing its will on a minority’ (like censorship) or ‘limit personal freedoms for the greater good’ (homosexuality). The gospel message starts small like a seed and grows; it changes the life of an individual who then can effect change in his family and community. Christianity to be effective changes mankind one individual at a time, and individuals change society. With a wind at its back and a great candidate in Ronald Reagan, the Moral Majority tried to use its political capital to enforce its moral will on American Society through the use of State powers and it was ugly and shameful. Through the gospel we preached and tried to demonstrate love in our personal relationships, but in our political affiliations and support of heavy handed ‘Pro-Christian’ legislation we demonstrated intolerance for personal freedoms under the law. Our motives might have been for the well being of the ‘sinner’ but in our disregard for the US Constitution and personal freedoms we hardened more hearts than we helped and in my opinion helped to mobilize the progressive movement in opposition.

While the progressive movement dates as far back as Plato and Aristotle and the modern movement from Hegel, Marx and Stuart in response to the Industrial Revolution which embodied itself in US politics with Theodore Roosevelt, Woodrow Wilson and FDR’s ‘New Deal’; it had become dormant in the 1970s, but revived partly in opposition to the Moral Majority Movement in the 1980s, you can read the history of the progressive movement that I wrote on my blog at (The Progressive Movement: Individual Regressivism) for some additional insight. While the philosophies of the Progressive and Moral Majority movements may be different, their delivery system is very similar. The Moral Majority starts out from the perspective, ‘God is not fairly represented in society’, while the Progressive Movement says, ‘There are inequities and abuses in society’. The Moral Majority and Progressive movements are Collectivists in their approach to ideas and in using government, by identifying groups or classes in society. Collectivism is grounded in Holism which believes that the individual is part of a system and inseparable, so in Collectivism the state is emphasized over the individual – ‘the greater good’. Both the Moral Majority and Progressive movements believe that the government was to be used to carry out their policy agendas. The government would use its power to force the will of the many onto the will of the few. Neither one of the movements has shown success at accomplishing their goals; the prohibition movement of the 1920s was a disaster (Alcohol Prohibition Was a Failure) as are drug laws today at promoting morality, and many of the wealth redistribution and government social programs from FDR’s New Deal have produced unintended consequences and huge deficits.

So, the Progressive Movement which unlike the Moral Majority movement has some political capital left in its arsenal. The question is, will it go the way of the Moral Majority and other socio-political movements of the past, which gain power and try to force its will on its subjects only to be eventually rebuffed? Or will it (where I believe the Moral Majority failed) try to protect all freedoms (left and right) and encourage social change (as Moral Majority should have) through society privately with government as a ‘defender’ of freedoms instead of playing an `offensive’ role as a provider. There’s an old idiom, “You can lead a horse to water but you can’t make it drink”, that could be upgraded to “You can lead a horse to water but not only can you not make it drink but you can make it hate water and you as well.” Social movements that use state control and force, even those well intended and containing admirable goals will create more unintended consequences, raise suspicions of the state with possible overreactions and eventually will be turned away by the people in the end.

Christopher M. Mahon, Editor 2009