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.
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
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.”
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.
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
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
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
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
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
We live in a time of furious federal legislation that assaults constitutional integrity that limits government power through the specific delegated (enumerated) powers that the states have granted to the Federal Government. Unfortunately like in the late 18th century and as we are finding out today, pragmatic attempts at solving socio-economic ills lead to attempts to violate these protections. If the lofty competitive universities of today and yesteryear teach anything, it’s that the ‘ends justify the means’ and as Plato mapped out in his Republic, there is an elite group that has been bred, taught and primed to lead and govern all men. They reside in Washington but power share through government-business relationships on Wall Street and other places that reinforce that power arrangement.
In the Virginia Legislature, January 23rd, 1799 addressing their concerns over the federal Alien and Sedition Acts of 1798 and its ambitious attempt to solve what the ‘Nationalists’ of their time perceived as an immigration problem, they passed law that violated state sovereignty for a ‘Greater Good’; and in Thomas Wood’s book, Nullification: How To Resist Federal Tyranny in the 21st Century’, and his quote below, tell me if this doesn’t sound like the recent battle that Arizona had through SB 1070 and where the Constitution speaks regarding state and federal powers or some of the federal legislation coming from Washington regarding NDAA, Gun and most recent Immigration legislation that contains ‘unpacked’ language that potentially violate ‘Due Process’ and other rights for expediency:
“If a suspicion that aliens are dangerous, constitutes the justification of that power exercised over them by Congress then a similar suspicion will justify the exercise of a similar power over natives (citizens); because there is nothing in the Constitution distinguishing between the power of a state to permit the residence of natives and aliens. It is, therefore, a right originally possessed, and never surrendered, by the respective states, and which is rendered dear and valuable to Virginia, because it is assailed through the bosom of the Constitution, and because her peculiar situation renders the easy admission of artisans and laborers an interest of vast importance. But this bill contains other features, still more alarming and dangerous. It dispenses with the trial by jury; it violates the judicial system; it confounds legislative, executive, and judicial powers; it punishes without trial; and it bestows upon the President despotic power over a numerous class of men. Are such measures consistent with our constitutional principles? And will an accumulation of power so extensive in the hands of the executive, over aliens, secure to natives (citizens) the blessings of republican liberty?”
This is a time that Edmund Burke would point to in his often quoted, “All it takes for evil to prevail is for good men to do nothing.” If you want to get involved, going to Washington is not necessary and in most cases nonproductive. Rather, find your local political party affiliation meeting or look for a social connection on FaceBook, Meetup, etc where you can join forces on issues that should concern you. The ‘Tenth Amendment Center’ has an excellent tracking page for different issues and great articles, please visit it and get informed on how you can help in your state. Many states are in different phases of drafting legislation to thwart federal overreach, so get up off the couch or from your well warmed chair at Starbucks and get involved. It’s time to stand up for your family, your community and your state to keep government powers diffused, competitive and effective in protecting (not granting) the rights of each individual.
The market itself, unencumbered by federal intervention and minimally by state and local government, in its free and voluntary social and economic associations and transactions that marginalizes the ‘bad actors’, is the best system we have to safeguard the liberty of each and every one of us, and is at the heart of what the founding era Patriots believed and created.
Christopher M. Mahon, Editor
On the heels of the Sandy Hook shooting, New York State becomes the first to issue new gun legislation. “The Secure Ammunition and Firearms Enforcement Act, or SAFE Act, gives New York the toughest gun laws in the nation and touches on the mental health issues that both pro-gun and anti-gun activists say should be part of any new legislation.“
Many pro and anti-gun control advocates saw New York’s decision as a model for the President and Federal legislation, which he just signed moments ago as Executive Orders, which include: Mental Health requirements, Universal Background Checks, restore ban on military style (restrict manufacturing) and 10 round limit on magazines, tougher laws on sale of guns (possibly enforced by BATF) and federal funding to ‘put more cops back on streets’. But here’s where it gets both historically interesting and potentially dangerous for individual liberties and the unintended consequences that always follow in the wake of federal intervention into markets.
The Second Amendment that has been quoted by both sides of the gun control issue is unfortunately sorely misunderstood. Part of the Bill of Rights, the second amendment like the other amendments address specific rights based on natural (Divine) law that restricts federal power and emphasizes the delegated and non-delegated powers between the federal government and the states. The Bill was in part due to Virginia and other states that needed better clarification that protected state sovereignty and also two colonies that hadn’t ratified the Constitution yet, North Carolina and Rhode Island weren’t convinced that state sovereignty was protected by the document well enough. The Bill was proposed in Congress September 25, 1789 and North Carolina later that year ratified the Constitution and Rhode Island (the last to ratify) in June 1790. Regarding the Bill of Rights, most ratified the Bill through 1791 with, Massachusetts, Georgia and Connecticut ratifying in 1939 as part of the Bill of Rights sesquicentennial celebrations.
Does the 2nd Amendment (Bill of Rights) have power over all government or specifically written to restrict federal power?
The founding era framers and ratifiers feared that what they were creating in a document to protect individual liberty and to limit the power of the state would later be destroyed through ‘unpacking’ its language and interpretation. Words like ‘Welfare’ which defined the proportionality of the ‘Benefit Principle’ and restricted federal power and not the egalitarian intentions to ‘create equality’; or ‘Commerce’ which had a narrow intent in refereeing state interrelationships and not the broad interventionist meaning of today, which would undermine a federative republic and dissolve into a centralized system of Monarchy/Democracy, from which they fled from earlier.
In creating the Bill of Rights, left on the writers’ floor was proposed language from James Madison, “No state shall violate the equal rights of conscience, or the freedom of the press, or the trial by jury in criminal cases.” In some ways this language (while not all encompassing) was uncharacteristic of Madison who in Federalist Papers #39, very adeptly laid out the balance of power (sovereignty) between federal and national governments inferred in the Constitution. The avoidance in the final Bill drafted of the language was purposeful as they understood both the importance of a federal government that oversaw conflicts between the states and the involvement of the states in foreign relations, but they also saw the value of a decentralized system (federation) of government in the states and municipalities that had their own charters/constitutions, closer to the people in handling social and economic issues that go hand in hand. David Brooks of the NYTimes recently on a Sunday talk show commenting on gun control said that the needs of a small rural town in Wyoming are different than the needs in New York City. In NYC a police station is literally around the corner, while in rural Wyoming they may arrive in an hour.
It was understood early on that the Bill of Rights, like the Constitution, specifically addressed federal power and not the States. Even up until 1833 in Barron v. Baltimore, the Supreme Court specifically ruled that the Bill of Rights provided “security against the apprehended encroachments of the general government—not against those of local governments.” But unfortunately that all changed with a Civil War, an Amendment and new courts. In 1925 in Gitlow v. New York, the Supreme Court ruled that the 14th Amendment allowed that the Bill of Rights applied to the states as well. What the founding era generation feared was starting to unfold, as America headed toward a centralized Democracy, monolithic, fragile and impervious to competition or change.
A Constitutional Republic that was created to protect the liberties of the individual and the market for free and voluntary association and exchange which leads to social cooperation is being replaced by a Platonic society of visionaries and experts in a centralized government that plans for social cooperation through limiting the freedoms of the individual and focusing on ‘collectives’ and managing markets toward outcomes instead. That’s why an issue like gun control makes sense to the latter: ‘limit the freedom of the individual in order to create a better outcome of ‘less gun violence’ and a ‘better society’. What they don’t account for is the unintended consequences that result instead. Rather, the founding era if they could speak to us from their graves would say, ‘Government closer to the people works better’ and that gun control legislation at lower levels of government (in a decentralized system) even when they fail can be profitable as failure is cast aside while success can be adopted by others. Also, there’s different needs and wants in Texas versus New York.
Finally, there is good news. As with other federal infringements like the Affordable Care Act and the changes in the National Defense Authorization Act (2012) many states are taking positions of resisting the effects on state sovereignty. Through pragmatic state actions that can be interpreted as ‘Nullification’, ‘Interposition’ or there’s even been discussion of ‘Article V’ Convention of the States as in the Founding Era period as states rushed back then to protect the Constitution and it’s integrity that they created. If gun rights are to be infringed upon, the states (their constitutions permitting) can experiment with that and we’ll all benefit indirectly, but a federal government which uses the ‘if we can save one life’ straw dog argument to promote a collective equality or freedom is way, way, way out of bounds and should be challenged by the states.
Christopher M. Mahon, Editor
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
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
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
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
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
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
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
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
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
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
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
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
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.”
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
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.
- 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’.
- 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.
- 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.
- 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.
- 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
In a March 9th article in Reason Magazine, `Ron Paul Revolution: What Now? Brian Doherty sums up the frustration of Ron Paul supporters as their candidate hasn’t won a single primary or caucus state, and media channels like Politico have written him off. The math of Super Tuesday last week also shows that Congressman Paul has no chance of winning the nomination. So what is left of his candidacy? Who or how can the Constitution and Individual Liberty be brought to the forefront as Washington Insider interests jockey for power with large funding resources and powerful media connections?
Doherty mulls over a brokered convention in Tampa, “Given the general attitudes of the average GOP stalwart, though, it’s hard to imagine Ron Paul coming out of one a winner. Ronald Reagan in 1976 made quite the push to deny leader Gerald Ford the nomination when Ford lacked a clear majority going into the convention, and even Reagan, god-saint of modern Republicanism, failed. Former GOP super-strategist Roger Stone, who lived through those days, reminded me that Reagan actually represented the views and enthusiasms of the mass of GOP activists in his day in a way Ron Paul does not now. This makes it even less likely Paul will succeed with any last-minute Tampa coup.”
But all is not lost. Ron Paul and his campaign support bring a couple of surprises to a brokered convention. First, the media has discounted loyal delegate support for Ron Paul in states where delegates are not bound and can move their support, and in the training and volunteer effort that the Paul camp has made since 2008 in getting their people into key precinct positions in each state will help. While it may be a long, long shot when considering Reagan failed, still Paul’s influence will be felt at the convention.
Finally, when you again run through the numbers and where Ron Paul runs strong: Independents, Reagan Democrats and the Youth (twenty somethings); even without the holdout for a brokered convention, just as the King of Israel contended with Elijah so will the eventual GOP nominee need Paul support going into November. Unlike deals made with past failed candidacies, to get Ron Paul support and a successful national campaign there will need to be tangible evidence of foreign and domestic policy revisions that align with constitutional principles.
If Mitt Romney runs against President Obama with $1billion cut in spending in the first year, a new military footprint and a Defense rather than Military Intervention policy that respects national sovereignty around the globe – until they violate ours; and an audit of the Federal Reserve with a change in objective from Employment/Inflation to inflation only and creates a committee in his first year to look at role of Federal Reserve going forward, then we can consider the Paul campaign of 2012 very successful.
My friends, don’t give up the good fight! Evangelize those around you to the Constitution and Individual Liberty as vital to a healthy society and the well being of a nation. As Madison suggested in Federalist Papers #39, our success hinges on `Self-Government’.
NOTE: If you wish to be more involved, contact your county party office that you are registered with and find out how you can be involved. You could become a committee member and precinct representative. Each state is vital in the fight against federal power encroachment, the best weapon the states have against that encroachment sits rusty and unused – Nullification. Finally, many are standing up to Universal Health Care. Get involved.
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
Over the weekend of April 8th 2011, two conferences which were sponsored by George Soros were held just miles apart. One was a four day conference held at the historic Mount Washington Resort in Bretton Woods, NH attended by over 200 `Who’s Who’ of global economists, financiers and politicians. The theme of the conference was, “Crisis and Renewal: International Political Economy at the Crossroads.” The speakers included: Gordon Brown, former PM of Great Britain, Larry Summers, former director of WH National Economic Council and George Soros, financier. The second was also celebrated and a `Who’s Who’ in media, internet and politics and was held in Boston, MA. Nancy Pelosi, current US Representative and former House Speaker, missed out on the last days of the 2011 budget battle in order to attend the conference.
What made the two meetings not only interesting but potentially groundbreaking is that both looked to set new international standards in governance, currency, economic policy, and media: including internet regulations. Here’s what George Soros said about the Bretton Woods conference,
“A new Bretton Woods conference, like the one that established the international financial architecture after World War II, is needed to establish new international rules, including treatment of financial institutions considered too big to fail and the role of capital controls. It would also have to reconstitute the International Monetary Fund to reflect better the prevailing pecking order among states and to revise its methods of operation.
In addition, a new Bretton Woods would have to reform the currency system. The postwar order, which made the U.S. more equal than others, produced dangerous imbalances. The dollar no longer enjoys the trust and confidence that it once did, yet no other currency can take its place.”
The first conference held in Bretton Woods in 1944 was a secret meeting to determine a centralized global system of trade, banking, and governance between countries and the establishment of the International Monetary Fund which would be used as a vehicle to exchange currencies and determine aid in rebuilding parts of Europe and Asia. What it did was set the US Dollar as the reserve currency which most other currencies were pegged to and played a large role in the US’ growth to prosperity and to a leading role in the world community as a `Super Power’. Unfortunately, partly due to lack of competition, the US has abused that role.
Lately, there have been public outcries by world leaders that the Federal Reserve’s policy of quantitative easing has dumped $9 trillion of `hot money’ into the world economy. After November 2010 Basel iii Accord meetings, a decision had been made to move away from USD reserve to a mixture of currencies that would be controlled through the IMF in a `basket’ of SDRs (Special Drawing Rights), The French, German and Japanese finance ministers have all referred to the coming changes, and even Ben Bernanke, Fed Reserve Chairman and Timothy Geithner, US Treasury Secretary, have alluded to the inevitable.
As the world’s governments continue to centralize power and resources, world leaders are looking to effectively link those governments into one global centralized structure that would oversee: finance, trade, travel and governance that would have an impact on cultures and societies. But ironically, as government leaders and globalists look to centralize power and resources, nations are seeing uprisings and resistance by its citizens as if to say, `not so fast’.
While Europe attempts to reform many of its generous social programs, Europeans take to the streets. In the Middle East, nations face unrest and potential overthrow as its citizens take to the streets for some say, `Democracy’ but even more for the basics: food, shelter and employment. Even the US is no longer immune, as the States face dwindling revenues and escalating expenses and facing hard choices on where to make the cuts. Wisconsin, Ohio and other states have seen unrest similar to the rest of the world.
So if centralized national governmental power and globalization is inevitable, what will circumvent the potential for abuse of power and loss of freedoms?
In an article written last week by Pat Buchanan, “Is Tribalism The Future?” he reflects on the attempts by governments in the past to unite people groups within nation boundaries and the potential for conflicts. Eastern European lines were drawn from WW2 victories and Middle Eastern lines were drawn throughout history by battles but most recently brokered through the Balfour Declaration of 1917 (which established Palestine for Israel) and by subsequent political deals. Even after the Six Day War, Israel has been walked back somewhat by political channels.
The term `Tribalism’ has conjured up negative connotations of rural tribes that are uneducated, barbaric and ruthless: Insert political joke here (……..). Recent studies however, while not removing the stereotypes completely, have shown that tribal living was more harmonious, sustainable and surprisingly `individual building’ than most governmental systems.
When governments become abusive, history shows that the individual turns to tribal characteristics of family, locale, culture and overall homogeneity. In some ways it’s a charge of retreat to what he knows, but in other ways it’s what strengthens the individual; the more intense the coercion by governments to create economic and social exchanges and associations the more likely the retreat.
While world leaders negotiate the next steps in global power sharing, as they divide up the booty and draw new rules and boundaries for societal interchange; will there be a rise in tribalism in response? If so what could it look like?
The underground economy, which is a type of Tribalism, ebbs and flows in relationship to the severity of government taxation and burdensome regulations; it’s highest when government taxes take more away from the individual risk taker than it leaves in his or her pocket; and when regulations prevent reasonable port of entry into markets and industry. The `New Tribalism’ while constituting some of the familiar characteristics of Tribalism past: common language, locale and other homogeneous traits; it also will include a new phenomenon: Social Networking.
In a recent book by Gary Vaynerchuk, “The Thank You Economy” he outlines how social networking is changing how we do business and how we relate to one another. He points out that many of our grandparents lived in small neighborhoods (tribal) and spent their money, exchanging services and associations with those they knew. Vaynerchuk said, with the advent of malls and suburban sprawl our parents didn’t have the same experiences. If our grandparents had a gripe with their butcher, they’d tell all their friends in the village square, church or synagogue not to go there. The butcher felt the impact, and there was an incentive to treat their customers well. When our parents complained to Macy’s or Gimbels they didn’t see the same result.
Unfortunately, Gimbels is no longer around (my mother loved it), but Macy’s and other retailers have found their way to this new technology the internet. First it was to create a static web page just to say ‘we’re modern and on the internet’, but later they found they could sell stuff, and lots of it with low labor cost. It looked like we had inherited our parents relationships as consumers with very little influence and at the mercy of the big retailers. Government was of little help, they created the economic policies that allowed these businesses to grow to monolithic size, by removing competition and allowing them access to finances that wasn’t afforded to anyone else. If a big name celebrity complained about a bad consumer experience, maybe we stood a chance but the average consumer’s complaint fell on deaf ears. That was until Social Networking sites like Face Book and communities started to connect online to review buying or dining experiences from different companies like Walmart, Target or even a small wine store or cafe around the corner. All of a sudden the consumer’s world became smaller and their buying choices and experience more important to the seller.
Social Networking in its infant stage was a way for kids and college students to connect. Many saw it as a passing fad but of little commercial value. Today, social networking has played a part in changing public policies, the European and Middle East unrest and with a single post can assemble a ‘Flash Mob’ of thousands of people. The Tea Party success is in part due to organization and dissemination of information through social networks.
In some ways Tribalism and Social Networking are the Kryptonite of Globalization; new internet regulation reforms have already been put forth by many governments, and was a key subject at the global media conference in Boston this past weekend. Even the US has adopted a `kill switch’ option if deemed `necessary’.
Globalization, like all centralized systems are unsustainable because they force individuals into relationships and behavior not of their own choosing. The greatest life force is whatever is self sustaining for each individual, and they will obtain the freedom to seek out whatever that is. Whether Underground Economies, Tribalism or Social Networking are the tools, it still remains to be seen and are unimportant in that they are not the goal but merely vehicles in the journey.
Before you sit back in your easy chair and turn on reruns of Lou Rukeyser’s Wall Street Week, there’s probably something else you should consider; the same group of soothsayers were spreading the elixir of calm and `happy days are here again’ in 2008 and using pretty much the same message.
Zandi, speaking before the National Governor’s Assn winter meeting in Washington said, “I think that the very loud hand-wringing over the prospects for major municipal-bond defaults is entirely misplaced.”
The Bloomberg article ‘Risk of Widespread Municipal Defaults’ by Mark Niquette and William Selway goes on, “Thomas Doe, founder and chief executive officer of Concord, Massachusetts-based Municipal Market Advisors, said he has seen nothing to change his view that general-obligation debt at both the state and local level is secure.“I don’t want to be Pollyanna about it,” Doe told the governors. “I have great confidence in you all, the markets do have confidence in you as well, and the informed investor, the institutional investor, understands that your debt is good.”
What Zandi and Doe fail to see or recognize is that much of the past year’s state revenues were subsidized in part by the Federal bailout that was a ‘one and done’ stimulus to teachers and other state employees which is now gone. Also as Meredith Whitney of the Whitney Group and other muni bond analysts have commented that 49 out of 50 states have mandatory balanced budget requirements and there needs to be substantial cuts in spending (particularly retirement/health care for govt employees) which is now starting to be addressed as seen in some of the collective bargaining controversies stirring in a few states.
Zandi and Doe and others who are now forecasting recovery and dismissing troubles in the muni market are the same ones who called bottoms too early in the housing collapse and never even saw the financial crisis of 2008. Zandi is a student and believer of Keynesian economics in the same vein as Krugman and Bernanke, that if government steps in to support the economy when private industry and household spending falters then recovery is right around the corner. Ironically, Zandi wrote a report on economic stimulus packages and their effect on the United States economy which was cited in Christine Romer’s report back to President Obama which influenced bailout legislation (American Recovery and Reinvestment Plan). Harvard economist Robert J. Barro and many other economists are now questioning Zandi’s model and the need for federal government intervention.
While Whitney and others who forewarned the 2008 financial crisis are hopeful, they are also realistic in gauging the political and wrong-headed economic principles like Zandi’s that governs public policies. There is a way out of this mess but it doesn’t come from creating more debt, quantative easing or any other government led options; it is rather cutting government, reassuring markets that there aren’t any government surprises coming so that prices will stabilize and surpluses (housing inventory) will wind down through private market mechanics.
In another ill forecasted article by Mark Zandi, he proclaimed, “I’m an Optimist!” Are you an optimist when it comes to government stimulus packages or federal reserve quantitative easing schemes? Well just like Burt Lancaster’s character in Elmer Gantry, they are firing up the revival organs to the sound of ‘happy days are here again’ as the message is being preached of government salvation that comes at a great price…your money and your freedom. ‘Do you hear me brothers and sisters!’
At its core principles, Collective Bargaining is very reasonable and is a part of individual liberty: freedom to voluntary association and voluntary exchange which are also free market principles. A group of employees who work for a company in which some decide after meeting and exchanging ideas can go to management and negotiate their wants based upon their hard work and talents.
Unfortunately that is far from what exists today as worker interests and freedom to choose representation has taken a back seat to large powerful organizations that not only move masses of workers but also move massive legislation and influence elections through worker contributions and turnout. What was born in the 19th century Progressive and Social Reform movements that brought bargaining power to individual workers through numerous union options has been consolidated today through federal legislation into basically two organizations: AFL-CIO and Change To Win Federation.
Beatrice Webb, Socialist, Reformer, Economist and Co-Founder of the London School of Economics, is credited with first coining the phrase ‘Collective Bargaining’ in 1891.
Early US unionization and worker representation existed at local levels and organized more along craft or trade skills. Unions took on the characteristics of the European Guilds which while negotiating worker wages and hours also provided workers with education and training. While some employers fought union efforts many saw the benefits to the quality of their shops and in the products they were able to produce. While friction existed between worker and company ownership at times, companies had the choice to negotiate and workers had choices in who to associate and unite with. The late 19th century, particularly after the War and the depression of 1873 saw organizations like the American Federation of Labor and Knights of Labor open up to workers unprecedented bargaining power and a new focus for national unionism through political organization. Late 19th century and early 20th century social reform through progressive wage, immigration, African American and child labor reform saw the passage of local, state and federal laws that governed business and labor relationships and supported union centralization.
The Railway Act of 1926 and the court case Texas & N.O.R. Co. v. Brotherhood of Railway Clerks in 1930, strengthened union power to negotiate on behalf of workers. But it wasn’t until New Deal ground breaking legislation of the 1930s that put union at the forefront of the blue collar worker’s destiny.
In some ways The National Labor Relations Act of 1935 changed everything. It put regulatory powers in the hands of the federal government over labor and private industry. Ironically, the Act went much further than it’s inclusion in earlier legislation of FDR’s administration, the National Industrial Recovery Act (NIRA) of 1933 that was overturned as unconstitutional by the Supreme Court also in 1935. The result of the NLRA was the formation of the National Labor Relations Board which oversaw union and private industry’s labor contract negotiations. But it didn’t stop there, it also influenced union activities, worker voting and representation and the consolidation of power as unions merged into much larger organizations. The NLRB codified labor law, which would influence some of the largest US industries for the next 70 years.
The AFL-CIO has over 56 key Unions that represent several hundreds and over 11 million workers according to a 2008 survey. The Change To Win Federation is a collection of 4 major unions: The International Brotherhood of Teamsters (IBT); Service Employees International Union (SEIU); United Farm Workers (UFW); and United Food and Commercial Workers (UFCW), as of 2008 they had 4.8 million members. These organizations have the financial resources and votes to affect elections and legislation passed through Congress. Unfortunately, just like federally protected industries and companies like auto and banking, they result in monolithic centralized entities that lack competition and lose sight of their goals: individual workers.
The current Labor environment has become interesting due to the ‘uprising in Wisconsin’ where Governor Scott Walker and the legislature of Wisconsin, in addition to looking for wage and benefit concessions has also included in SB 11 changes in collective bargaining in the state for municipal and state workers; which at first blush might seem ominous for Wisconsin union workers and other state and federal workers. The legislation limits collective bargaining to wages with a CPI cap and in addition it reduces contracts from 2 years to 1 year. Also, and most importantly for union workers it includes a clause that would open up worker choices of union representation and the ability to ‘fire’ unions or replace management every year. The state would also require certification and re-certification of union entities:
Under SELRA and MERA, a collective bargaining unit elects a labor organization as its representative once a majority of the employees in that collective bargaining unit who are actually voting votes for that labor organization; that labor organization remains the representative unless a percentage of members of the collective bargaining unit supports a petition for a new election and subsequently votes to decertify the representative. This bill requires an annual certification election of the labor organization that represents each collective bargaining unit containing general employees. If, at the election, less than 51 percent of the actual employees in the collective bargaining unit vote for a representative, then, at the expiration of the current collective bargaining agreement, the current representative is decertified and the members of the collective bargaining unit are nonrepresented and may not be represented for one year. This bill requires an initial certification election for all represented state and municipal general employees in April 2011.
In some ways the condition of the union system and the individual worker placed into that system is similar to the US government system which has become too centralized, powerful and sacrifices the interests of the individual for the collective. The US Constitution stands as a plumb line to correct government, which hopefully is what some of today’s state conflicts reflect - change (even when it is good) is seldom without pain. . Unfortunately for union workers there is no ‘constitution’ to look back to specifically, but understanding that representation is more effective when it operates at local levels. Also, decentralized systems through state and local organizations allow for the recognition of unique differences and through experimentation, expose ideology and operations to success and failure. As there’s a call around the country for ‘Workers Unite!’ mostly by union operatives, workers should really study history and then ask themselves, ‘am I getting a fair shake from my union and, is what my employer asking of me fair’?
The Walker Bill – SB 11 To read Full Bill
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.
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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 make them stay on 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 recently released 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 the recent financial crisis those variables played a greater role.
The Procrustes Bed analogy of government policy can be made in areas like health care and education. 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 analogy 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 last year.
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 socialisation 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. Hindsight being 20/20 if these experiments had been done on a decentralized state by state basis as was the original system, the failure would have been isolated, less impacting nationally and there most probably would have been successful models in orther states to adapt to.
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 unamimous 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.
Is there a Theseus 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.
One summer my brother and I stayed with relatives in a tony area of Connecticut; our family was middle class from a suburb of NYC and not schooled in the finer things, we were however, very good in sports. We’d show up at the tennis courts in mismatched shorts and tees, torn sneakers (high-tops not Tennis) but we’d kill anybody we’d play. The elites at the club tolerated us for a time, but refused to recognize our skills and couldn’t wait for us to leave.
In a recent interview with Bill O’Reilly, Charles Krauthammer commenting on CPAC (Conservative Political Action Committee), and their year after year top vote for Ron Paul in their straw Poll, belittled Paul’s support for ending the Federal Reserve, calls for substantial cuts in the defense budget and his constitutional discipline of separating federal and state power that would extremely realign not only government but also political fortunes.
While Krauthammer is my favorite elitist and intellectual he does unfortunately suffer from a condition, ‘Elitist Intellectual Ailment’ (EIA), which is characterized by ideas and policies that emanate from a small group of schools and think tanks that has a love for information and the need to connect causality. I call it the ‘Joe Frazier’ Socio-political style of `leading with your head’. This group believes that there isn’t a problem that can’t be intellectually worked out in a lab on an Ivy League campus through the hands of elitists (sons and daughters of the same) who then can through government management of society process their answers. To elitists, Government has never been the problem, the problem has been either differing elitist theories on the use of government or the improper use of government by the rare occasions that Commoners (non-elitists) have been in power. While Progressives favor the government as a re-distributor of wealth and income and Conservatives favor government as a protector of traditional values, they both favor government. They reject the ideas of Ron Paul and true free market believers who suggest that in an open society, through voluntary exchange and association, societies don’t necessarily collapse but ‘self-correct’.
Krauthammer who honored in political and economic studies, has a degree from Harvard Medical School in Psychiatry and practiced until 1978 when he went to work for the Carter Administration is like many Conservative and Progressive elitists, they at times can move back and forth between political philosophies and political parties. While they may hang out in different areas of the ‘Country Club’, at the end of the day they still sit down at the same table and enjoy hot toddies in front of the same fire. Both believe that society is better managed by experts (another name for elites) who can steer resources, labor and values for the greater good.
To Krauthammer and other elitists, Ron Paul is the most peculiar of anomalies; he is bright, well educated, understands Washington like elitists, but yet he doesn’t see government as the overriding solution to society.
In a NYTimes best seller, ‘The Black Swan’, Nassim Taleb (University of Paris, Wharton School) wrote about the fragility that was inherent in financial, economic and public policy models coming out of the best schools and think tanks, that didn’t account for unknown variables. He says unlike nature which protects against exponential growth and centralization, the hybrid derivatives built in the financial markets and the government built banking behemoths would lead to a financial crisis. “If I shot an elephant, the biggest animal on earth you’d be unhappy. I will probably get some bad press as well. Will it impact the ecology of the planet though? No. If, before the financial crisis 2 years ago, I shot a company called Lehman Brothers, would it have had an impact on the world economy? Yes. The lesson learned here from the elephant is that it is not too big. Companies get too big” Taleb.
The reason that companies get too big, is the same reason that values like home prices, USD and drugs are distorted because of public policies built upon flawed interpretation of data and not properly accounting for risk. You could never have monopolies or the size companies we have today without government regulations that protect industries and corporations from competition and provide subsidized capital. But monolithic structures become prone to stress and create system failures when they fall. Nature allows for the largest tree in the forest to fall with little impact, while if the largest entity in almost any industry failed it could cause substantial impact to a community, state or a nation’s economy.
In another book, ‘Open Society’, Karl Popper traces the elitism of Conservative and Progressive theories back to Plato. Plato saw societies as machinery that would decay and become obsolete over time if not managed and planned for, he felt decay could be forestalled by ‘managing’ society to an ideal that would need to be reinterpreted over time. This would be done by a special class of individuals called ‘Philosopher-Kings’ who would set the vision. They would need to go to special schools for training and most likely come from a select (elite) group of people. He envisioned a second class of people, ‘The Warriors’ who would enforce the vision of the ‘Philosopher-Kings’, these would be police, politicians and judges; and then there would be a third class, ‘The Workers’ who followed the rules and allowed themselves to be managed and receive the benefits of a better society. As today, it would be unconscionable to move from class to class for the most part, and there would always be a need for the philosopher (political) class to manage society.
To quote Popper, “Our knowledge can only be finite, while our ignorance must necessarily be infinite.” In Popper’s theory of Falsification, he says every theory and policy is prone to failure and must be assumed so until proven so. Theories ‘cooked’ in the lab, proven on a very small data sample, could have tremendous unintended downside consequences or at a minimum – distort values.
Elitists don’t like ‘old fashion’ ideas of limited government and constitutional principles that separate government powers between the individual, states, and the federal government. Which allows for currency, food and values to self-regulate through voluntary exchange and association. To them it is too much power in too many hands. The idea of everyone doing whatever they wanted, would destroy a society, the very thing that Plato, Hegel and Marx warned against.
A truly free society, where government merely intervenes to protect individual liberties and men and women are free to succeed or fail? No, no, society must be managed and even though we have times of crisis, the boys and the girls in the labs of Princeton and Harvard will have the next great public policy solution and with a little more government control in their hands (and less in yours), elitists will enable Plato’s vision to continue.
In a controversial study by Carmen Reinhart and Ken Rogoff it shows that economic activity is hindered when government gross debt rises above 90%. This year actual debt held by the public is 72% but is expected to accelerated as social security and health care liabilities are projected to rise sharply.
The budget the President is handing to Congress is expected to be $3.73 trillion, with only a few weeks left to deliberate, a government shutdown is becoming more of a possibility. There is also the need over the next few months of an additional increase in the debt ceiling which will cause a confrontation within Congress between the Tea Party sponsored members who took pledges not to raise the ceiling and those who are more pragmatic or have sponsored bills in legislation.
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Arizona counter sues Feds over SB 1070 Immigration bill, adding to its already aggressive posture in joining almost 30 other states in suing over Obamacare. Arizona with its fiscal problems is turning out to be a state that is part of the solution rather than the problem in being a ‘check’ to encroaching federal powers to constitutional restraints.
While many states remain subservient to the Federal Government, beholding to federal grants and aid, many are rising up in defense of constitutional state and individual liberties. Battle lines are being drawn around issues such as immigration, health care and education as many states are challenging federal regulations and mandates in the courts. State electorates are holding the feet of state legislatures to the fire in not rolling over on federal legislation that encroaches upon state sovereignty.
Many from the Tea Party movment and other groups who feel that the federal government has become too large and overreaching in its authority, and has violated the limited powers as proscribed by the US Constitution, have found national elections only produced small incremental changes. Instead many are turning their focus to local and state elections and saying to their state governments and politicians, “You have a sworn duty to defend the US Constitution and our State Constitution against federal tyranny!”
Where does your state stand? According to a recent George Mason survey here is their ranking:
New Hampshire ranked as the freest state overall. The top 10 freest states were:
1. New Hampshire
3. South Dakota
10. North Dakota
George Mason’s Hall of Shame, 10 least free states started with the Big Apple:
50. New York
49. New Jersey
48. Rhode Island
There’s been an important update on the move away from the USD as a reserve currency that we’ve reported about over the past several months. The International Monetary Fund (IMF) issued a report yesterday outlining the process to move from a world reserve currency for central banks based on the USD to a fund of Special Drawing Rights (SDR) that would include a basket of different currencies.
The IMF said that the SDRs would create a more stable currency environment by spreading the risk among several currencies while pointing out the volatility of the USD during the recession and recovery process over the past several years. US Monetary policy of quantitative easing has contributed to rising oil and food prices which has indirectly put pressure on oil dependent nations and other poorer nations that live marginally.
In an article on Money.com they report that Dominique Strauss-Kahn, managing director of the IMF, “acknowledged there are some “technical hurdles” involved with SDRs, but he believes they could help correct global imbalances and shore up the global financial system. “Over time, there may also be a role for the SDR to contribute to a more stable international monetary system,” he said. The goal is to have a reserve asset for central banks that better reflects the global economy since the dollar is vulnerable to swings in the domestic economy and changes in U.S. policy.”
Kahn also says that he could see where the IMF through a new reserve currency structure could issue bonds and other financial instruments. This would create a new centralized level of banking structure that would potentially sit above all national central banks. While there have been rumors of centralizing world banking and a new global regulatory structure as recently as Davos last month, this step would be a leap into that direction. The creation of a global banking structure that had the ability to produce ‘treasury-type’ bonds would compete directly with US treasuries for safety and liquidity and cause further erosion of USD value.
Fred Bergsten, director of the Peterson Institute for International Economics, “said at a conference in Washington that IMF member nations should agree to create $2 trillion worth of SDRs over the next few years. SDRs, he said, “will further diversify the system.”
We can’t stress enough how much the impact will be to USD value, particularly if US domestic spending and the US debt is not addressed to make the USD more attractive as it becomes more exposed to a competitive global market.
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
In January, a Tunisian uprising over unemployment, food inflation and government corruption caused the overthrow of the government and for President Ben Ali to flee the country allegedly with 1.5 tons of gold in his possession. The end of last month Egyptians have taken to the street in protest of the Mubarak government. The protesters include the upper middle class to the lower class, decrying the high rate of unemployment and inflation; as of this writing, Mubarak has offered to step down in September after his current term ends. With growing unrest in his own country, Jordanian King Abdullah has sacked his own government as protests against high unemployment and rising prices are growing in the streets.
Other Arab states are concerned about a Domino Effect from the uprisings spreading to their nations and the possibility of the Muslim Brotherhood and other fundamentalist groups of gaining more traction by taking advantage of the social unrest.
While fundamentalists are driving some of the uprisings, the majority of the uprisings have a common thread: Unemployment, rising food and energy prices. Does US monetary policies play a role in the process?
The current world economies run off the US Dollar as a reserve currency. The Arab states trade in US Dollars for the most part through oil revenues, IMF funds and direct aid from the US. When the US decides to use quantitative easing measures to print its way out of economic malaise or to monetize its own debt, it not only destroys the buying power of its citizens but foreign governments and their citizens as well. Unemployment and rising prices are the result of currency and interest rate distortions, as governments, corporations and individuals react to changes in the supply, cost or perceived value of money in the marketplace. The poorest of nations and individuals in those nations seem to suffer the most as they live on the margins of society, meeting their food and shelter needs day by day. They lack the reserves and robustness to endure long periods of economic disruption. Meanwhile, China has been the whipping boy because of its perceived loose monetary policy as well, but from China’s point of view, the US leaves it no choice but to take a defensive posture, by print more Yuan/RMB in response to devaluation of the USD.
Many around the world are reacting to US foreign policies of intervention and involvement in other nation’s governments and of the proliferation of US military presence around the globe but there is a growing resentment to US monetary policy as well. The recent Basel Accord meetings late last year and the meetings most recently with the Chinese were about moving away from the USD as the sole reserve currency and a move toward a commodity structure (unlikely) or a basket of currencies – SDR (Special Drawing Rights). Since the Bretton Woods conference in 1944, the US has enjoyed a monopoly as the worlds reserve currency, which gave it the perception as a safe haven to hold currency and as the best means of exchange. The US has been able to take advantage of that position by making risky monetary and fiscal decisions to run up deficits in domestic and foreign policies and experiment in Keynesian monetary policy of stimulus injections when the economy slows down. This has been done for years through Congressional Budget busting programs and zealous monetary policy, all the while knowing that the world had little recourse as they needed the USD. The US has been making the bed of its own demise for years and yet there’s very little evidence that the political or monetary class is willing to change directions.
Ben Bernanke of the Federal Reserve, Tim Geithner of the US Treasury, the current President and most of Congress are not only not friends of the American people, they are also not friends of most people around the globe as their policy decisions are threats to government stability and individual freedoms and standards of living. If the US wants to have the greatest positive impact around the globe, she would do well to get her own house in order by using the Constitution as a plumb line to determine legitimate federal power by which to cut programs and departments and decentralize public policy decision making, in order to bring about Montesquieu’s Balance of Power (fed/states) as her nation’s founders had intended. They can start by rescinding the Federal Reserve Act of 1913.
A strong, stable US government built upon individual liberty and constitutional restraint would make for a better export to the world instead of the foreign policy bullying and economic policy time bombs we currently export. As the recent US elections show and the unfortunate unrest around the globe backup: both the American people and the world community as a whole is frustrated. The question is: Will the US find it’s historical moorings and once again step up to a leadership position among nations, or will the US continue down the road of self-inflicted destruction, as the world community looks for leadership elsewhere?
“It is said that the world is in a state of bankruptcy, that the world owes the world more than the world can pay.”
(Ralph Waldo Emerson)
Ironically in searching for a couple of quotes to lead this article off on Bankruptcy, I found more quotes on the subject by politicians who warned if we as a nation didn’t `invest’ more money through government for things like health care, education and wages that it would lead to bankruptcies of all types. ‘ In this most powerful nation in the world, lack of access to health care should not force local and state governments, companies and workers into bankruptcy, while causing unnecessary illness and hospitalization.” (John Conyers)
In a New York Times article this morning (January 21, 2011) Mary Williams Walsh talks about the quiet meetings happening in the House and Senate regarding the growing possibility of State bankruptcies. Currently there are constitutional issues that prevent states from seeking bankruptcy relief unlike local municipalities, but lawmakers having started to entertain a few inquiries by states such as California and Illinois and are rushing through the corridors of DC preparing a `Best Practices’ plan of approach.
Many are in denial that some States are in the kind of financial peril that warrants bankruptcy discussions (come on! We read it in the Times!) but another ironic quote is Bob Lutz the auto executive commenting on GM’s financial condition, “Imminent GM bankruptcy was always fiction, created by Wall Street and the media.” Here at ACD we brought up the possibility over a year ago and investment managers like Meredith Whitney as recently as December suggested that with 49 states that have mandatory balanced budgets in their charters will be forced to make dramatic spending cuts, pay increased debt finance costs or default on loans that are coming due later this year. Whitney and others are forecasting that unemployment will rise later this year due in part to spending cuts forced upon the States.
The two big questions that will affect the outcome are: How much will the Federal Government become involved (which can distort process) and what liabilities will the States renegotiate on? The NYTimes article mentions a type of Federal Board that could set standards and regulate the process, like with the Savings & Loan crisis of the late 1980s. Fortunately or unfortunately, when decisions come out of Washington they are politicized and decisions regarding viability and allocating resources which free markets would go one way, Washington could take a different root. This brings up the liabilities, some that might be on the table to negotiate or eliminate through a bankruptcy process are: Pensions (retirees), Bondholders and Union Contracts. Most financial analysts rate the priorities as Bondholders or Union Contracts first and retirees Pensions as last. In recent years Federal and State wages have far exceeded private wages and while most Bondholders tend to be retirees, there’s still an understanding of risk (albeit, low) in Bond ownership.
The good news is the discussions about where to cut state spending and how to work out their liabilities is starting to be done head on rather than temporarily refinanced and kicked down the road for another day, let’s hope it leads to market driven answers with a minimum amount of government intervention keeping with constitutional principles.
“It’s not a matter of ‘if’ but ‘when’ the housing market takes next leg down (substantially).” Ominous words from Meredith Whitney, of Whitney Advisory Group, formerly of Oppenheimer and one of few financial analysts that called the housing and banking crisis.
Whitney also spoke of the next shoe that is starting to fall which is second in severity to the housing market, the Municipal Bond market collapse. She says that of the 2.8 trillion dollar muni bond market, roughly 50% is owned privately and that we’re already seeing an unloading of these bonds and lukewarm reception of new issuances. As a result the city and localities will look to the states for support of which 49 of the 50 states have mandatory balanced budget requirements and looking at substantial layoffs and program cuts. States like CA, IL and NJ are in bad shape and have made overtures to federal government for help. In addition, many of these states are living on part of the last fed stimulus monies which will run out over the next several months.
Whitney’s outlook for year end and 2011 is sobering. She sees unemployment rising in part to state layoffs of in the neighborhood of 80,000. Housing prices making a significant move down (although she didn’t give a percentage), some have suggested 25-30%. Because of the new financial regulatory bill passed this year, she sees Local banking institutions suffering increased cost and less availability of services and funds, resulting in a consolidation of branches. States financial structures and abilities to borrow will become constrained. She sees the QE2 (Quantitative Easing) policy recently announced by fed chairman Ben Bernanke as ‘dangerous’ and not helping ‘middle America’ as advertised because it will produce inflationary pressure in the commodities market and make food and basic need items more expensive.
Whitney also commented on the mortgage moratorium and ‘Affordability Mod’ workout in the federal mortgage program saying, “the program delayed by about one year plus, the downward price adjustments ” and disruption in supply.
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