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
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
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
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
The recent shootings in CT this past week has brought to the forefront the call for new Federal Gun Control legislation to ‘Criminalize’ certain types of gun ownership. Will the cost of removing further personal liberties of the Individual and the rise of centralized federal power be effective in diminishing firearm deaths? Has it been effective in the ‘Drug War’ or Alcohol Prohibition of the Past? As I write this article this morning, 10 were shot in Chicago, a city with some of the toughest anti-gun laws, but a city that remains one of the most violent in gun injuries and deaths.
In a Cato Institute Study, Alcohol Prohibition was a Failure, of 1920s Prohibition, they found the federal law besides being an infringement on Individual liberty was quite ineffective in what it set out to do: Reduce Alcohol related deaths and the social ills that are associated with the freedom to imbibe alcohol and that the unintended consequences were horrifically worse. Organized crime, prostitution and other social maladies prospered under the well meaning legislation. The Temperance Movement supported by churches, mutual aid societies and government proved to be a disaster and was later rescinded in 1933.
Arguably the Drug War a much larger war than Alcohol Prohibition is at least if not more unsuccessful as Billions of dollars and half the prison population full of ‘drug offenders’ lay society’s resources wasted and the ‘unintendeds’ of a border war, hybrid drugs that kill and the increase in ancillary social maladies are the byproduct. This begs the question, “What would society look like with harsh Federal Gun legislation that ‘Criminalizes’ gun ownership?”
There are two assumptions that many people make about government and social problems in arriving at a ‘Remedy’. The first is that in taking a position against using Federal power (either through a strict Constitutional interpretation or pragmatic position that lower levels of government like the States can do it more effective) means that you are sympathetic to what is perceived to be a social ill or cause like in the case of marriage, drugs and lifestyle choices. The other assumption is that laws and public policies are built around that the individual will obey the laws and there won’t be unintended consequences that result from government intervention.
Both of these assumptions are wrong and history has shown the unintended consequences are terrible. When the ‘Free Market’ is violated by government intervention, the values in that marketplace will be distorted as in the case of Alcohol Prohibition which due to lack of supply (the demand while reduced somewhat due to legislation was still high enough to create a market) sent prices soaring and both an underground and ‘illegal’ supply resulted and a para-industry was born – Bootlegging. The same is true today for drugs, again the assumption is law will eliminate demand and solve the social problems but the unintended is that behavior adapts to circumvent the law as happens with federal regulations over business or even tax legislation and the cost to comply or not.
Unfortunately, if harsh federal gun criminalization is the answer to this past week’s horror, the result will not only be the steady stream of Drugs and Prostitution over our borders but firearms as well, and just as we’ve seen the awful hybrids of alcohol (moonshine) and today’s dangerous drugs (Meth, Ecstasy) that result from prohibition as users want the ‘biggest bang for the buck’, can you imagine the potency of firearms that will be available in your neighborhoods and schools in the near future?
The Second Amendment was part of the Bill of Rights, 12 (10 ratified) Amendments over federal powers to protect the natural rights of individual liberty and property and to answer the concerns of the holdout colonies/states yet to ratify the Constitution. It is very important to understand that the Second Amendment didn’t apply to state powers, those powers are delegated through the states’ Constitutions. So each state or municipality if their constitution permits can pass legislation whether it will help or not.
While there will always will be social maladies among us, the best way to handle them are through the ‘friction’ of the marketplace and when deemed necessary by local government where there is the potential for greater homogeneity, cooperation and the potential to maintain greater individual liberty.
Let’s be ready for what Rahm Emmanuel says, “Don’t let a good crisis go to waste” and for federal government to infringe on personal freedoms (for a greater good), instead let clearer heads and rational thinking rule the day.
Christopher M. Mahon, Editor
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
In Obama’s Soak-the-’Rich’ article in Cato Institute, the writer Daniel J. Mitchell says,
“Tax Hikes are Worse than the Fiscal Cliff
America actually will fall off two fiscal cliffs in January, but only one of them is bad. The good fiscal cliff is the so-called sequester, which is the inside-the-beltway term for automatic spending cuts. These aren’t really spending cuts, just reductions in the growth of spending. If the sequester takes place, total federal spending will climb by $2 trillion over the next 10 years instead of $2.1 trillion. But anything that restrains the growing burden of government spending is a good idea, so a small step is better than nothing.
The bad fiscal cliff is the automatic tax hike, which exists because the 2001 and 2003 tax cuts are scheduled to expire at the end of the year. This means higher tax rates for all taxpayers, as well as increased double taxation of dividends and capital gains.”
What many economists and politicians don’t recognize is that there is a difference between money saved or spent in the private sector versus the public sector and the ‘unintended consequences’ of behavioral changes by the individual and the marketplace as a result of public policies that increase taxes, create more regulations and which usually means tax avoidance and spending decisions that are short term and counterproductive.
Unfortunately, as government does with most ‘hard political decisions’, politicians in Washington after much saber rattling will compromise on the important decisions of redefining the role of the Federal government and making some significant spending cuts and policy changes in Defense, Social Security, Medicare and other entitlement programs that for the most part should be remanded back to the states. Instead there will be a mirage of spending decreases from the baseline budget as mentioned earlier and there will be a phase out of tax deductions at an income level of $250,000 or so, which like the AMT was never bracketed or indexed and eventually inflated its way into the ‘Middle Class’ where most of the money is. As a result the market response will be to hide more income and investment strategies that moves more capital into the ‘shadow economy’ and overseas.
This past week in a ‘Farewell to Congress’ retiring Rep. Ron Paul took some time to reflect on his 40 year contribution to raising a warning of abusive federal power, “Dependence on our government is the worst it has been in US history..Why does the changing of parties and politicians not change policies, could it be that both parties are essentially the same?..Real Patriotism is challenging the government (and your party) when it’s wrong.”
While we appreciate past generations like those who grew up during the Great Depression and fought in WW2 and Tom Brokaw nicknamed the ‘Greatest Generation’. With deference to that generation, I believe the Greatest Generation is ahead of us, growing up before our eyes, rejecting today’s Historicism being taught of our past and embracing instead the original underpinnings of Individual Liberty that were forged in the US Constitution and which sailed a great Republic.
Hip Hip Hurrah for Elections and Representation! The Status quo won again and as Rep. Ron Paul slips out of public office, will there be a GOP or Democrat party that realigns itself to the Constitution and will there be new voices crying in the wilderness, “This is the way to Liberty, Walk Ye in it!” or are we inevitably headed down the slippery slope of more centralized government?
Christopher M. Mahon, Editor
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
Many in Europe said it would never come to this, whereby the European Central Bank would buy the bonds of countries like Spain and Italy who have the potential of going down the road of other debt ridden EU nations with rising borrowing costs and the inability politically to cut spending.
In a NYTimes article this morning, Central Bank Sets Bond Plan Meant to Ease Euro Debt Peril “We will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area,” Mario Draghi, ECB President said at a news conference. “The euro is irreversible.”
While such programs will be managed by other EU governing bodies, the ECB will have the power to make decisions on which nations, bonds and the terms for the transactions. They will most likely have a monitoring mechanism to keep track of bond performances as well.
“By forcing governments to impose fiscal discipline on each other and remake their economies along lines dictated by the E.C.B., power will inevitably drift from national capitals to Brussels and Frankfurt.”
The E.C.B. will buy bonds with maturities of three years or less, and it will maintain a policy of ‘Sterilization’ at least initially, where they will match the buying and removing from circulation in their portfolio in order to minimize inflationary affects.
Mr. Draghi said that the vote for the bond buying policy was not a unanimous vote by the board as Jens Weidmann, president of the Bundesbank was the lone dissenting vote, he warned that this was a bad course to head down as nations become more dependent upon ‘cheaper financing’ and relieves the pressure of real spending cuts.
German chancellor, Angela Merkel, expressed similar concerns and cautioned that a continued move to a more rigidly defined and centralized EU system, that both Germany and the UK fought against at the EU’s inception, is a potential threat to national sovereignty.
One can’t help but draw the comparisons to the US Federal Reserve system, a central bank created in 1913, which has stepped more and more into the role of ‘Lender of Last Resort’ who also has potentially similar hard decisions as city and state governments face rising borrowing costs and spending while decreases in revenues. A few cities in California have recently declared bankruptcies.
Recently over a discussion of the function of government with a good friend of many years we came to a crossroad as he expressed how he didn’t understand my ‘faith’ in Laissez-faire, a marketplace with little to no government regulation. While I think it is a legitimate concern as there are potential abuses in all relationships and transactions including the marketplace, my response back should have been, “While I understand your concerns with individuals taking advantage of one another, I don’t understand your ‘faith’ in government to ‘make it right’ and not to be exponentially more abusive as power is concentrated in the hands of a few and they have the force, law and money to do as they will.”
Whom should we fear more, the millionaire across town who can use his money and influence to deny me and a limited number of other people access or the government with unchecked power that can confiscate our wealth, send our children to war and deplete our livelihoods for a Utopian vision? Even the billionaires we read about have limited powers until they hook that power to government influence and coercion.
There are two assumptions made by both the ‘Left’ and the ‘Right’. The Left believes it has a natural ‘Altruistic’ compass while the Right believes it has a ‘Moral’ compass built in. So that both believe if they as a collective are heading the ship of ‘big government’ that even if for a greater good they need to steer into the cliffs of suppressing Individual Liberties they have the internal fortitude to not destroy the ‘Ship America’. Unfortunately this is either a lie or extremely arrogant and naive.
While my friend’s question ‘how do you have faith in Laissez-faire?’ is difficult to answer because historically societies have had government structure to varying degrees; the settling of the ‘Wild, Wild West’ and the ‘Free Banking Era’ are two good examples to consider in US history. We’ve been lied to by Hollywood and Historians regarding western expansion and the violence it entailed, a study ‘The Not So Wild, Wild West’ by Montana State University Economics Department shows the opposite to be true; the settlements of the western states were a safer place than almost all our major cities today as well as many suburbs. What was unique is that it mostly was settled through private contract law rather than government systems.
Even law enforcement was through private means as they hired Sheriffs and Deputies directly or through contracts like the Pinkerton Services who pursued many ‘outlaws’ like Jesse James. Cattlemen and Frontier Associations and Fraternities were formed out of common interests (voluntarily) to negotiate property rights and easement agreements.
Laissez-faire “is an economic environment in which transactions between private parties are free from tariffs, government subsidies, and enforced monopolies, with only enough government regulations sufficient to protect property rights against theft and aggression.”
Private banking with less government regulation and less centralization of power historically has also worked better. While there were banking crisis’ prior to today’s US centralized banking system, they were generally smaller and the market was quicker to dissolve failures, realign malinvestment and reallocate assets and labor more efficiently. The ‘Panic of 1819′ which was in part due to monetary expansion and debt from the War of 1812 and all other Panics that followed were due to violations of market principles and where economic conditions were less regulated by government the time period for adjustment and recovery was shorter as the market cleared bad investment while determining value. The ‘Free Banking Era’ of 1836-1864 is a bit of a misnomer as there was state regulations at the time but there was competition in the currency market and between banks regulated by the states. During economic growth some banks took greater risks going off species (gold, silver, etc) and offering more competitive portfolio returns and investors bought those risks. When the economy slowed and the market corrected many of the banks who took risk went under and the investors holding those risks took the losses as well. But with less government intervention, the losses, valuations and reallocation of assets was orderly and recovery was quicker. When you consider more recently the history of US banking and Currency laws and the degree of federal intervention since the Bank Panic of 1907 which led up to the Federal Reserve Act of 1913, the last century of centralized banking reveals economic and monetary crises of a monolithic system that lacks competition and is supported by ‘too big to fail’ versus a decentralized system of competitive banks and currencies that allowed for market failure and correction with the latter evidencing more stability. Even as recently as last week Federal Reserve Governor Jerome Powell described the new ‘Single Port of Entry’ provision and ‘Living Will’ that charter banks determine ahead of time to go through a bankruptcy-like procedure that basically enshrines the taxpayer as on the hook for the cost.
Here’s a ‘Jenga’ exercise we should play from time to time. If our Jenga pieces are government structure to maintain a society to protect freedom, how many pieces of today’s government can we dismantle without it falling apart? How many pieces of federal government have centralized power in Washington and created a monolithic system that is impervious to change and fragile to systemic failure? It’s amazing in the game how many pieces we can remove but I think most would be surprised how much of government we can remove that has only gotten in the way, distorted values and restrained the liberties of the Individual. The US Constitution is a good plumb line and starting point.
Christopher M. Mahon, Editor
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
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
The Iowa Caucus is less than a week away and political rhetoric by all candidates is at a high level, a good part of that is directed at Ron Paul who currently is the leader as indicated from most polls. He not only pulls from Independent and Libertarian voters but also Conservatives who have become disenfranchised with almost 10 years of military conflict at the expense of a balanced budget and debt. The latest accusations portray Congressman Paul as not only out of the `mainstream’ in his ideas on federal powers (even though by all accounts they are constitutional) but also that a Ron Paul presidency would be dangerous for the US as Iran could go nuclear and Paul is an `Isolationist’.
In a November 2011 Cato Institute article Ted Galen Carpenter makes the opposite claim that Military Interventionists and NeoCons like Gingrich, Santorum and Bachmann do us much more harm than good. For interventionists to not realize the beneficiary of a war with Iraq was Iran was a failure….“For neoconservatves to argue that the withdrawal of the few thousand remaining U.S. troops from Iraq significantly worsens that aspect is either obtuse or disingenuous. If they didn’t want Iran t…o gain significant influence in the region, they should have thought of that danger in 2002 and early 2003, instead of lobbying feverishly for U.S. military intervention against Iraq. The United States has paid a terrible cost — some $850 billion and more than 4,400 dead American soldiers — to make Iran the most influential power in Iraq.”
In another article by Per Bylund, Bylund makes the case how the `Endowment Effect’ theory, (people place more value on things they own versus things they do not) illustrates the shortcomings of economic and military intervention in not understanding human action (Praxeology) and the unintended consequences. Or why Ron Paul’s theories on domestic and foreign policies while more aligned to constitutional principles are also more sound than policies of the other candidates.
Does US military policy of Intervention into the affairs of other nations (occupation, embargo, etc), prop up the dictators of the world like Hugo Chavez or Mahmoud Ahmadinejad who rally their people and crusade against US military might and US monetary policy? What part did Federal Reserve Quantitative Easing (1 and 2) play in the Middle East uprisings and other struggling nation’s financial affairs? What part did troops in Iraq, Afghanistan and Pakistan play? Tell us what you think?
Christopher M. Mahon, Editor
CONSIDERING RON PAUL AND THE RISKS-REWARDS OF US MILITARY INTERVENTION
“The armies separated; and, it is said, Pyrrhus replied to one that gave him joy of his victory that one more such victory would utterly undo him. For he had lost a great part of the forces he brought with him, and almost all his particular friends and principal commanders; there were no others there to make recruits, and he found the confederates in Italy backward. On the other hand, as from a fountain continually flowing out of the city, the Roman camp was quickly and plentifully filled up with fresh men, not at all abating in courage for the loss they sustained, but even from their very anger gaining new force and resolution to go on with the war.” Plutarch
Plutarch’s observation, which is where the phrase a `Pyrrhic Victory’ comes from suggests that while a win (War Victory) is good, if not managed properly could be the undoing or collapse of a nation. Even in the best (for lack of better word) or most moralistic war, while the citizenry keeps its freedom it’s the State, the pilot fish (Corporations through huge government contracts) and the financiers of their excursions that make substantial gains. This group is ready to wage war again: gain territory and advantages, build weapons at a premium and of course finance it, but the citizenry is exhausted, depleted and emotionally, spiritually and physically bankrupt from the last victory (or defeat).
Ron Paul has been dismissed as naive and with outcries of `Appeaser’ or `Coward’ when he suggests the dangers of another war (Iran) and to verify (Reagan) intelligence carefully and to consider the risks before moving ahead. Critics who favor military intervention will highlight the `dangers’ of a nuclear Iran meanwhile not consider the full scope of risk to Individual Liberty (from bills like NDAA 2012) or the financial impact to an already dire US and global economic condition. Interventionists also don’t consider the motives and reward of the State, their corporate relationships and the banks who survive from one stimulus bill or appropriations bill to the next and look forward to the next big government excursion. In Reason Magazine, ‘Ron Paul Challenges Mindless Militarism’, Jacob Sullum writes, “This week the U.S. officially ended its war in Iraq, nearly nine years after launching it based on the false claim that Saddam Hussein posed a threat to us because he had weapons of mass destruction. The war, which replaced a brutal dictator with a corrupt, wobbly elected government that may not be able to defend Iraq’s borders or maintain peace in a country driven by sectarian violence, cost the U.S. $800 billion and nearly 4,500 American lives. More than 100,000 civilians were killed during the invasion and its aftermath.
The regime installed by the U.S. in Afghanistan to replace Al Qaeda’s Taliban allies is even weaker and more corrupt than the one in Iraq. Ten years after the invasion, we still have 100,000 troops in Afghanistan, and so far the war has cost about $500 billion, 1,800 American lives, and thousands of civilian casualties.”
The irony in Plutarch’s statement and warning was that they were conquered by a conqueror that later would make the same mistake. Are we too myopic and blind to the dangers of `Empire Building’? Has war like the automobile industry or `Green Technology’ become a `preferred’ industry that the government funnels money into? Washington, Jefferson, Eisenhower, Kennedy and Reagan warned of the proliferation of militaristic power rather than defense; a strong constitutionally based Defense is right they would have argued, but today if you utter a word questioning the wisdom of an aggressive military footprint and preemptive attacks you are drown out by rhetoric and name calling.
While the zeal of the Neo-Conservative GOP base is to be the `leader’ in managing world affairs and using military intervention as a tool for peace while contemplating a war with Iran and putting aside the blaring consequences of these policies the other obvious reality is that with over $15.13 Trillion in debt (more than our GDP), the USD is leveraged more than 40:1 and we can’t afford the current military footprint let alone expanding it further. Isn’t it time to talk sensibly about a well balanced strategy of Defense that is constitutionally based and fits within our budget? Can we learn lessons from Rome and Great Britain that while they achieved Empires for a time, they expanded beyond their ability to manage their affairs effectively and Individual Liberties were sacrificed in the process?
Woodrow Wilson wasn’t wrong because he was an `Appeaser’, he was wrong because he was an early `Empire Builder’ and a globalist which oversteps constitutional authority of Federal power. There was no sovereign threat to the US at the time of WW1 except possibly to the banks as they were financing the war, and that’s a harbinger on `Too big to fail’ and Moral Hazard.
Sullum concludes, “For 35 years Ron Paul has been speaking truths that the foreign policy mavens of both parties prefer to ignore: that the Constitution gives Congress alone the power to declare war, that unjustified interventions breed resentment that undermines our security, that there is a difference between military spending and defense spending, that foreign aid rewards autocrats and their cronies, and that economic sanctions are an “an act of war” that hurts people in the name of punishing the governments that oppress them. If there really is no room for these arguments in the Republican Party, that is the party’s fault, not Paul’s.”
Today, as we take a `full assessment’ of external and internal threats to our sovereignty we need to weigh the real threats to State sovereignty from terrorism and invasion from abroad, against fragilities of our financial house and the cost to Individual Liberty while tipping our hats to individuals like Ron Paul who are courageous in that they don’t back down but speak out against tyranny and the political marginalization of alternative views.
The real terror today is that the US Constitution with its separation of powers between the states and federal government and protection against the concentration of power into the hands of a few has become unfamiliar and even peculiar to most of our population who perceive it as `dangerous’ and a threat to their way of life. When you consider Pyrrhus’ warning, the irony is thick.
Christopher M. Mahon, Editor
“There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating,” A statement by IMF head Christine Lagarde. She later went on to warn of “economic retraction, rising protectionism, isolation and…what happened in the 1930s (depression).”
The speech by LaGarde at the US State Department in Washington was partly in response to the infighting and bickering between the Euro nations and the UK regarding who needs to make sacrifices and who’s more solvent and should be downgraded first. Bank of France’s Christian Noyer addressing rumors of a possible French downgrade said that there wasn’t economic data that warranted that move and if there was a downgrade that the UK should be downgraded first.
François Fillon, Prime Minister of France said that Britain’s debt and deficit position has not been fairly evaluated in it’s triple A rating. Britain has become the whipping boy of the EU nations since it vetoed the European Union Treaty last week and Prime Minister Cameron said there was no chance of the UK participating in any newly negotiated European government or financial system. Many inside Britain fear economic and political reprisals as a result of veto and comments made by Cameron.
Conflicting financial positions in France and Germany have made it difficult as well to negotiate in good faith for long term solutions, LaGarde warned against `quick fixes’ and stated that all countries need to work together, “It is really that Gordian Knot that needs to be cracked, that needs to be addressed as collectively as possible, starting with those at the center but with the support of the international community probably channeled through the IMF,” she said.
In other financial news this morning the Credit Agency Fitch has downgraded several banks, which included Bank of America, Morgan Stanley and Goldman Sachs, as well as Europe’s Barclays, Societe Generale and BNP Paribas. Germany’s Deutsche Bank and Switzerland’s Credit Suisse were also downgraded. Fitch was the third credit rating agency to downgrade global financial institutions since September.
Meanwhile the Financial Times on some positive notes has come out this morning in a series, Is America Working, an assessment of the US Labor market and it’s technical skills and how `Creative Destruction’ (Capitalism) has turned US financial markets around in the past.
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.
While new home sales took an ‘unexpected’ drop of 12.6% in January, the jobs report showed promise as new jobless claims dipped below the 400,000 level. But does the jobless number really reflect what is happening in the jobs market? We know that individuals who can’t find employment after a ‘reasonable’ amount of time give up looking and might rotate in and out of jobless numbers, but is there an unregulated, unstructured ‘jobs market’ that is unaccounted for?
In a December 2009 article by Cato Institute’s Richard Rahn,’New Underground Economy’ lays out the characteristics of how underground economies ebb and flow. He starts out, “Here is the evidence. The Federal Deposit Insurance Corp. (FDIC) released a report last week concluding that 7.7 percent of U.S. households, containing at least 17 million adults, are unbanked (i.e. those who do not have bank accounts), and an “estimated 17.9 percent of U.S. households, roughly 21 million, are underbanked” (i.e., those who rely heavily on nonbank institutions, such as check cashing and money transmitting services). As an economy becomes richer and incomes rise, the normal expectation is that the proportion of the unbanked population falls and does not rise as is now happening in the United States.”
Rahn, in his article goes on to say that the underground economy is affected by federal and state tax, regulatory policies and inflation. When Sarbanes-Oxley was implemented in 2003 as a reaction to companies like Enron who didn’t account for off balance sheet liabilities in their reporting, it had the unintended consequences of building huge costs for large and mid-size companies to come into compliance. Most complied but some started to move headquarters out of US. Even today, while new start ups have slowed due to economic environment, there’s an increasing ratio of new companies starting up in Europe or Asia.
The smaller US businessowner has different alternatives than mid-size and large companies that are more public, they can simply take their business offline or underground.The trades and some services are more likely to go ‘offline’ to avoid heavy local, state and federal taxes which can eat up substantial profits and add time consuming additional recordkeeping and compliance. Carpenters, painters, lawn maintenance, home cleaning and many other small businesses who reported income for years are taking risks by pulling if not all their business, a good part out of the above ground economy. This is reflected in January 2011 federal tax revenues which are up from the previous year. “Total government revenues rose by $21.4 billion for the month (Jan 2011) from a year ago to $226.6 billion, a 10.4% increase. Year to date, revenues are up by $65.4 billion to $758.4 billion or by 9.4%. Total outlays for the month though increased by $28.4 billion or by 11.5%. Fiscal year to date, spending is up by $53.4 billion, or by 4.8%” Dirk Van Dijk, CFA ‘Federal Red Ink Less Than Expected.
When you look closer at federal revenue for January however, you see that payroll revenue is down even when factoring in the lowered employee tax rate by 2% (6.4 to 4.4), which only took affect in January and that the increase had more to do with liquidation of qualified money out of IRAs and 401(k)s, profit taking and asset repositioning as the estate tax issue wasn’t settled until year end.
In the trades like Carpentry, an owner might take his full business underground and work for cash without reporting or he may take his labor offline by hiring help that they pay in cash. The worker takes the risk of not entering social security and of possibly not building his credit profile and the employer takes the risk on an unlikely audit or insurance claim if payroll not accounted for. These are risks that are considered either consciously or unconsciously everyday as the cost of business continues to rise.
The budget battles happening in Washington and in the states like Wisconsin and now breaking out in other states like IL, OH and NJ is of particular interest to businessowners who hope for spending cuts but weigh the advantages and disadvantages of moving out of states or the country for larger companies and for small business owners, cutting another employee or taking their business underground.
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 Egyptian banks reopened on Sunday the conditions have been relatively stable all things considered, as the US dollar has made a 2.3% gain on the Egyptian pound (EP) according to the BBC, since the crisis started. Rumors are that while the Egyptian government hasn’t intervened directly that state-owned banks have been selling USD to support the EP. The Egyptian stock market will remain closed until next Sunday.
When bank doors initially opened there were a significant amount of customers waiting. But withdrawals have been limited to 50,000 EP ($8,400) and $10,000 in foreign currencies.
The Egyptian government had to pull back on a treasury auction, looking for 15bn (Euro), they had to settle for 1bn as foreign investors are reluctant to buy and borrowing costs have risen for the government around 1.5% from the last auction.
The domino effect to Tunisia’s and Egypt’s political unrest that has been taking place in some respect to other neighboring countries like Jordan and Yemen, is now feared to also destabilize currencies and financial markets as well.
While the Middle East tries to rebound from unrest, Europe is still cautiously waiting for a turnaround in some of their country-states like Greece and Ireland who have undergone renovations and Portugal, Spain and Italy who are on watch lists for now. China has made overtures to purchase European bonds and help in reworking debt.
Meanwhile, the US struggles with mounting national debt, stalled talks on budget policy and cutting spending, and unemployment which remains stubbornly high at 9.0%.
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?
Thursday morning the New York Times put a positive spin on initial meetings with China, suggesting that China could make concessions on human rights, “More surprisingly, perhaps, Mr. Hu said at a White House news conference that China “recognizes and also respects the universality of human rights,” a palpable shift for a government that has staged a two-year crackdown on internal dissent and imprisoned a Nobel laureate. Until Wednesday, recognizing credos like democracy and human rights as “universal values” had been all but taboo in Chinese political discourse, although China has signed the United Nations convention that enshrines the principle of universal human rights.”
While Congress and pundits speak harshly about Chinese human rights, monetary and trade policies, the White House and business leaders met behind closed doors to secure whatever `crumbs’ President Hu and China were willing to drop. They are hoping for China to tighten up its monetary policy, something the US is unwilling to do, but it looks like both parties reached a bilateral agreement on a modest trade deal worth $45 billion for some US companies, like Boeing, Goldman Sachs, and GE.
Senator Charles Schumer (D-NY) chided China Monday, saying that “the US has put up with unfair trade advantages and currency manipulation for too long.” That would be fine and we love when Washington gets aggressive with our interests in mind, but unfortunately it isn’t fully true and we are not in a position of strength to negotiate or make threats.
President HU over the past few days has made comments, particularly written comments in answers to questions posed by media outlets including the Wall Street Journal, regarding potential conflicts between the US and China on trade and currency valuations. Mr. Hu said that the current world currency system which benchmarks the USD as a reserve currency is a `product of the past’. Hinting that the Yuan and Renminbi [RMB] could be a competitor in the not so distant future. He also pushed for more banking and financial reforms through global regulations and universal standards that could make USD less attractive to investors and make US companies less competitive in global markets.
Peter Schiff, Founder of Europac an investment fund, and one of the few economists to have seen the housing crisis, In his newsletter from January 19th 2011 comments on the real problem that China finds itself in regarding monetary policy, “The global economy has become so unbalanced that even government ministers who would normally have trouble explaining supply or demand clearly recognize that something has to give. To a very large extent the distortions are caused by China’s long-standing policy of pegging its currency, the yuan, to the U.S. dollar. But as China’s economy gains strength, and the American economy weakens, the cost and difficulty of maintaining the peg become ever greater, and eventually outweigh the benefits that the policy supposedly delivers to China. In the first few weeks of 2011 fresh evidence has arisen that shows just how difficult it has become for Beijing.
Twenty years ago, China’s leaders decided to ditch the disaster of economic communism in favor of privatized, export-focused, industry. The plan largely worked. Over that time, China has arguably moved more people out of poverty in the shortest amount of time in the history of the planet. But somewhere along the way, China’s leaders became addicted to a game plan that outlived its usefulness.
In order to maintain the peg, China must continually buy dollars on the open market. But the weaker the dollar gets, the more dollars China must buy. And with the U.S. Federal Reserve pulling out all the stops to create inflation and push down the dollar, Beijing’s task becomes nearly impossible. Last week, it was announced that China’s foreign exchange reserves, the amount of foreign currency held at its central bank (mostly in U.S. dollars), increased by a record $199 billion in 4th quarter 2010, to reach $2.85 trillion. These reserves currently account for a staggering 49% of China’s annual GDP (if the same proportional amount were held by the U.S., our measly $46 billion in reserves would have to increase 163 times to $7.5 trillion).
In order to buy these dollars, the Chinese central bank must print its own currency. In essence, China is adopting the Fed’s expansionary monetary policy. In the U.S. the inflationary impact of such a strategy is mitigated by our ability to export paper dollars in exchange for inexpensive Chinese imports. Although prices are rising here, they are not rising nearly as much as they would if we had to spend all this newly printed money on domestically produced goods. The big problem for China is that, unlike the U.S., the newly printed yuan are not exported, but remain in China bidding up consumer prices. As a result, inflation is becoming China’s dominant political issue.”
China’s economy has heated up, with a GDP of 10.3% in 2010 (while US GDP for third quater was 2.6%), but its CPI rose 5.1% with food prices rising more than 10%. China has to do something.
While many in the White House, Congress, Federal Reserve and the Treasury Department point fingers at China’s stubborness in addressing conflicts between the two nations, China and the rest of the world point back at the United States and say, “Get your fiscal house in order”. The US and the States’ budgets must be cut substantially and the Feds policy of quantitative easing must be discontinued if for no other reason than through the Basel Accords (3) held this past fall, there’s become a general consensus to move away from USD reserves and to a basket of currency reserves (Special Drawing Rights) which could reduce demand for USD and send the US economy into a downward tailspin. Meanwhile China, the Middle Kingdom marches forward to take what it believes and has started to disclose publically – its rightful position as world global leader. It has already taken small steps in that direction, as China and Russia have agreed to negotiate new trade and currency deals, cutting out the need of the USD as a reserve. They have secured trading deals in Africa and South America, the US’ backyard, and to the surprise of the global community, China has also stepped out boldly to offer guarantees and purchase agreements of Euro nation debts, a move that in the past would have been the role of the US.
Meanwhile, the news being peddled by the US media and government officials is that the decline that the US is seeing is temporary and that it will remain the world’s Superpower, yet to read the European and Asian news, the US’ decline has been anticipated for some time.
As we ring in 2011, we look back at a year that was in some ways a culmination of the three previous years that saw banking, housing and debt crisis’ and an unpopular bailout that resulted in a Democratic 2008 landslide and a federal government on steriods that in 2010 lead to a reversal of fortunes for the Dems as the GOP won big. In 2010 the GOP took the majority in the House and narrowed their deficit in the Senate, in addition they enjoyed big wins at the state level in gubernatorials and state houses around the country.
As we ease into 2011, a skeptical voting population weighs the prospects of more government to solve dire economic and social problems that lie on the horizon or considers a different direction of less federal government intervention, and more state oversight, allowing freer markets and private capital to determine price and value.
Around the world, the news of China’s decision to actively use its overseas investment fund to buy EU assets and bonds, and of new trading and currency pacts that China has made with Russia as well as South American countries hint at political and economic realignments to come. The recent Basel III meetings also suggest a move away from the USD as the world’s reserve currency.
In 2010, Americans watched as a man jumps from a balcony in the Romanian Parliament, protesting 25% cuts in wages and prophecying that government policies would lead to the ruin of his children’s future as he falls to the floor. In Rome bomb packages are delivered to embassies to protest budget cuts. All around Europe in places like England, France and even Germany there’s growing unrest and distrust of government policies as governments are forced to renege on generational promises. Americans ponder in their heart, could this hit our shores too.
In 2011, there’s a growing likelihood that the PIGS crisis of the EU will hit US shores in the form of Municipal Bond defaults and State budget crisis’ that will put pressure on the Federal Government to guarantee State and Local debt. State governments are looking at increasing finance costs of budget shortfalls in 2011 as many have bonds coming due, and are facing the stark reality of cutting budgets as much as 30% and laying off hundreds of thousands of state employees. Regional banks with no quantitative easing or stimulus options from the Treasury or Federal Reserve, have seen a significant increase in bank failures and mergers this past year and will likely continue into 2011. According to a recent Case-Shiller Report and forecasts by Meredith Whitney a economist specializing in the banking sector, suggest that housing prices still need to fall as much as 25%.
While there are dark clouds gathering and many have already suffered from job losses, home foreclosures and business failures, there may be good news on the horizon. As mentioned in the second sentence above, “A skeptical voting population weighs…more federal government..or…less federal government..”. The economic and social ills we’ve suffered over the past few years might just be the very initiative that the US population needs to reexamine the role of government and what the US Constitution has to say about separation of powers between the Federal, State, Local and Individual governments.
Let’s raise a glass to the rollback of an overly centralized federal government that is out of step and out of bounds with the US Constitution. Let’s play a part of getting our States to challenge federal powers that violate constitutional boundaries by state ‘civil disobedience’ or as its better known as, Nullification. Let’s take personal responsibility in what our part is in bringing about change in the direction of Liberty. Become proactive and get involved this year and be a part of the solution.
With the recent news that Russia and China had reached an initial trade and currency deal, and China has announced they would consider rescuing the EU and possibly buying the debt of troubled EU members like Greece and Portugal; these strategic moves beg the question ‘how will this play out on the global financial and political landscape?’.
The US has always enjoyed strong allegiances with the UK in economic and political matters and favorable or neutral relationships with other European nations, but what’s ahead for that alliance and what other relationships are left on the table as Russo-China relations aggressively pursues its own interests? Even in South America where the US has enjoyed primary relationships in the past regarding trade and political alliances, even those are being challenged as China seeks out broader export and resource-rich trading relationships.
China is predicted to overtake the US as the leading worldwide economic powerhouse, some say by 2025 and many say even earlier. China is also an initiator in the move to replace the US dollar as the world’s benchmark and reserve currency and create instead a basket of funds that could include the Remimbi, Euro, Yen and US Dollar. This move could severely hinder the strength of the USD as demand would diminish due to a 75% drop in reserve value and expose the USD to market mechanics that it has been able to distort since Bretton Wood in 1944 for the most part.
Is it far fetched to consider that ‘fault lnes’ might create a world separated by Russo-China-EU powers and US-UK-Japan and its satellites? If not, would it might also create battle lines between not only different sociopolitical systems but economic systems as well? While there are no ‘purists’ in the bunch regarding economic philosophies, the RCE pact (particularly Russia and China) have fine tuned their experiment with State-run Capitalism, while the UUJ pact is closer to ‘true’ capitalism with less government intervention. While the UK is no beacon of Capitalism per se, it did shun the move to jump into the EU partly because it saw its social democratic neighbors rushing head long into a union that it felt would give up too much sovereignty. It looks like at this point the UK made the right decision as Ireland and Greece fight off stringent EU austerity reforms that have caused civil unrest among their citizens.
While Germany ‘saber rattles’ economically in its threat to unwind the Euro and EU relationships as debts mount and dominoes tumble in the form of Greece, Ireland and soon to come Portugal, and the potential for Spain and even Italy on the horizon; Daniel Hannan, MEP shares an interview with an ‘unnamed savvy financial expert’ who gives an interesting counter view. He suggests that unfortunately in his view the Euro won’t die off but be propped up by Germany and other large EU economies that need the devalued currency to give them a competitive advantage in world trade.
“He is confident that the euro will endure its present travails, for one reason above all: its survival suits Germany. The cost of bailing out the peripheral members is more than outweighed, he believes, by the benefits to German industry of an artificially low exchange rate. The ideal outcome for Germany is for the euro to limp on, battered and cheapened, and for the European Central Bank to be pushed into quantitative easing. Never mind the German public’s atavistic attachment to a strong currency, he says; German exporters know a good thing when they see one.”
Seven billion pounds happens to be the total saving that would be made by all the welfare cuts put together. You know: the cuts that the BBC, the Guardian and the Labour Party insist will destroy social security. The cuts that Tristram Hunt says will mean a return to the Victorian workhouse. The cuts that John Cruddas says will drive a million people from their homes. The cuts that Polly Toynbee calls a final solution to the poor.
So now we know: every penny saved by these cuts will go to prop up the euro. To put it another way, at a time when Britain’s public sector debt stands at £850 billion, we are borrowing a further £7 billion to send to Ireland.
Ought we to help the Irish? Yes: they are our neighbours and our allies, our suppliers and our customers, our friends and, in many cases, our relatives. But we don’t help them by keeping them in the euro. Ireland is in this mess because of the single currency, and will stay in this mess until it leaves. If we wanted to offer Ireland practical assistance, we would help them out of the euro, by allowing their debts to be denominated in sterling.”
Hannan brings up a crossroads decision for Ireland as EU deal is still being ironed out. Does Ireland go deeper into EU control, hanging their hat on the EURO and harsher captital requirements and still new currency and bond fluctuations as the EU still has Portugal and Spain to consider or does it look for an exit plan that Hannan suggests as it takes a harder look at spending policies internally and to the UK and its potential to rollover its current debt from EUROs to Pounds.
There’s evidence that the PIGS contagion is growing into the Eurozone credit markets as a whole. Borrowing costs by PIGS (Portugal, Ireland, Greece and Spain) and other financially strapped countries has reached levels not seen since the conversion to the Euro in 1999.
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