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

 

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

Full Text

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

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

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

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

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

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

A definition of ‘Arbitrary Power’:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Christopher M. Mahon, Editor

 

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

 

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

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

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

For a copy of the full report

 

Christopher M. Mahon, Editor

 

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

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

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

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

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

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

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

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

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

To read the speech by Jerome Powell in its entirety.

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

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

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

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

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

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

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

Christopher M. Mahon, Editor

 

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

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

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

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

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

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

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

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

 

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 18^th 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 21^st 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

editor@ambidextrouscivicdiscourse.com

 

On the heels of the Sandy Hook shooting, New York State becomes the first to issue new gun legislation. “The Secure Ammunition and Firearms Enforcement Act, or SAFE Act, gives New York the toughest gun laws in the nation and touches on the mental health issues that both pro-gun and anti-gun activists say should be part of any new legislation.“

Many pro and anti-gun control advocates saw New York’s decision as a model for the President and Federal legislation, which he just signed moments ago as Executive Orders, which include: Mental Health requirements, Universal Background Checks, restore ban on military style (restrict manufacturing) and 10 round limit on magazines, tougher laws on sale of guns (possibly enforced by BATF) and federal funding to ‘put more cops back on streets’. But here’s where it gets both historically interesting and potentially dangerous for individual liberties and the unintended consequences that always follow in the wake of federal intervention into markets.

The Second Amendment that has been quoted by both sides of the gun control issue is unfortunately sorely misunderstood. Part of the Bill of Rights, the second amendment like the other amendments address specific rights based on natural (Divine) law that restricts federal power and emphasizes the delegated and non-delegated powers between the federal government and the states. The Bill was in part due to Virginia and other states that needed better clarification that protected state sovereignty and also two colonies that hadn’t ratified the Constitution yet, North Carolina and Rhode Island weren’t convinced that state sovereignty was protected by the document well enough. The Bill was proposed in Congress September 25, 1789 and North Carolina later that year ratified the Constitution and Rhode Island (the last to ratify) in June 1790. Regarding the Bill of Rights, most ratified the Bill through 1791 with, Massachusetts, Georgia and Connecticut ratifying in 1939 as part of the Bill of Rights sesquicentennial celebrations.

Does the 2nd Amendment (Bill of Rights) have power over all government or specifically written to restrict federal power?

The founding era framers and ratifiers feared that what they were creating in a document to protect individual liberty and to limit the power of the state would later be destroyed through ‘unpacking’ its language and interpretation. Words like ‘Welfare’ which defined the proportionality of the ‘Benefit Principle’ and restricted federal power and not the egalitarian intentions to ‘create equality’; or ‘Commerce’ which had a narrow intent in refereeing state interrelationships and not the broad interventionist meaning of today, which would undermine a federative republic and dissolve into a centralized system of Monarchy/Democracy, from which they fled from earlier.

In creating the Bill of Rights, left on the writers’ floor was proposed language from James Madison, “No state shall violate the equal rights of conscience, or the freedom of the press, or the trial by jury in criminal cases.” In some ways this language (while not all encompassing) was uncharacteristic of Madison who in Federalist Papers #39, very adeptly laid out the balance of power (sovereignty) between federal and national governments inferred in the Constitution. The avoidance in the final Bill drafted of the language was purposeful as they understood both the importance of a federal government that oversaw conflicts between the states and the involvement of the states in foreign relations, but they also saw the value of a decentralized system (federation) of government in the states and municipalities that had their own charters/constitutions, closer to the people in handling social and economic issues that go hand in hand. David Brooks of the NYTimes recently on a Sunday talk show commenting on gun control said that the needs of a small rural town in Wyoming are different than the needs in New York City. In NYC a police station is literally around the corner, while in rural Wyoming they may arrive in an hour.

It was understood early on that the Bill of Rights, like the Constitution, specifically addressed federal power and not the States. Even up until 1833 in Barron v. Baltimore, the Supreme Court specifically ruled that the Bill of Rights provided “security against the apprehended encroachments of the general government—not against those of local governments.” But unfortunately that all changed with a Civil War, an Amendment and new courts. In 1925 in Gitlow v. New York, the Supreme Court ruled that the 14th Amendment allowed that the Bill of Rights applied to the states as well. What the founding era generation feared was starting to unfold, as America headed toward a centralized Democracy, monolithic, fragile and impervious to competition or change.

A Constitutional Republic that was created to protect the liberties of the individual and the market for free and voluntary association and exchange which leads to social cooperation is being replaced by a Platonic society of visionaries and experts in a centralized government that plans for social cooperation through limiting the freedoms of the individual and focusing on ‘collectives’ and managing markets toward outcomes instead. That’s why an issue like gun control makes sense to the latter: ‘limit the freedom of the individual in order to create a better outcome of ‘less gun violence’ and a ‘better society’. What they don’t account for is the unintended consequences that result instead. Rather, the founding era if they could speak to us from their graves would say, ‘Government closer to the people works better’ and that gun control legislation at lower levels of government (in a decentralized system) even when they fail can be profitable as failure is cast aside while success can be adopted by others. Also, there’s different needs and wants in Texas versus New York.

Finally, there is good news. As with other federal infringements like the Affordable Care Act and the changes in the National Defense Authorization Act (2012) many states are taking positions of resisting the effects on state sovereignty. Through pragmatic state actions that can be interpreted as ‘Nullification’, ‘Interposition’ or there’s even been discussion of ‘Article V’ Convention of the States as in the Founding Era period as states rushed back then to protect the Constitution and it’s integrity that they created. If gun rights are to be infringed upon, the states (their constitutions permitting) can experiment with that and we’ll all benefit indirectly, but a federal government which uses the ‘if we can save one life’ straw dog argument to promote a collective equality or freedom is way, way, way out of bounds and should be challenged by the states.

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

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

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

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

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

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

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

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

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

Christopher M. Mahon
editor@ambidextrouscivicdiscourse.com

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

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

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

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

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

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

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

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

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

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

Wishing you a great year!

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

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

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

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

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

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

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

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

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

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

Christopher M. Mahon, Editor

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

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

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

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

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

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

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

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

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

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

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

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

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

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

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

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

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

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

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

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

Tell us what you think.

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

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

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

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

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

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

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

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

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

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

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

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

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

“Tax Hikes are Worse than the Fiscal Cliff

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

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

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

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

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

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

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

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

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

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

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

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

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

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

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

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

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

Tell us what you think?

Christopher M. Mahon, Editor
editor@ambidextrouscivicdiscourse.com

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

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

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

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

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

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

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

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

Christopher M. Mahon, Editor

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

 

 

 

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

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

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

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

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

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

You say “How do you know that?”

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

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

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

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

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

Christopher M. Mahon, Editor

In ‘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.

In David Brooks’ NYTimes column this morning, When The Good Do Bad, he presents in his view of modern day philosophy-religion that man is born good but some are born evil, “According to this view, most people are naturally good, because nature is good. The monstrosities of the world are caused by the few people (like Hitler or Idi Amin) who are fundamentally warped and evil.”

Brooks illustrates this through the recent slaughter of 16 people (including children) in Iraq by Robert Bales, who those who’ve known him say they are astounded – “Friends and teachers describe him as caring, gregarious and self-confident”.

Brooks digs back into centuries old Christianity and Philosophical thought on Good vs. Evil, quoting John Calvin, GK Chesterton and CS Lewis who believed like the Bible says in Jeremiah 17.9, that the heart of man is deceitful (wicked) above all things and who can truly know it.

The modern worldview of Good vs. Evil is simplistic as Brooks says, “This worldview gives us an easy conscience, because we don’t have to contemplate the evil in ourselves. But when somebody who seems mostly good does something completely awful, we’re rendered mute or confused.” But, in that confusion the modern worldview grapples for answers on how to identify and protect against those external evils in others and isolate them from the good. He identifies the Hitlers and Idi Amin for example.

Brooks ends his article positing this, “According to this older worldview, Robert Bales, like all of us, is a mixture of virtue and depravity. His job is to struggle daily to strengthen the good and resist the evil, policing small transgressions to prevent larger ones. If he didn’t do that, and if he was swept up in a whirlwind, then even a formerly good man is capable of monstrous acts that shock the soul and sear the brain.”

I would take this a step further and propose this question framed within our Presidential election process as the backdrop. Do these two contrasting views of `Man is either Good or Bad’ versus `Man is a combination of Good and Bad’ play a factor in determining the type of Government System we should have?

If you believe that Man is born with different natures of Good and Bad, wouldn’t you try to find `The Best’ to run the country and forfeit the most power to them? On the other hand if Man is a mixture of Good and Bad, wouldn’t you like  James Madison and the other framers of the US Constitution and architect of our Nation, build a government designed not for the best to rule, but to protect against the worst?

Our government was designed by men who believed that Man is a combination of potential Good and Evil, that he could do amazing exploits of courage and patriotism but had the potential for the worst depravity and self interest at the expense of his neighbor. They built a government with that in mind, that allowed for the greatest amount of freedom but punished bad acts and they divided the powers of government between federal offices and State Powers. This was also to prevent the same potentials in Man for the depravity of self interest at the expense of others and the power to lord over another from becoming systematic.

So two final questions:

1. Do you think in modern worldview as David Brooks subscribes, Man is basically Good but there are some that are Bad? Or do you believe like those in our past that Man is a mixture and has the potential for great exploits or the worst depravity?
2. Having decided upon one of those worldviews, do you think that should affect the type of government we should have?

Christopher M. Mahon, Editor

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

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

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

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

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

Major Changes:

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

 

 

Christopher M. Mahon, Editor

 

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

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

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

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

Christopher M. Mahon, Editor

 

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

editor@ambidextrouscivicdiscourse.com

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

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

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

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

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

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

 

Additional reading:

IMF Chief Warns of 1930s Style Threat

No Country Immune From Rising Risks: IMF’s LaGarde

Why Is There A Euro Crisis? 

 

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

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

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

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

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

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

Christopher M. Mahon, Editor

 

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

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

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

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

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

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

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

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

 

Christopher M. Mahon

 

 

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

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

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

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

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

“Planning by the many not the few”.

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

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

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

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

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

In an article on CNBC’s website, the IMF is quoted as seeing the need for the US to continue on the path of quantitative easing. This is an interesting departure from the global financial community’s (including IMF) criticism of the Federal Reserve’s policy of printing money to save the US economy at the expense of world economic conditions. Some have blamed global rising food, energy prices and unemployment on US monetary policy.

In an article last month, Raghuram Rajan, IMF economist told a forum held by the Council of Foreign Affairs, “The function of the Fed monetary policy adopted in November 2010 to boost the U.S. economy is relatively limited, the biggest problem in some sense is that the Fed’s monetary policy actions are essentially transmitted to the rest of the world, when the rest of the world doesn’t allow their exchange rates to move and protect their own monetary policy and keep that as a separate policy as its own.”

The mixed message being sent by the IMF is at best simply monetary policy conflicts between economic academics or maybe more sinister,  the world’s next `central bank’ trying to move along the process of transferring the world’s currency reserve responsibilities from the Federal Reserve to the IMF.

To add to the intrgue, George Soros was quoted this weekend as saying, “The US could still absorb taking on more debt” and that a rush to pay down the debt could hinder its slow economic recovery.

These comments coming from the Paul Krugman’s of the world, who follow to the letter Keynesian government stimulus and monetary easing policies wouldn’t be surprising but the suggestions come from those most likely to benefit from the greased slide.

US Growth Requires Easy Money: IMF
George Soros From Bretton Woods 2 Conference: US Can Absorb More Debt

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.

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

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

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

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

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

For more info:

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

The Two Faces Of Ben Bernanke, Peter Schiff”

 

 One summer my brother and I stayed with relatives in a tony area of Connecticut; our family was middle class from a suburb of NYC and not schooled in the finer things, we were however, very good in sports. We’d show up at the tennis courts in mismatched shorts and tees, torn sneakers (high-tops not Tennis) but we’d kill anybody we’d play. The elites at the club tolerated us for a time, but refused to recognize our skills and couldn’t wait for us to leave.

In a recent interview with Bill O’Reilly, Charles Krauthammer commenting on CPAC (Conservative Political Action Committee), and their year after year top vote for Ron Paul in their straw Poll, belittled Paul’s support for ending the Federal Reserve, calls for substantial cuts in the defense budget and his constitutional discipline of separating federal and state power that would extremely realign not only government but also political fortunes.

While Krauthammer is my favorite elitist and intellectual he does unfortunately suffer from a condition, ‘Elitist Intellectual Ailment’ (EIA), which is characterized by ideas and policies that emanate from a small group of schools and think tanks that has a love for information and the need to connect causality. I call it the ‘Joe Frazier’ Socio-political style of `leading with your head’. This group believes that there isn’t a problem that can’t be intellectually worked out in a lab on an Ivy League campus through the hands of elitists (sons and daughters of the same) who then can through government management of society process their answers. To elitists, Government has never been the problem, the problem has been either differing elitist theories on the use of government or the improper use of government by the rare occasions that Commoners (non-elitists) have been in power. While Progressives favor the government as a re-distributor of wealth and income and Conservatives favor government as a protector of traditional values, they both favor government. They reject the ideas of Ron Paul and true free market believers who suggest that in an open society, through voluntary exchange and association, societies don’t necessarily collapse but ‘self-correct’.  

Krauthammer who honored in political and economic studies, has a degree from Harvard Medical School in Psychiatry and practiced until 1978 when he went to work for the Carter Administration is like many Conservative and Progressive elitists, they at times can move back and forth between political philosophies and political parties. While they may hang out in different areas of the ‘Country Club’, at the end of the day they still sit down at the same table and enjoy hot toddies in front of the same fire. Both believe that society is better managed by experts (another name for elites) who can steer resources, labor and values for the greater good.

To Krauthammer and other elitists, Ron Paul is the most peculiar of anomalies; he is bright, well educated, understands Washington like elitists, but yet he doesn’t see government as the overriding solution to society.

In a NYTimes best seller, ‘The Black Swan’, Nassim Taleb (University of Paris, Wharton School) wrote about the fragility that was inherent in financial, economic and public policy models coming out of the best schools and think tanks, that didn’t account for unknown variables. He says unlike nature which protects against exponential growth and centralization, the hybrid derivatives built in the financial markets and the government built banking behemoths would lead to a financial crisis. “If I shot an elephant, the biggest animal on earth you’d be unhappy. I will probably get some bad press as well. Will it impact the ecology of the planet though? No. If, before the financial crisis 2 years ago, I shot a company called Lehman Brothers, would it have had an impact on the world economy? Yes. The lesson learned here from the elephant is that it is not too big. Companies get too big” Taleb.

The reason that companies get too big, is the same reason that values like home prices, USD and drugs are distorted because of public policies built upon flawed interpretation of data and not properly accounting for risk. You could never have monopolies or the size companies we have today without government regulations that protect industries and corporations from competition and provide subsidized capital. But monolithic structures become prone to stress and create system failures when they fall. Nature allows for the largest tree in the forest to fall with little impact, while if the largest entity in almost any industry failed it could cause substantial impact to a community, state or a nation’s economy.

In another book, ‘Open Society’, Karl Popper traces the elitism of Conservative and Progressive theories back to Plato. Plato saw societies as machinery that would decay and become obsolete over time if not managed and planned for, he felt decay could be forestalled by ‘managing’ society to an ideal that would need to be reinterpreted over time. This would be done by a special class of individuals called ‘Philosopher-Kings’ who would set the vision. They would need to go to special schools for training and most likely come from a select (elite) group of people. He envisioned a second class of people, ‘The Warriors’ who would enforce the vision of the ‘Philosopher-Kings’, these would be police, politicians and judges; and then there would be a third class, ‘The Workers’ who followed the rules and allowed themselves to be managed and receive the benefits of a better society. As today, it would be unconscionable to move from class to class for the most part, and there would always be a need for the philosopher (political) class to manage society.

To quote Popper, “Our knowledge can only be finite, while our ignorance must necessarily be infinite.” In Popper’s theory of Falsification, he says every theory and policy is prone to failure and must be assumed so until proven so. Theories ‘cooked’ in the lab, proven on a very small data sample, could have tremendous unintended downside consequences or at a minimum – distort values.

Elitists don’t like ‘old fashion’ ideas of limited government and constitutional principles that separate government powers between the individual, states, and the federal government. Which allows for currency, food and values to self-regulate through voluntary exchange and association. To them it is too much power in too many hands. The idea of everyone doing whatever they wanted, would destroy a society, the very thing that Plato, Hegel and Marx warned against.

A truly free society, where government merely intervenes to protect individual liberties and men and women are free to succeed or fail? No, no, society must be managed and even though we have times of crisis, the boys and the girls in the labs of Princeton and Harvard will have the next great public policy solution and with a little more government control in their hands (and less in yours), elitists will enable Plato’s vision to continue.

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

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

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

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

See more below

Housing Crash Hit Cities Traditionally Not Considered Vulnerable

France Wants New Global Financial System

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.

Please go to the Home Page for additional articles on the USD
To read the Money.com article

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

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

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

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

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

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

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

Is Bernanke Behind The Curve?

China Raises Interest Rates

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

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

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

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

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

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

For more information

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

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

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

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

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

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

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

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

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

To read entire article

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

As the world observes the unrest in Egypt and the uncertain future of its citizens as political, military and religious forces jockey for power and its neighbors prepare for similar unrest;  it brings to the forefront a growing global phenomena, that of the failure of US Neoconservative foreign policy.

Conservatives (Constitutional), Libertarians and some Democrats have warned of meddling US foreign policy for years and the unintended consequences of US style democratization. Egypt serves as an example of how US foreign policy of trying to choose a horse in the race to deliver US interests eventually backfire and has resulted in more times than not putting in power with US monies and military backing, a dictator who is as bad or worse than the previous regime. The seduction of aid packages like that of US aid to Egypt as part of the Egyptian-Israeli Peace Treaty of 1979 that has averaged close to $2 billion annually, subsidizes economic and political instability just as welfare aid subsidizes poverty. The lingering hangover that has been growing as a result of these ill gotten policies is growing world resentment and suspicion of the US government.

“The true theory of our Constitution is surely the wisest and best, that the States are independent as to everything within themselves, and united as to everything respecting foreign affairs. Let the General Government be reduced to foreign concerns only, and let our affairs be disentangled from those of all other nations, except as to commerce, which the merchants will manage the better, the more they are left free to manage for themselves, and our General Government may be reduced to a very simple organization, and a very inexpensive one; a few plain duties to be performed by a few servants.” Thomas Jefferson

Jefferson understood the limiting power of the Constitution over the federal government, even regarding foreign policy. Aid, military support and most of what is done in the name of Foreign Affairs today is unconstitutional. Just like the cracks that are appearing more regularly in US economic and monetary planning around the globe and the resentment that comes with it, so are the fault lines appearing in US foreign policy that uses aid and coercion to assure favorable markets and `good neighbor’ partnering in global political design. But just like the bully in the school yard or even worse the weak kid who pays for friendships, eventually those relationships (if they ever really existed) dissolve and the resentment and marginalization that results afterwards takes a long time to heal.

The US which is becoming more and more exposed to growing financial disruptions and potential unrest within her own shores, risks a global push back and unanticipated consequences of new alliances, some of which could be ones that ironically we are currently paying big money in the form of aid and trade pacts not to happen.

Our best diplomats are not university policy wonks or think group protégés who bear little downside risk in venturing their newest coercive policy but rather those active in `free market’ commerce who while proffering their own interests sow seeds of free market economic, political and social principles.

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.

“My name’s Moe Buchsbaum and I’m American, see?”

Moe Buchsbaum, an American arrested for speeding in Evreux, France in 1934, and given a ticket for $100 francs (USD$6.60), appeared before a French traffic court judge and called the French a race of welchers and flatly refused to pay $6.60 to any French court until President Roosevelt receives the total War Debt payment now due from Paris, $141.308.530.79. 

Buchsbaum refused to pay on the grounds that the French still had an outstanding war debt owed to the USA. The Judge, bothered as so many other Frenchmen by the embarrassment of the outstanding debt, instead of ordering the prisoner jailed he snapped, “I will accept, Monsieur Buchsbaum, a photostatic copy of a check proving that you have paid the sum of 100 francs to the American Treasury for the account of France.”

As a result of the Buchsbaum incident, the next day the US Treasury recieved wires and property from Frenchmen looking to pay down France’s war debt. Only after receiving confirmation from France of its willingness to allow the debt to be discharged against these deposits was it allowed.

To this day, you can see recorded in the Treasury’s ledger of that year an amount of $6.60 as payment from Moe Buchsbaum.

A couple of things we can learn from that speeding ticket in 1934 regarding the world today is that back then citizens identified more intimately with their national governments, taking pride or shame in what it did, and the belief that one man’s decision can make a difference.

In 1934, even as Roosevelt’s New Deal landmark legislation was being rolled out and its impact not yet felt, government was more limited in size and scope that allowed people to get their minds around causes and more simple structures of  liberty and justice. Only a few years later in 1937 however, would American’s love for government turn into contempt as freedom was waylaid  for government interventionist policies like the National Industrial Recovery Act which was later struck down by the Courts in 1935 and large scale programs through the Works Progress Administration (WPA), Agriculture Adjustment Act, Farm Security Administration and the introduction of the Social Security Act. A government that had for years been run by albeit ‘aristocrats’ who could be voted in and out of office, was now being transformed into a ‘modern government’ that was being run by institutional and university intellectual elitists who made decisions based on socioeconomic public policy models and were protected and insulated from the electorate.

But the second thing we can take away from this incident is that one man’s decision can have a ripple effect for good. Just as an American in 1934 spoke to an injustice then by saying to a government `France pay your war debts’ so too in 2009 another American spoke to the hypocrisy in Washington, by saying, “President Obama, are you listening?”  Partly as a result of that ‘rant heard around the world’ by Rick Santelli of CNBC, a groundswell of grassroots movement of Tea Party and constitutional enthusiasts mobilized and awakened a sleepy majority to demand limited government and constitutional restraint.  

As we enter 2011, let’s realize that we can make a difference. Set the cause of Individual Liberty at the forefront of any cause you pursue, and as the only legitimate function of a federal government. To quote Lord Acton, “Liberty is not a means to a higher political end. It is itself the highest political end.”

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.

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

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

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

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

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

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

The Bank Panic of 1819, Murray Rothbard

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

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

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

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

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

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

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

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

Europe Fears Debt Crisis Growing

When the President went early Christmas shopping to Mumbai and Seoul, he wasn’t shopping for everyone, only his favorites.

GE, Boeing, GM (Chrysler and the unions), Harley Davidson to name a few, were taken on a trip to pick out there presents this year. Big trading deals worth upwards of $10 billion was negotiated in the Mumbai trip and a multi-billion dollar deal while not signed in Seoul is ‘still on the table’.

So where’s the deal for you and I and the mainstreet businessowners we know? Isn’t both political parties’ philosophy, “if ‘big business’ is taken care of by ‘big government’ then everyone is better off”, right? It’s kind of that ‘tricke down’ theory that many progressives use to rail against during the Reagan years. The government targets tax cuts, spending stimulus or negotiates ‘juicy’ trade deals with other nations and everyone is happy. Or are we?

When trading partnerships are negotiated with other countries, each government represents ‘interests’ within their own countries. Specifically in the US, groups that benefit tend to enjoy it at the exclusion or detriment of others. Our Civil War, while partly fought over slavery, was also over conflicting interests within industries in the north and manufacturers in the south over tariffs and import/export trade.

US trade deals tend to favor large corporate interests in general and the special interests of the party in power. President Obama favors union dominated industries, while the GOP favors Defense deals for contractors and weapons manufacturers, but the economic dynamics of government intervention affects us all.

When companies and industries are subsidized through `favored’ economic policies, it allows for less competitive market forces and unresponsive corporate management to domestic markets indirectly as well. In addition, where competitive markets force companies to change or fail, these same companies insulated through artificial demand can forestall those changes until we have a national crisis as in banking, auto and even housing, which through FannieMae and FreddieMac and overseas investments, distorted demand and changed cost structures.

Unlike other federal policies like Education, Welfare and Retirement, the federal government has a constitutional role in foreign trade but it is not in cutting trade deals that favor corporations or industries over others or subsidizing markets with taxpayer money but rather in regulating the transfer of goods (commerce) between our businesses and other foreign entities – which is the feds only role regarding inter-state commerce as well. There are two competing philosophies of government: Negative vs Positive Liberty which is important that our nation gets a handle on. In our series ‘Constitutional Liberty’ we address that.

Is inflation already here?

Walmart, which keeps an annual review of its pricing has noticed an uptrend of about 4% annually, Bank of England just announced that it is expecting their inflation projections for 2010 to be higher too, around 3.5% and that their downward projection of inflation estimate for 2011 of 2% would be taken off the table for now. As world gold prices and commodities prices in general start to move up, what can we expect going forward regarding prices in general and exchange rates between nations? Also, while lawmakers seem to think they can control inflation movements with monetary policy manipulation, history has shown a different result. There are variables (consumer/business behavior and new international currency dynamics) that aren’t represented in monetary models.

As seen in the G20 meetings this past week, and nations in general around the world, we are starting to see upward pressure on prices, partly as a result of spotty increases in demand but mostly due to currency devaluation. Governments have incentives to keep currency values low in order to be competitive in export markets and for Governments carrying debt they are able to monetarize it. Unfortunately, with the interconnected world economy we live in this creates friction and retaliation by competing currencies.

Walmart Report Shows Prices Increasing – full article
World Bank President Zoellick continues to ask G20 to heed gold prices – full article
Bank of England Raises Inflation Forecast – full article

As the G20 met this past week in Seoul, expectations have been high to address some key issues regarding trade barriers and monetary policy between nations, as Europe and China accuse the US of devaluing the US dollar at their expense.

A US-South Korean trade deal also was a failure as the two after months of negotiation couldn’t come to an agreement on beef and automobiles. Lulu of Brazil described the current economic climate as, “the world is on verge of bankruptcy”. In addition there continues to be serious discussions regarding moving away from the USD as a world reserve currency benchmark and to use a basket of currencies through SDRs (Special Drawing Rights). A move away from the USD as foreign exchange reserve could have a negative impact on the currency and US economy.

“The most concrete trophy expected to emerge from the trip eluded his grasp: a long-delayed free trade agreement with South Korea, first negotiated by the Bush administration and then reopened by Obama, to have greater protections for US workers.

And as officials frenetically tried to paper over differences among the Group of 20 members with a vaguely worded communiqué to be issued today, there was no way to avoid discussion of the fundamental differences of economic strategy. After five largely harmonious meetings in the past two years to deal with the most severe downturn since the Depression, major disputes broke out between Washington and China, Britain, Germany, and Brazil.

Each rejected core elements of Obama’s strategy of stimulating growth before focusing on deficit reduction. Several major nations continued to accuse the Federal Reserve of deliberately devaluing the dollar last week in an effort to put the costs of America’s competitive troubles on trading partners, rather than taking politically tough measures to rein in spending at home.”

Obama’s Economic Views Rejected on the World Stage – full article

What is best about ‘Progressive’ and ‘Conservative’ ideologies is where they focus on individual liberties; what is worst is where they focus on ‘managed’ outcomes of economic and social values. Unfortunately in ‘mixed’ government, instead of getting the best of, we get the worst of.

The passion of the Democratic party through the ideology of Progressivism is to redistribute wealth through ‘managing’ the economy. So taxes, regulation of business, transfer of property all come into play such as in the beliefs of Jeremy Bentham (exported Socialism to the US in early 19th century), Karl Marx and Friedrich Engels (founders of Communism). Their philosophy is that while a man can be freed from physical restraints, he isn’t really free unless he is free economically.

The passion of the GOP through the ideology of Conservatism is to manage tradition values. So Right to Life, Don’t Ask Don’t Tell, Constitutional Amendments on Marriage are passionate issues to conservative GOP members.

Unfortunately, what is not passionately represented in the dynamics of the two is INDIVIDUAL LIBERTY which is sacrificed on the ‘ALTAR’ of ‘GREATER GOOD’.

The result has been ‘Gradualism’ of more government power encroaching upon the freedoms of all. As in the movie ‘Fountainhead’ and the book by Ayn Rand, collectivism is wrong, ““But the mind is an attribute of the individual. There is no such thing as a collective brain. There is no such thing as a collective thought. An agreement reached by a group of men is only a compromise or an average drawn upon many individual thoughts. It is a secondary consequence. The primary act—the process of reason—must be performed by each man alone. We can divide a meal among many men. We cannot digest it in a collective stomach. No man can use his lungs to breathe for another man. No man can use his brain to think for another. All the functions of body and spirit are private. They cannot be shared or transferred.”

The reality is men are not equal. Not in their physicality, not in their intellect, not in their desires and temperament. What collectivism in the form of some Conservative and Progressive ideology attempts to do is homogenize men into common denominators and minimize the differences or perceived inequalities (economic and social). Ludwig Von Mises put it this way, “It is because of man’s differences and inequalities that bring about cooperation and social harmony.” In other words, one man’s strength and one man’s intellect separately cannot accomplish what together through voluntary exchange and association they are able to produce.

The Constitution protected against these interferences on a federal level by both interests that would look to ‘manage’ man’s economy and social behavior through the concept of ‘Negative Liberty’ and the separation of powers of the Federal and State governments. In general, the further away the power is, the more general and less invasive it should be, if for no other reason that it doesn’t possess enough specific information and it’s economic and social models are prone to fail at greater levels of impact.

For more information on the concepts of Negative vs Positive Liberty and how they affect our understanding of the Constitution and in creating law, please go to my article in a series: Constitutional Liberty Series: Into, I have the second in the series coming out tomorrow.

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

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

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

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

European Debt Crisis

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

China has curtly dismissed a US proposal to address global economic imbalances, setting the stage for a potential showdown at next week’s G20 meeting in Seoul. Cui Tiankai, a deputy foreign minister and one of China’s lead negotiators at the G20, said on Friday that the US plan for limiting current account surpluses and deficits to 4 per cent of gross domestic product harked back “to the days of planned economies”.

“We believe a discussion about a current account target misses the whole point,” he added, in the first official comment by a senior Chinese official on the subject. “If you look at the global economy, there are many issues that merit more attention – for example, the question of quantitative easing.”

China’s opposition to the proposal, which had made some progress at a G20 finance ministers’ meeting last month, came amid a continuing rumble of protest from around the world at the US Federal Reserve’s plan to pump an extra $600bn into financial markets.

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So where is the Christian Moral Majority movement today?

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

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

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

Christopher M. Mahon, Editor 2009