Saturday, February 28, 2009

Peter Schiff on Obamanomics

The central tenets of Obamanomics appear to be that access to credit will enable people to borrow money to buy stuff, the spending will spur production and employment, and thus the economy will grow. It’s a neat and simple picture, but it has nothing whatsoever to do with how an economy works. The President does not understand that consumption is made possible by production and that credit is made possible by savings...

Our industrial economy has been replaced by a reliance on health care, financial services and government spending. Introducing freer-flowing credit and more printed money into such a system will do nothing except spark inflation. We need to get back to the basics of production. It won’t be easy, but it will work.

read the entire essay
My thoughts: A good essay that breaks down to simple terms how the economy is driven by production and savings, not consumption and credit.

12 Year Lows for the Stock Market

Stocks tumbled Friday on worries about the government taking a bigger chunk of Citigroup and a bleak reading on the economy, again touching 12-year lows.

The Dow Jones industrial average (INDU) lost 119 points, or 1.7%. It was the lowest close since May 1, 1997.

The S&P 500 (SPX) index lost 18 points, or 2.4%, closing at its lowest point since Dec. 18, 1996.

The Nasdaq composite (COMP) lost 13.5 points, or 1%.

Cartoon: Supply Side Economics

Cartoon: Economics 101

Obama and the Taxpayesr

Friday, February 27, 2009

US Tax Rates: 1979 v 2005

4th Quarter 2008 GDP: Negative 6.2%

Historical Tax Rates by Quintiles

Lowest quintile: 4.3 percent
Second quintile: 9.9 percent
Middle quintile: 14.2 percent
Fourth quintile: 17.4 percent
Percentiles 81-90: 20.3 percent
Percentiles 91-95: 22.4 percent
Percentiles 96-99: 25.7 percent
Percentiles 99.0-99.5: 29.7 percent
Percentiles 99.5-99.9: 31.2 percent
Percentiles 99.9-99.99: 32.1 percentTop 0.01
Percentile: 31.5 percent

N.B.: These figures include all federal taxes, not just income taxes.

source (HT: Greg Mankiw)

4th Quarter GDP: Negative 6.2%

The U.S. recession deepened a lot more in late 2008 than first reported, according to government data showing a big revision down because businesses cut supplies to adjust for shriveling demand.

Gross domestic product decreased at a seasonally adjusted 6.2% annual rate October through December, the Commerce Department said Friday in a new, revised estimate of fourth-quarter GDP.

The 6.2% decline meant the worst quarterly showing for GDP since a 6.4% decrease in first-quarter 1982 GDP.

In its original estimate, issued a month ago, the government had reported fourth-quarter 2008 GDP fell 3.8%. The sharply lower revision to a decline of 6.2% reflected adjustments downward of inventory investment, exports and consumer spending.

read the WSJ article

Obama's Budget Deficit Projections

The budget forecast assumes that U.S. gross domestic product -- the nation's total economic output -- will decline about 1.2% this year, while private forecasts -- measured by the Blue Chip survey -- show a 1.9% decline. Next year the Obama team forecasts 3.2% growth, while professional forecasters expect a 2.1% gain...

The Obama budget puts the deficit at less than $600 billion starting in 2012 from $1.75 trillion this year. Getting to that point requires GDP to rise more than 4% a year by then -- meaning the U.S. would quickly return to growth rates similar to the boom years of the 1990s -- after the worst financial shock since the Great Depression. Such growth is more than a full percentage point above private-sector growth estimates for 2011 and 2012.

Speaking to reporters Thursday, White House economist Christina Romer called the projections an "honest forecast" by the administration's professional forecasters. "I'd reject the premise that we're noticeably rosier," she said. "We certainly are somewhat more optimistic, but certainly nothing out of the ballpark."

read the WSJ article
My thoughts: The growth estimates are unrealistic. The total increase to the national debt is about $3 trillion. Reality will likely double this number. Also notice the ratchet effect.

Ron Paul on the Economy and the Current Crisis

We find ourselves mired in the deepest economic crisis to afflict this country since the Great Depression. Yet, despite the failure of all the interventionist efforts to date to do anything to improve the economy, each week seems to bring new proposals for yet more bailouts, more funding facilities, and more of the same discredited Keynesian ideas. There are still relatively few policymakers who understand the roots of the current crisis in the Federal Reserve's monetary policy. No one in government is willing to take the blame; instead we transfer it onto others. We blame the crisis on greedy bankers and mortgage lenders, on the Chinese for being too thrifty and providing us with capital, or on consumers who aren't spending as much as the government thinks they should.

One aspect that needs to come to the fore once again is that of moral hazard. When the government acts as a backstop to insure losses that come about from making poor decisions, such poor decision-making is rewarded, and thereby further encouraged in the future...

Chairman Bernanke and others in positions of authority seem to gloss over these systemic instabilities and assume an excessively rosy outlook on the economy. I believe we are at another major economic crossroad, where the global financial system will have to be fundamentally rethought. The post–Bretton Woods dollar-standard system has proven remarkably resilient, lasting longer than the gold-exchange system which preceded it, but the current economic crisis has illustrated the unsustainability of the current dollar-based system. To think that the economy will begin to recover by the end of this year is absurd. The dollar's supposed strength exists only because of the weakness of other currencies. The Fed's increase of the monetary base and establishment of "temporary" funding facilities has set the stage for hyperinflation, and it remains to be seen what results.

If banks begin to lend their increased reserves, we will see the first steps towards hyperinflation. Now that the Fed has increased the monetary base, it finds itself under pressure to withdraw these funds at some point. The question, however, is when? If it withdraws too soon, banks' balance sheets collapse, if too late, massive inflation will ensue. As in previous crises, the Fed's inflationary actions leave it compelled to take action that will severely harm the economy through either deflation or hyperinflation. Had the Fed not begun interfering 18 months ago, we might have already seen a recovery in the economy by now. Bad debts would have been liquidated, inefficient firms sold off and their resources put to better use elsewhere. As it is, I believe any temporary uptick in economic indicators nowadays will likely be misinterpreted as economic recovery rather than the result of Federal Reserve credit creation. Until we learn the lesson that government intervention cannot heal the economy, and can only do harm, we will never stabilize the economy or get on the road to true recovery.

speech 2/25/09

My thoughts: Paul places the blame where it belongs, on the Federal Reserve System.

Thursday, February 26, 2009

Obama's Budget Hypocrisy

In January 2009: Congressional Budget Office projects
FY2009 budget deficit $1,186 billion
FY2013 budget deficit $257 billion

In February 2009: Office of Management and Budget projects
FY2009 budget deficit $1,750 billion
FY2013 budget deficit $533 billion

Obama pushes the package of a $787 Billion "Stimulus" Bill

source CBO and OMB
My thoughts: Wow. The FY 2009 deficit will be the same size as the FY2000 budget. Obama has the audacity to lecture the country on "fiscal responsibility." Obama needs to step away from the Kool-Aid now.

Obama Budget Irresponsibility Inconsistency

Page 14 of the President’s FY2010 budget “blueprint” contains a section called “Fiscal Irresponsibility” that deserves scrutiny:

“Another manifestation of irresponsibility is the large budget deficits we are inheriting. These deficits, over time, will harm economic growth and impose burdens on our children and grandchildren.”


“Between 2000 and 2008, real Government outlays increased at a 3.6 percent annual average rate, three times the 1.2 percent annual average rate between 1992 and 2000…Furthermore, the amount of debt held by the public has nearly doubled to $6.4 trillion from 2001 to 2008. We are now living with the fallout of this deep fiscal irresponsibility.”


“Unfortunately, we are also inheriting the worst economic crisis since the Great Depression—which will force us to increase deficit spending temporarily as we try to jumpstart economic growth.”

Time-out. The administration accurately states that federal spending and debt have increased at a detrimental pace this decade. Then it says we’re in the worst economic crisis since the Great Depression.

And the solution to the economic downturn caused in part by too much spending and debt is to increase deficit spending and further run up the national debt? By the administration’s own logic, shouldn’t we be experiencing economic growth with all the deficit spending it “inherited?”


FY 2010 Budget

His outline includes an ambitious plan to reform health care, half of which would be paid for by increasing the tax bite on high-income Americans.

Obama has said repeatedly that his first fiscal plan would have a two-pronged mission: to reduce the $1 trillion-plus deficit he inherited to $533 billion by 2013 and make big investments in the future.

The administration estimates that the deficit for fiscal year 2009 will reach $1.75 trillion, or 12.3% of U.S. gross domestic product. That's a record in dollar terms and is the highest as a share of GDP since World War II.

read the CNN story

Cartoon: Hayekian Hangover

Cartoon: I Am Just a Bill


Cartoon: America Sacrifices

Cartoon: THe New Economic Reality

Cartoon: Obama the Liberal

General Motors: $9.6 Billion Loss in 4th Quarter

General Motors posted a $9.6 billion net loss in the fourth quarter, a period in which its sales plunged and it needed a federal bailout to avoid filing for bankruptcy.

The company also disclosed that its auto operations burned through $5.2 billion in cash during the last three months of the year. The company ended the quarter with cash of $14 billion.If not for the $4 billion federal loan it received in the quarter's closing days, GM's cash level would have fallen below the $11 billion to $14 billion in cash the company has said it needs to continue operations...

Overall revenue at GM plunged 34% to $30.8 billion, significantly worse than the Thomson-Reuters forecast of $35.1 billion.

For the full year, GM reported a net loss of $30.9 billion. The automaker has posted net losses of $82 billion over the past four years as its U.S. sales and market share plunged and it closed plants and slashed staff in an unsuccessful effort to stem losses.

read the CNN story

My thoughts: Let them fail.

FY 2009: $1.75 Trillion Deficit

President Barack Obama will forecast a 2009 deficit of $1.75 trillion in a budget proposal Thursday that sets goals of overhauling the healthcare system and shoring up the U.S. economy. The huge deficit would represent 12.3% of U.S. gross domestic product - the largest share since World War II...

Obama, a Democrat, has pledged to halve the more-than $1 trillion deficit he inherited from former Republican President George W. Bush in four years. The budget lays out spending cuts in agriculture subsidies and other areas to meet that goal...

Obama's $1.75 trillion budget deficit forecast for this year reflects shortfalls accumulated under Bush as well as new spending proposals under the $787 economic stimulus package that the Democratic president recently signed...

Obama will aim to bring the deficit down by 2013 to $533 billion, or 3% of GDP...

read the CNN article

My thoughts: In less than a week and the estimated deficit has increased from $1.3 to $1.75 trillion. It is likely to end (9/30/09) well above $2 trillion. It could be years before the deficit drops below $1 trillion.

Wednesday, February 25, 2009

Peter Schiff on Obama's Speech

Ron Paul Testimony 2/25

Ron Paul on Monetary Policy and Gold

Obama and the Budget Deficit

The Congressional Budget Office is forecasting a deficit for this year of $1.2 trillion...

Besides, Obama also promised Tuesday night that 98 percent of American families, those earning less than $250,000, would not pay an extra dime in taxes. So to cut the deficit in half, he needs to raise taxes on the richest Americans and look for spending cuts...

In 2006, the latest year we have data for, the top 2 percent of tax returns yielded around $500 billion in revenue. So to cut the deficit in half, Obama will have to roughly double the tax rates on the top 2 percent. I don't think that strategy will be politically viable or economically productive...

Every president who inherits a deficit promises to cut it somewhere down the road. Only one president in recent years has kept that promise — Bill Clinton. But he was helped by six years of Republicans in the House and Senate. When the White House and the Congress are from the same party, it's very hard to say no to key constituencies that expect rewards for past support. If Obama is really serious about cutting the deficit down the road, he will almost certainly have to fight with his own party.

read the entire essay

Current Crisis and the Future

During our current crisis we are not yet moving in a full blown socialist direction as traditionally understood. Instead, we are moving toward some sort of mixed ownership form, where resources are retained in some private hands, but also the public hand is deep in control. Such is the fate of our banking industry. ..

We are in trouble but it is a crisis of ideas that is most troubling. We are marching toward corporatist system as fast as the votes will take us. Who will say NO to this?...

Slippery slopes, unintended consequences, regime uncertainty, etc., these are the concepts you need to understand in order to make sense of our current economic problems. Bad economic ideas have produced bad economic policies which in turn has resulted in bad economic consequences. The "solution" is not to be found in more bad ideas and bad public policies even if promoted by an eloquent and charismatic political leader.

read the entire post

10% Growth is Not a Credit Crunch


18% vs 21% No Longer Viable?

Conservatives suspected that something irreversible was happening: that the sheer immensity of President Obama's fiscal and financial interventions may permanently change the size of government and the shape of post-Reagan conservatism...

For decades, everyone pretended to have a profound ideological disagreement about the size of government, but the reality was a comfortable standoff between 21 percent liberalism and 18 percent conservatism. In the end, both sides got what they most wanted: 21 percent spending for liberals, 18 percent revenues for conservatives -- at the politically tolerable cost of a deficit averaging 2 to 3 percent of GDP. This result was handy for politicians and acceptable to the public.

In Washington now, the obvious question is: Has Obama ended the 21 percent era? In January, the Congressional Budget Office forecast outlays at 25 percent in fiscal 2009. That was before enactment of the latest stimulus, which increases outlays by more than $500 billion through 2012; and the forecast didn't account for further financial bailouts. Unofficial estimates take 2009 spending to 26 percent or higher...

How will we pay for, say, 24 percent government? Permanent deficits at 6 percent of GDP would be unsustainable, and the creaky, inefficient income tax is barely able to raise even today's inadequate revenues.


My thoughts: Devolution. How about 10% revenues and 7% spending until the national debt is gone? Was government in the 1980s really small?

Obama's Budget Plans

The highlights:
  1. Obama wants the 2013 deficit to be half the size of the 2009 deficit he inhereted.
  2. The 2010 deficit is going to be large.
  3. Specifically, we’ll go from $1.2 trillion in 2009 to $1.5 trillion in 2010 to $533 billion in 2013.
  4. Spending cuts are expected to come from the expiration of stimulus money, from a reduction in “emergency” appropriations for Iraq and Afghanistan, from reductions in Medicare Advantage giveaways to private insurance firms, and I believe from some other form of medical efficiencies.
  5. Revenue enhancements are projected to come from the expiration of the Bush tax cuts, from ending the hedge fund manager’s loophole, and from carbon auction permits.
  6. Overall, the idea is to get back down to a deficit of about 3 percent of GDP, but to have a better health care system when we do it.

Economic Stimulus


Cartoon: Obama's Stimulus Speech

Cartoon: Death and Taxes

Cartoon: Dogbert Calls the Hypocrites

The Dude Abides

Cartoon: Hayekian Hangover

Bernanke on the Housing Bailout

Federal Reserve Chairman Ben Bernanke said Wednesday that the embattled housing market has crippled the economy, and at-risk homeowners need a bailout - even if they knew they couldn't afford their home in the first place.

"Some borrowers presumably knew what they were getting into," Bernanke said before the House Financial Services Committee. "But from a public policy point of view, the large amount of foreclosures are detrimental not just to the borrower and lender but to the broader system."

"In many of these situations we have to trade off the moral hazard issue against the greater good," he added.

read the CNN story

My thoughts: Bernake remains a moron.

Reisman on Economic Stimulus

As was shown earlier, economic recovery requires greater saving and the accumulation of fresh capital, to make up for the losses caused by credit expansion and the malinvestment and overconsumption that follow from it. Yet the imposition of "stimulus packages" results in the further loss of capital. The Keynesians not only do not know this, but would not care even if they did know it.

Because of their ignorance of the role of capital in the economic system and resulting inability to see even the clearest evidence that suggests it, the Keynesians can conceive of no cause of a recession or depression but an insufficiency of consumption and no remedy but an increase in consumption. This is the basis of their calls for "stimulus packages" of one kind or another...

Even though stimulus packages may be able to generate additional economic activity, they cannot achieve any kind of meaningful economic recovery. Their actual effect is the creation of a system of public welfare in the guise of work. That is in the nature of employing people not for the sake of the products they produce but having them produce products for the sake of being able to employ them...

The blind rush into massive "stimulus packages" is the culmination of generations of economic ignorance transmitted from professor to student in the guise of advanced, revolutionary thinking — the "Keynesian revolution." The accelerating destruction of our economic system that we are now experiencing is the product of a prior destruction of economic thought. Our entire intellectual establishment has been the victim — the willing victim — of a massive intellectual con job that goes under the name "Keynesianism." And we are now paying the price.

read the entire essay

My thoughts: The Keynesian politicans will never let reason, logic, or facts stand in their way or trying to manipulate the economy.

Tuesday, February 24, 2009

Cartoon: Shovel Ready Projects

Cartoon: Economic Forecast

Cartoon: Economic Pessimism

Cartoon: Fiscal Conservatives

Cartoon: Saving the Irresponsible

Cartoon: Stimulus Package and Pork

Cartoon: The Responsible Paying for the Irresponsible

Bear Markets Compared

Cartoon: Recessions are For Wimps

Bernanke: Recovery Will Take Years

Federal Reserve Chairman Ben Bernanke said he's hoping the recession could end later this year, but he cautioned that a full economic recovery will take "more than two or three years."

The head of the central bank said a turnaround will only occur "if actions taken by the administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability." He also acknowledged there's significant risks to the downside for the economy this year.

read the CNN story

My thoughts: Much of the blame belongs on Bernanke. When the Fed started cutting rates in September 2007, they laid the foundation for major economic troubles. They failed to prevent the necessary market corrections from happening. They caused much more malinvestment to be injected into the economy. When inflation finally rears its head (2011-2013), people will have fogetten the insane monetary policy pursued by Bernanke. The next recession will make this one look extremely mild in comparison. Thanks, Ben.

It could take 15-20 years for the Dow to hit 14,000 again.

Cartoon: Economic Crisis

Politicians Bought and Paid For?

President Obama received $4.3 million in campaign contributions from employees of these financial companies. Senator Chris Dodd of Connecticut, chairman of the Senate Committee on Banking, Housing and Urban Affairs received almost $850,000 in campaign contributions from these banks. Senator Max Baucus of Montana, chairman of the Senate Finance Committee received nearly $270,000 in campaign contributions from those same financial institutions in the 2007-2008-election cycle. All told, Senate members on these two committees were the recipients of $5.2 million in campaign contributions from the banks that ended up receiving TARP money.

Combined, the 161 financial institutions that have received $305 billion, so far, in TARP funds contributed about $37.5 million to candidates in last year’s election, and almost $76.7 million in lobbying expenditures in 2008. In total, therefore, these companies shelled out $114.2 million dollars to gain the ears of those running for or holding political office. In other words, these institutions, as a group, earned a more than 2,500 percent return on their “investment” in influencing the political process that resulted in a third-of-a-trillion dollar bank bailout thus far...

But, inevitably, many of those who have been winning friends and influencing people in the halls of Washington politics will end up coming out on top. Money talks, and it always does when it affects the ability of politicians to run for and stay in office.

read the entire essay

Monday, February 23, 2009

A Bad for Wall Street: 12 Year Lows

The Dow and S&P 500 tumbled to levels not seen in nearly 12 years Monday, as investors continue to worry that the government's efforts to slow the recession won't be sufficient.

The Dow Jones industrial average (INDU) lost 250 points, or 3.4%, ending at the lowest point since May 7, 1997.

The S&P 500 (SPX) index lost 26 points, or 3.5%, ending at the lowest point since April 11, 1997.

read the CNN story

Cartoon: Government Stimulus

Sunday, February 22, 2009

Cartoon: Stimulus Bill

Cartoon: The Solution Created the Problem

Richard Ebeling Essays

Richard Ebeling is one of the best commentators on economics.

Click here for the list of FEE essays.

The Current Crisis and the Austrian Theory of the Business Cycle June 2008

Freedom and the Right of Self-Determination May 2008

Cartoon: Obama and the Dow

Bailout Bubble Chart

Click here for the interactive graph

The American Recovery and Reinvestment Act targets investments towards key areas that will save or create good jobs immediately, while also laying the groundwork for long-term economic growth. The charts and numbers below give you an idea of where the money is going.

Over the upcoming months, we will provide more information on the distribution of funding by Federal agencies. In order to give small businesses and Americans across the country a chance to apply for recovery dollars to create and save jobs, some funding may not be distributed until this summer. New information on the allocation of funds will be posted on as it becomes available.


Potentially Ugly Week for the Economy

Tuesday: The S&P/CaseShiller Home Price index, due before the market open, is expected to have fallen at a record 18.25% annual pace in December, according to a consensus of economists surveyed by

Also Tuesday, the Conference Board's February Consumer Confidence index is expected to have fallen to 36.0 from 37.7 in January. That reading would be the lowest since the Conference Board began tracking the index in 1967.

Wednesday: January existing home sales are due to be released shortly after the start of trading. Sales are expected to have risen to a 4.81 million unit rate from a 4.74 million unit rate in December.

Thursday: January new home sales are expected after the market open. Sales are forecast to have dipped to a 329,000 annual unit rate from a 331,000 annual unit rate in December.

January durable goods orders are expected to have fallen 2.3% after falling 2.6% in December.

Friday: Fourth-quarter gross domestic product growth (GDP) is expected to have been revised lower. GDP likely fell at an annual rate of 5.4% versus the initially reported decline of 3.8%.

Washington, DC

Tuesday: President Obama addresses the joint session of Congress.

Tuesday and Wednesday: Federal Reserve Chairman Ben Bernanke gives his semi-annual testimony before Congress regarding monetary policy.

read the CNN story

My thoughts: The downward spiral continues. The politicians remain clueless.

Cartoon: Recession Job Fair

Saturday, February 21, 2009

Karl Denninger Calls Out Press Secretary Gibbs

Rick Santelli is perhaps starting a grassroots revolt.

My thoughts: Gibbs might need to stay around. If is really the job of the press secretary to spin, distort and lie to the American people. He appears to be off to a great start.

Obama to Cut Budget Deficit in Half

President Barack Obama wants to slash America's ballooning deficit in half by 2013 by cutting spending on the Iraq war, eliminating wasteful public programs and raising taxes on the wealthy, an administration official said Saturday.

"The deficit this administration inherited was $1.3 trillion or 9.2 percent of GDP. By 2013, the end of the president's first term, the budget cuts the deficit to $533 billion or 3.0 percent of GDP," the official said on condition of anonymity.

read the CNN story

My thoughts: This is dishonest at best. FY 2008 the deficit was $455. The FY 2009 began October 1, 2008. It is Bush's budget in the sense that he proposed it, but the recently passed $787 billion that will effective balloon the budget to $1.3 trillion belongs on Obama's tab. If you look back at the Bush estimates, Bush was projecting a surplus by 2013. So a $533 deficit is hardly a victory. In addition the actually numbers will be closer to $2.0 trillion than to $1.3 trillion.

Tax Breaks in the Stimulus Package

Roughly 97% of American households could see tax savings as a result of the American Recovery and Reinvestment Act, according to a new analysis by a nonpartisan research group.

The Tax Policy Center crunched the numbers and concluded that the average savings would be $1,179. But how much a household actually gets depends on income, marital status and whether a filer has children. The savings range from a few hundred dollars to several thousand.

read the CNN story

Sheldon Richman: Less Than Nothing

The story is told that Ludwig von Mises was once asked, “Do you mean to say that the government should have done nothing during the Great Depression?” Mises responded, “I mean to say it should have started doing nothing long before that.”

I hope the story is not apocryphal, because it perfectly sums up the government’s proper role in managing the economy: none...

Of course, politicians are incapable of doing nothing when there is harm to be done, but the “stimulus” critics intrepidly insist that anything the government does will be worse than doing nothing at all.

This is certainly true. Unquestionably, doing nothing is better than borrowing nearly $800 billion from the credit markets (to be repaid through inflation and taxation) and spending it on pet political projects, from food stamps to bridge repairs to subsidies for favored energy forms...

If government really wants to make it easier for people to own homes, let it give up control of money and banking, divest itself of the land it holds off the market, and generally relieve society of its endless burdens.

The biggest favor the state can do for us is to stop doing us favors!

read the entire essay

My thoughts: Corrections are necessary after booms. Trying to avoid the pain of a correction only makes things worse.

Ebeling on Obama and Fiscal Irresponsibility

President Obama is hosting a “fiscal responsibility summit” on February 23 that has the goal of reining in the projected growth in government spending in the years and decades ahead. Any such reform, however, will require a dramatic change in the role of government in American society...

Even before the stimulus package was passed earlier this month, the Congressional Budget Office was estimating that the Federal government’s budget deficit for the current fiscal year would be at least $1.2 trillion. If we now add the hundreds of billions of dollars in additional government spending in 2009 due to the stimulus bill and the bailout for bankers, automakers, homeowners, Washington could be facing a budget deficit this year that approaches $2 trillion. This would be equal to two-thirds of the entire Federal budget in fiscal year 2008...

The Treasury and the Trust Funds use a 75-year time horizon in their projections. They estimate that the current present value of unfunded liabilities for both Social Security and Medicare over the next three-quarters of a century totals nearly $43 trillion. Social Security makes up $6.6 trillion of this amount and Medicare costs comprise the remaining $36.3 trillion...

In 2008, the Gross Domestic Product (GDP) of the United States was around $14 trillion. This means that government would need to have sitting in an account collecting interest a sum equal to three years of U.S. GDP. Obviously, Uncle Sam does not...

After all, in his inaugural address on January 20, President Obama said: “The question we ask today is not whether our government is too big or too small, but whether it works — whether it helps families find jobs at a decent wage, health care they can afford, a retirement that is dignified.”

In other words, our new president takes for granted that it is the role and responsibility of the government to paternalistically provide decent paying jobs, medical care and retirement pensions for the entire population of the United States. And he clearly had no interest in or concern with broader political philosophical questions of whether government is “too big” versus “too small.”

His premise that government has these interventionist and redistributive roles to play in society define the terms of the debate in his mind. The Federal government is to be an even larger Welfare State than at present; the only issues open to debate are figuring out ways it can fulfill this role in a more effective and cost-efficient manner, if possible...

This can only come about by asking the questions that President Obama has taken off the table: What are the individual rights and responsibilities of the citizenry for their own personal affairs? What are the limited and legitimate functions of a government in a free society? And how is that proper balance between individual liberty and constitutionally restrained government to be restored?

read the entire essay

Economic Fascism and the Bailout Economy

The whole structure of the national American political system has rested on the solvency of the largest American banks. These banks have all been called into question. They are now gutted. Do I see this as the end of freedom? No, I see it is the end of the fascist state. The monstrosity came close to going belly-up last October. It is on its last, tottering legs. It has lost the respect of the public...

The second event that I regard as almost comparable in importance to the collapse of the Soviet Union was the collapse of the American banking system that took place in September and October of 2008...

Anyone who does not understand the magnitude of what is taking place is an economic ignoramus...

Here is their intellectual problem: they do not believe in the free market. They cannot conceive of a social institution based on voluntarism that can break the backs of government planners and central bankers. They will believe anything but this. They think of themselves as defenders of the free market, but they do not grasp the power of the free market to enforce consumers' decisions...

It has been the Austrian School economists who have warned, decade after decade, that the increase in the federal debt would eventually threaten the solvency of the government and the stability of the dollar. Now that this is visibly coming true, we still do not hear from professional economists cries of warning regarding trillion-dollar annual federal deficits. They say nothing — except when they say it is a good idea, because it is necessary, because we have got to save the banks, because we have got to regulate the economy, and, most of all, because the unhampered free-market system really does not work.

This is what we are getting from people who have generally been known as free-market economists. They are lining up as cheerleaders as the banks go to the federal trough. The federal deficit soars into astronomical regions, and the monetary base soars just as fast, yet the academic economists are silent. This is not the silence of the lambs; this is a silence of unindicted co-conspirators...These people are apologists for the state...

The fascist state has always been an attempt to control private industry by means of inflation, taxation, and regulation. Fascism has always been a system of keeping the big boys alive and happy at the expense of the taxpayers. Of course, the faces change. The system was always one gigantic system of cartels, regulation, and fiat money...

The modern economic system is one gigantic interlocking system of promised bailouts, beginning with Social Security...

Always in the past, there has been a recovery after a recession. Always in the past, the bailouts have worked to cover up the underlying malinvested capital. Always in the past, the Federal Reserve has inflated, and the economy revived.

This economy will revive, but it will revive on a new basis. It is no longer possible for someone who understands Austrian School economics to look at this economy as anything remotely resembling a free-market economy.

read the entire essay

My thoughts: One of North's best essays. Unfortunately it could be a generation or two before we truly recover.

Alan Greenspan and the Economy

If Greenspan is in favor of it, we’re against it. No one man bears more responsibility for the present worldwide financial crisis and coming depression that Alan Greenspan.

The Fed’s job is to take the punchbowl away when the party gets too wild, said former Fed chairman William McChesney Martin. Greenspan did no such thing. As soon as the party began to quiet down and people began fumbling for their car keys, Greenspan added more rum to the punch and turned up the music. By the time the credit cops finally shut it down, people were dancing on tabletops all over the world.

And now, poor Mr. Obama has to deal with the headaches...

And it’s why the United States is now the largest Ponzi scheme in the world. The only way to pay off the old lenders is to bring in new ones – or run the printing press. That’s all lenders have to worry about – inflation. And for the moment, prices are going down. They’ll keep going down too – until they go up...

Now, Obama compounds the mistake…

When he signed the $787 billion bailout bill on Tuesday, he warned the nation that we’re not at the end of our troubles. “Nor does it constitute all of what we are going to have to do to turn our economy around,” he said. “But today does mark the beginning of the end.’’...

Stocks are still selling for 15–18 times earnings (which are falling fast). They need to get down to 5–8 times earnings. That will bring the Dow down to around 5,000, or lower. This could take a long time. We’re in a depression, remember. And in depressions economies need to be restructured, not just refreshed.

In the ’30s, none of the bailouts and stimulus packages of the Roosevelt Administration did any real good. At the end of the decade, the economy was about where it was when the decade began – with 11 million people still unemployed...

read the entire essay

My thoughts: The Dow (now at 7,500) could easily loss a third of its value this year or next. Inflation was being a worry since the Fed started cutting rates in September 2007 in an attempt to paper over the bubble. Hayek continues to be proven correct and is ignored while the government promotes Keynesian solutions that have never worked. What is the definition of insanity?

Peter Schiff on Predatory Legislators

With millions of homeowners now struggling to repay money they clearly never should have borrowed, our leaders have been righteously wagging fingers at predatory lenders who allegedly enticed innocent borrowers, and the country, into a financial snake pit. While the mortgage industry clearly deserves a good share of the blame, unindicted co-conspirators abound. The ringleaders are still at-large and are, in fact, busy hatching a plan to dwarf the earlier mistakes...

Although both lenders and borrowers were acting in their own perceived self-interest, what can we say of our economic policymakers who are expected to protect the good of all? Their actions encouraged the whole sad circus. Were it not for the excessively low interest rates provided by the Fed, the lax lending standards and moral hazards supplied by Congress courtesy of Freddie, Fannie, and the FHA, and the many real estate subsidies built into the tax code, none of these predatory loans would have been possible...

Faced with a prospect of downgrading its lifestyle, the U.S. government is instead borrowing trillions of dollars to artificially inflate our deflating bubble economy. The money is being used to both expand the size of government and finance additional consumer spending. Given our financial position, this is the exact opposite of what we should be doing.

Our global creditors are now making the same mistakes made by subprime mortgage lenders. They are loaning us money that we will never be able to repay. In the process, they are enabling the largest expansion in the size of our government since the New Deal and crippling an economy already suffering from excess consumption...

the U.S. government will borrow as much money as the world is foolish enough to lend, and it will use those funds to smother the life out of our economy. At this point government is growing like a cancer, feeding mainly off the funds it borrows from abroad. In the process, it is placing a horrific debt burden on its people, committing them to either a lifetime of crippling interest payments or run-away inflation.

read the entire essay

My thoughts: The government solution to the economy's problem will do far more damage than merely allowing a much needed correction to take place.

Ron Paul on Real Time with Bill Maher

Friday, February 20, 2009

Rick Santelli's Tea Party

Watch the video here: Rick Santelli's Tea Party

"You can go down to minus 2%, they still can't afford the house"

"You can't buy your way into prosperity"

My thoughts: Tell the truth and the talking heads panic.

Cartoon: Ponzi Schemes and Oversight

Cartoon: Living Beyond Your Means

2010 Federal Budget

As director of the White House Office of Management and Budget, Orszag is charged with a seemingly impossible task: Figure out how to rein in the more than $3.5 trillion federal budget as the country tries to spend its way out of a fiscal mess.

The country will get a glimpse of Orszag's handiwork next week when President Obama presents Congress with an outline of his fiscal year 2010 budget request.

Roughly two-thirds of the federal budget -- about $2 trillion in 2008 -- is considered mandatory spending. That's money that Uncle Sam has committed to pay out in entitlement programs such as Social Security and Medicare, in interest owed on the national debt, and on other programs for which budget authority is written in stone.

The other third -- about $1 trillion -- is considered discretionary spending. That's money Congress decides on annually through appropriations bills. But even here lawmakers don't have as much flexibility as the word "discretionary" implies. Usually more than half is spent on security efforts such as defense.

read the CNN article

My thoughts: While the numbers are shocking, they will likly be considered "small" by the time Obama leaves office.

Ed Glaeser on the Housing Plan

The housing plan that President Obama revealed on Wednesday, like the stimulus
, was presented as a single solution to a potload of problems. The plan is being promoted as a far-reaching intervention that will ease the suffering of delinquent homeowners, keep Fannie Mae and Freddie Mac solvent, bolster declining housing prices and rationalize the mortgage renegotiation process. If the plan were actually a serious attempt to fix every problem in the housing market, it would be much more of a mess. As it is, it certainly has its flaws, but its great virtue is that it doesn’t try to fix everything. Instead, it is aimed at two problems already squarely in the government’s lap...

Many Americans understandably feel that this policy is rewarding people who took too many risks. Still, given the extreme solutions to the housing mess that have recently been put forth, I think that we are getting off cheap...

The plan is moderate, and in today’s atmosphere, I view moderation as a triumph. Yet we should at least be aware of its shortcomings...

Still, by focusing on two problems instead of trying to fix everything, the plan avoided many of the greatest policy pitfalls. It could have been much worse.

read the entire essay

My thoughts: "It could have been much worse." This passes for economic analysis? Has the threshold been lowered that much? Are taxpayers supposed to be relieved? This is insanity.
It a policy is bad, it needs to be opposed. Period. End of discussion. This so-called "housing plan" is rewarding people for making dumb decisions. These people are not homeowners; they are home occupiers. "A family earning less than $44,000 a year has a $213,000 mortgage on a $190,000 house. By any reasonable standard, this family cannot afford that house." Really, why is that the problem of taxpayers? These people, borrowers and lenders, made bad decisions that they should have to bear the financial pain of that bad decision. Government theft is not a solution to economic problems. Ever.

Cartoon: Fed Forecasts

Cartoon: The Fed and the Economy

Dow Best and Worst Days