Category Archives: Monetary Issues

The Trillion-Dollar Zero-Cost Stimulus Program

Want to inject liquidity into the market, support American jobs, and do so without raiding the US Treasury or overheating the printing press? The answer is simple: get out of the way.

Now, some may say that’s a libertarian’s answer for everything. And they’d usually be right. But I’m not signing you up for a precipitous decline in federal revenue. I’m not resorting in protectionist and mercantilist policies destined to impoverish American consumers in favor of American exporters. All I’m asking — or relaying the request of Cisco CEO John Chambers and Oracle President Safra Catz, more accurately — is that the US Government make it easier to bring foreign profits back to our shores:

One trillion dollars is roughly the amount of earnings that American companies have in their foreign operations—and that they could repatriate to the United States. That money, in turn, could be invested in U.S. jobs, capital assets, research and development, and more.

But for U.S companies such repatriation of earnings carries a significant penalty: a federal tax of up to 35%. This means that U.S. companies can, without significant consequence, use their foreign earnings to invest in any country in the world—except here.

The U.S. government’s treatment of repatriated foreign earnings stands in marked contrast to the tax practices of almost every major developed economy, including Germany, Japan, the United Kingdom, France, Spain, Italy, Russia, Australia and Canada, to name a few. Companies headquartered in any of these countries can repatriate foreign earnings to their home countries at a tax rate of 0%-2%. That’s because those countries realize that choking off foreign capital from their economies is decidedly against their national interests.

By permitting companies to repatriate foreign earnings at a low tax rate—say, 5%—Congress and the president could create a privately funded stimulus of up to a trillion dollars. They could also raise up to $50 billion in federal tax revenue. That’s money the economy would not otherwise receive.

The tax picture described is very simple, and it makes American companies make some difficult decisions. A company with overseas profits and a need to reinvest can choose to invest them abroad or here in the US. Those overseas profits can be invested overseas with little or no tax penalty, or they can be invested here with significant tax penalty. The decision becomes simple. It is only smart to invest foreign profits in the US if it is investment that simply cannot be effectively done overseas, because the cost of repatriation is enormous. It’s a trade war, but it’s aiming the artillery inward, not outward.

Anyone who has read my work knows that I am not a fan of government subsidies. I personally think that American corporations and American workers can compete quite handsomely on the world market. We don’t need our government to actively help industry here; we have an educated workforce, developed infrastructure, stable institutions and a strong rule of law. We have everything we need to make it profitable for companies to invest here. We could have a country where overseas profits are re-invested in American workers and the US economy. What we have instead are government policies actively hostile to that end. All I ask is that those policies be rescinded.

America is seen worldwide as pro-business. In many cases, that is true, but certainly not in our corporate income tax system, as described by the Cato Institute here. Rather than being a low-tax laissez-faire bastion of capitalism, we have the highest corporate income tax rate in the developed world:

Reducing the taxes on repatriated profits can be done in a revenue-neutral way. All that is necessary is to choose a tax rate that will balance the tax revenue earned on repatriated earnings at the current rate with the expected revenue earned on the much larger base of repatriated earnings at a lower rate. Some foreign cash is undoubtedly repatriated; as I said there is incentive not to do so, but that incentive in not insurmountable. However, at a lower tax rate it makes sense for more companies to repatriate much larger sums, and I think a baseline rate of 5% as suggested by Chambers and Catz is a good starting point for discussion if remaining revenue-neutral is a goal.

There is up to a trillion dollars out there that could be injected into the US economy without raising the deficit, without spinning up the printing press, and which would go immediately to the entities who have the best ability to invest it in stimulative ways — companies who are already profitable. While many in Congress may not like the idea, as they have little control over how the money is spent, I think that’s a feature — not a bug.

While I’m not a protectionist, I think we should stop government policy designed to hurt American employment and help employment overseas. Of all the policies in which our government engages, one that actively stops capital from flowing into America from overseas seems rather idiotic.
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Yaknow, I was going to write something about this, now I don’t have to

I am a cynically romantic optimistic pessimist. I am neither liberal, nor conservative. I am a (somewhat disgruntled) muscular minarchist… something like a constructive anarchist.

Basically what that means, is that I believe, all things being equal, responsible adults should be able to do whatever the hell they want to do, so long as nobody’s getting hurt, who isn’t paying extra

A New Introduction

I am honored to join The Liberty Papers.

Brad Warbiany and Doug Mataconis have been very welcoming, and my new realm into libertarian thought should be fulfilling and rich.

I’ve been at United Liberty for two years, starting with the 2008 election and running all the way up to coverage of Arizona’s discriminatory immigration law. My work goes back even further, back to the San Francisco Examiner and the neighborhood newspapers North Seattle Herald Outlook and Madison Park Times in Seattle, Washington.

In the times we live in, there seems to be a political shift going on. The United States is becoming more ethnically diverse, the economy continues to stagnate, and government is making short term maneuvers without foreseeing long-term effects. On the other side of the coin, the Right, who talk a lot of jive about freedom, are parading their own twisted form of nationalism. In these times, it’s important to try to solidify and distinguish the libertarian movement as a separate alternative to the forms of authoritarianism so far proposed to us. I hope my work at The Liberty Papers will help to do that.

I am also currently working on a book on the future of race in politics. It should be finished within the year and published subsequently.

The Social Security Trust Fund In Kindergarten Terms

Yesterday I had $10 in my right pocket.

I loaned that money to my left pocket, which I like to call my “Right Pocket Trust Fund”. I put an IOU from my left pocket into my right pocket to document the loan.

I then spent that $10 on lunch.

Today my right pocket wants to start collecting on that loan.

——————————

That’s the Social Security Trust Fund. An IOU that requires new taxation, NOT drawing down on savings, to be repaid.

(Inspired by Megan McArdle)

Quote Of The Day

Those of us who predicted lenders would avoid US Treasuries during the financial meltdown we initially somewhat surprised to see investors flocking to them. It’s the result of a supposed “flight to quality”, and nothing at the time seemed less risky than buying US Treasury bonds, since the Treasury sells its bonds in a currency it can print.

Well, that has changed, as represented by yields:

The bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama.

When it’s “safer” to lend to a corporate businessman who can’t print his own currency or extort his subjects citizens for more tax dollars, you know something serious is going down.

Berkshire Hathaway, P&G, Johnson & Johnson, and Lowe’s are all trading below similar maturity US T-bills, a situation the linked article calls “exceedingly rare”.

But don’t worry, mere citizen. I’m sure Obama’s working on an individual mandate to get you to “do your part” and invest in Treasury bonds.

Hat Tip: QandO

UPDATE: Looks like yields are continuing to rise.

Kathleen Sebellius Blames Insurance Companies For The Effects of Obama’s Stimulus Program

Like her ideological forebears from the last century, U.S. Health and Human Services Secretary Kathleen Sebelius is angry that businessmen who are eager to avoid a loss are raising prices.

From the LA Times, Anthem Blue Cross asked to justify controversial rate hikes :

The Obama administration called on Anthem Blue Cross on Monday to justify its controversial new rate hikes of as much as 39% for individual policyholders, saying the increases were alarming at a time when subscribers are facing skyrocketing healthcare costs.

In a letter to the company’s president, Health and Human Services Secretary Kathleen Sebelius voiced serious concern over the rates, which go into effect March 1 for many of the insurer’s estimated 800,000 individual policyholders.

The increases have triggered widespread criticism from Anthem members and brokers, who say the premium hikes will put health coverage out of reach for some and very costly for others.

“With so many families already affected by rising costs, I was very disturbed to learn through media accounts that Anthem Blue Cross plans to raise premiums for its California customers by as much as 39%,” Sebelius wrote to company President Leslie Margolin.

“These extraordinary increases are up to 15 times faster than inflation and threaten to make healthcare unaffordable for hundreds of thousands of Californians, many of whom are already struggling to make ends meet in a difficult economy.”

Let’s get one thing straight;  these increases are entirely due to inflation, and they are likely largely caused by the Obama administration’s stimulus plan. Anthem executives didn’t wake up one morning and say “Hey! Let’s jack up prices so that our customers can no longer afford our product!”  Rather they are increasing prices to deal with the increased costs they anticipate for the coverage they provide.  Now why would they do that?

It turns out that while California has been receiving large amounts of bailout and stimulus funds, the supply of medical service providers has stayed steady.  That new money has largely gone to the California State government’s payroll and to cover their administrative overhead costs.  One of the largest discretionary expense most government employees have is the cost of medical insurance, and the demand for the insurance is relatively inelastic.  This insurance is used to pay for a multitude of doctor’s visits etc.  Thus you have a large pool of people with freshly printed money in their pockets engaged in a bidding war trying to consume an essentially static supply.The winners pay higher prices for the scarce goods, and the losers are left out in the cold.

This phenomenon is precisely how prices increase when whoever controls the money supply engages in inflation.  It’s not mysterious.  It’s not greed.  It is merely a predictable outcome counterfeiting.

This is one favorite method used by totalitarians to justify their seizures of power.  They engage in reckless government spending financed using the printing press.  Then, when these newly printed funds lead to a bidding war between buyers that drives prices up, they use the price increases as a justification for even greater usurpations of power.

If Kathleen Sebelius is serious about reducing prices for health care in California, she should be penning angry letters to the head of the California Medical Licensing Board.  This bullying of a company trying to stay solvent despite an economic storm created by government intervention – while making for very nice populist theater – will contributed nothing positive to the problem.

I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.

Earmark And Healthcare Wars: Ron Paul vs Jeff Flake

A recent article in the Washington Examiner by John Labeaume details the differing approaches to earmarks that two of most libertarian members of Congress have. This difference came out in a vote on an amendment that Flake wrote to H.R. 3791 which was the Fire Grants Reauthorization Act of 2009. The Flake amendment would ban earmarks as defined by Congressional rules. All in all, a modest amendment.

From the Examiner article:

Here’s a gross understatement: Friends of Freedom in the Halls of Congress are few and far between. Asked for a “Real Life” practicing politician that they can actually get behind, it’s not uncommon for libertarians of many stripes to limit their response to two: Rep. Ron Paul (R-TX) and Rep. Jeff Flake (R-AZ).

Dr. Paul has been known to put his own sometimes idiosyncratic principle before practicality, leading his legions of fevered ‘money bombing’ fans along his particular path to ideological purity. His rabid opposition to barrier-busting trade agreements like NAFTA, quibbling with a new panel it might spawn, is a prime example. And this trait can pit his voting record against those of his erstwhile liberty-loving allies, and align himself with curious company.

……………………………

Last month, in an obscure House vote, this stubborn streak reared its head again. It’s a minor, but instructive instance, as Paul was one of only two “nay” votes on his side of the aisle against an amendment to HR 3791, the Fire Grants Reauthorization Act of 2009, offered by his fellow Constitutional conservator, Flake.

The only Republican lined up with Paul – and against Flake – was that egregious earmarker, Rep. Jerry Lewis (R-CA), the Ranking Member on Appropriations. Like his Showbiz namesake, the collegial Lewis’ look could pass for that of a 70’s “Nite Club” act and he certainly knows how to work a room, but he’s dead serious about defending Appropriators’ perks and the practice of earmarking.

Flake’s amendment was modest.

It merely seeks to ensure a competitive, need-based process for parceling out the firefighting grants authorized by the bill. The mechanism was aptly judicious: it enforces the bill’s ban on earmarking. If opened to earmarks, Flake fears that influential Members – like Lewis – could divert dollars to their districts, away from regions with less congressional clout, but in more dire need of an occasional emergency blaze dousing, admittedly not unlike the maverick Flake’s sometimes-parched Southwestern home base. Of course, and more significantly, once Members start horse trading in earmarks, the price tag tends to swell even beyond the bloated figure originally authorized.

Again, Paul stuck to his guns and stood by his controversial defense of earmarking, and let the red light glow next to his name on the big board above the Speaker’s Chair. His office told me, via an email statement, that Paul maintains that “that all spending should be earmarked as this provides the greatest transparency [and]…gives constituents an opportunity for input regarding how their tax dollars are spent.” The statement paid obligatory lip service to “drastically” reducing spending.

But this last line begs the question: what if that “input regarding how” just means “more,” and “for me”?

Before I go into the crux of the debate, my position on earmarking is this:

  • I don’t have a problem with earmarking in general because yes Congressmen should know the needs of their districts better than Federal bureaucrats.
  • However, earmarks lately have been a vehicle for corruption as Congresscritters reward supporters and campaign contributors with things that would be considered bribery under most circumstances (see John Murtha and the aforementioned Jerry Lewis, et al).
  • In addition, the earmarking process has been used as a way to short circuit the competitive bidding process and award contracts to politically connected companies.
  • Earmarks generally reward politically connected members of Congress and promote wasteful spending, however this is no different than other actions of Congress and the Federal government.
  • Therefore, I am a supporter of earmark reform, but I also realize that earmarks are only a portion of the overall problem with wasteful government spending and political corruption.

I believe that Jeff Flake is correct on this issue and I generally support his fight for earmark reform, Ron Paul’s opposition not withstanding. Earmark reform won’t eliminate wasteful spending and political corruption, but it will make a sizable reduction in both. It will also make it easier to defeat incumbent members of Congress as it will give incumbent members of Congress who bribe their constituents less ability to do so and therefore will increase turnover in Congress.

The Examiner article also attacked Ron Paul for not paying attention to the current healthcare fight:

With a scheme that threatens to regulate one-sixth of the U.S. economy wending its way through the legislative sausage-maker, Flake is focused. Glance at his home page; note the repeated references to health care from his multimedia page. Here’s a flurry of press releases issued in the heat of the House debate.

Meanwhile, Paul’s immediate obsession is trained on legalizing Liberty Dollars. Even though this health care overhaul threatens his livelihood – Dr. Paul is a physician by vocation, remember – from his homepage, you wouldn’t know that this issue looms over Washington one bit. Health care merits only a few addresses in Paul’s posted floor statements and press releases from the entire 111th Congress.

And though his official U.S. House site’s blog offers a few posts on this matter, his political arm, Campaign for Liberty, touts a recent interview with a right wing satellite shock jock, a self-styled “King Dude” whose trademark is liberal-lampooning novelty tunes. (Premium content, only for “King Dude” backstage pass holders, sorry.) During the interview, C4L’s homepage boasts, Dr. Paul discusses his pet “issues including Audit the Fed, Social Security, foreign policy, and nullification.” Number of mentions of healthcare? Zero. He didn’t even warble through a single “Death Panel” ditty.

………………………………………

Paul’s Campaign for Liberty sent out an action item, with orders to his loyal legions to contact Congress and demand a floor vote on his “Audit the Fed” bill, one that House leadership has no intention of unbottling.

As ‘Armageddon Day’ for health care regulation approaches, instead of taking up his scalpel to trim a behemoth, Dr. Paul is fiddling with the Fed.

Unfortunately for Labeaume, this is simply not true. Ron Paul has actually been focused, somewhat, on the healthcare debate. For example, the Campaign for Liberty, on its front page has a link to a project called Operation Health Freedom. Some of the proposed legislation in the project even made its wayhttp://www.thelibertypapers.org/wp-admin/post-new.php into the GOP’s alternative bill. Also, the Campaign for Liberty has been featuring articles almost daily on healthcare. Also if you look at Ron Paul’s House site as compared to Jeff Flake’s House site, you’ll see more writings about healthcare from Ron Paul and his office than from Jeff Flake and his office. I don’t begrudge Jeff Flake on the healthcare issue at all, but to say Ron Paul is disengaged from the healthcare fight is either the result of shoddy research at best or outright dishonesty at worst.

As for Ron Paul’s obsessions with the Federal Reserve, nullification, and foreign policy; that can be traced to Ron Paul’s political style more than anything. Paul is a populist oriented libertarian where as Jeff Flake is more a policy wonk libertarian. Flake’s big issues are earmark reform, immigration reform, and free trade which are more keeping of a former head of a think tank (which Flake was before his election to Congress). Paul’s issues are more geared toward a broad, populist appeal where as Flake’s issues are more appealing to political junkies and wonkish types.

As Nick Gillespie from Reason’s Hit and Run wrote:

To paraphrase Todd (“Godd”) Rundgren, sometimes I don’t know what to feel. Can’t we all just get along, and denounce the Fed and health care reform and earmarks and out-of-control spending? I’m sure we can.

Indeed.

I’m one of the original co-founders of The Liberty Papers all the way back in 2005. Since then, I wound up doing this blogging thing professionally. Now I’m running the site now. You can find my other work at IJ Review.com and Rare. You can also find me over at the R Street Institute.

Preach It, Brother Bunning!

Kentucky Senator Jim Bunning: not a fan of Helicopter Ben:

Four years ago when you came before the Senate for confirmation to be Chairman of the Federal Reserve, I was the only Senator to vote against you. In fact, I was the only Senator to even raise serious concerns about you. I opposed you because I knew you would continue the legacy of Alan Greenspan, and I was right. But I did not know how right I would be and could not begin to imagine how wrong you would be in the following four years.

The Greenspan legacy on monetary policy was breaking from the Taylor Rule to provide easy money, and thus inflate bubbles. Not only did you continue that policy when you took control of the Fed, but you supported every Greenspan rate decision when you were on the Fed earlier this decade. Sometimes you even wanted to go further and provide even more easy money than Chairman Greenspan. As recently as a letter you sent me two weeks ago, you still refuse to admit Fed actions played any role in inflating the housing bubble despite overwhelming evidence and the consensus of economists to the contrary.

Alan Greenspan refused to look for bubbles or try to do anything other than create them. Likewise, it is clear from your statements over the last four years that you failed to spot the housing bubble despite many warnings.

Chairman Greenspan’s attitude toward regulating banks was much like his attitude toward consumer protection. Instead of close supervision of the biggest and most dangerous banks, he ignored the growing balance sheets and increasing risk. You did no better. In fact, under your watch every one of the major banks failed or would have failed if you did not bail them out.

Now, I want to read you a quote: “I believe that the tools available to the banking agencies, including the ability to require adequate capital and an effective bank receivership process are sufficient to allow the agencies to minimize the systemic risks associated with large banks. Moreover, the agencies have made clear that no bank is too-big-too-fail, so that bank management, shareholders, and un-insured debt holders understand that they will not escape the consequences of excessive risk-taking. In short, although vigilance is necessary, I believe the systemic risk inherent in the banking system is well-managed and well-controlled.”

That should sound familiar, since it was part of your response to a question I asked about the systemic risk of large financial institutions at your last confirmation hearing. I’m going to ask that the full question and answer be included in today’s hearing record.

Now, if that statement was true and you had acted according to it, I might be supporting your nomination today. But since then, you have decided that just about every large bank, investment bank, insurance company, and even some industrial companies are too big to fail. Rather than making management, shareholders, and debt holders feel the consequences of their risk-taking, you bailed them out. In short, you are the definition of moral hazard.

From monetary policy to regulation, consumer protection, transparency, and independence, your time as Fed Chairman has been a failure.

There’s a lot more red meat in there, so I do suggest you go read the whole thing. I excerpted a lot of the sizzle, but Bunning backs up his points with even more of Greenspan’s record.

But hey, Ben, it’s not quite fair to say we’re trying to fire you… We’re just giving you the opportunity to pursue excellence elsewhere.

Hat Tip: The Big Picture (Tim Iacono)

Conspiracy Theory Of The Day

Goldbugs have long-believed that central banks try to manipulate the price of gold, i.e. dumping gold onto the market at certain times to keep the price down, then slowly re-acquiring it after the spike passes, etc. But in an era where the goldbugs are predicting $2000/oz and higher (I’ve seen predictions of $5000/oz), I don’t think the central banks have enough gold in their vaults to blunt that rise — and even worse, if they made a concerted effort to dump it, that very signal would push prices through the roof. Even worse, it’s a prisoner’s dilemma. The central banks are helped if they all dump the gold, but if one goes rogue and starts buying it all up, it ruins the plan for all of them.

So no, the central banks can’t just dump their gold onto the market. Yet they have serious fears that the public senses the inflationary forces in the world and are looking for a hedge. And they REALLY don’t want the gold price to spike and fuel those fears.

So what if they created a scare in the gold market about purity? Instead of giving people trust in their own currencies, what if they tried to impugn trust in the ability to buy real gold?

The initial discovery was something like four gold bars, which the Hong Kong bankers drilled invasively to test the contents. Reminds me of drilling the earth and measuring how many grams of gold per tonne. The HK bankers hoped to have 99% gold yield in their drill program for the resident bars. They found something like 1% instead and 99% tungsten. By the way, tungsten sells for less than $70 per ton, which makes its swaps for gold to be 60x more profitable than silver bar swaps. Another handy usage for the Gold/Silver ratio in calculations. The hunt was on. Now not a single assayer on the planet is available, as all are tied up. They have been commissioned to test the gold bars shipped from the United States of Fraudulent Banker America in their own bullion vaults. They use basic methods of four drill holes with direct assay of shavings, but also less invasive methods like electro-magnetic waves to examine the metal lattice structure. When highest level methods are needed, they turn to mass spectrometry. NOW ALMOST NO GOLD BARS WILL LEAVE THE LONDON OR NEW YORK METALS EXCHANGES WITHOUT SOME AUTHENTICATION, AS DISTRUST IS WIDESPREAD.

Think, for a second, what a diabolical scheme this would be, if perpetrated by central banks.

In a move they can blame on simple counterfeiters (trying to pass off the tungsten as if it were gold at a huge profit), they can paralyze the entire gold market in a fear that if you buy gold, it won’t be real. They can try to destroy demand for gold in such a way that — if undiscovered — would never be traced to them. All this while keeping all their gold safely in their vaults and devaluing their fiat currencies.

Now, I’m not going to up and claim that such a scheme is being perpetrated. But would you put it past the central bankers, a group of people desperate to keep faith in their own fiat currencies — since faith is the only thing that backs them?

National Debt Tops $ 12,000,000,000,000

Just 247 days after topping $ 11 trillion and 414 days since passing the $ 10 trillion mark, America’s national debt is now above the eye-popping level of twelve trillion dollars:

It’s another record-high for the U.S. National Debt which today topped the $12-trillion mark. Divided evenly among the U.S. population, it amounts to $38,974.34 for every man, woman and child.

Technically, the debt hit the new high yesterday, but it was posted on the Treasury Department website just after 3:00 p.m. ET today. The exact calculation of the debt is a 16-digit tongue-twister and red-ink tsunami: $12,031,299,186,290.07

This latest milestone in the ever-rising journey of the National Debt comes less than eight months after it hit $11 trillion for the first time. The latest high-point is not unexpected, considering the federal deficit for the just-ended 2009 fiscal year hit an all-time high at $1.42-trillion – more than triple the previous year’s record high.

Much of the increase in the deficit and debt is attributed to government spending outpacing revenue – both exacerbated by the recession and the government response to it – including hundreds of billions in bailouts and stimulus spending and tax cuts along with decreased tax revenues due to rising unemployment.

In recent days, President Obama has spoken of the need to bring the rising deficit and debt under control.

“I intend to take serious steps to reduce America’s long-term deficit – because debt-driven growth cannot fuel America’s long-term prosperity,” he said in remarks prepared for delivery to the leader’s meeting last Sunday at the Asia Pacific Economic Cooperation summit.

The National Debt has increased about $1.6 trillion on Mr. Obama’s watch, though less than $4.9 trillion run up during the presidency of George W. Bush.

Of course, Obama has only been in office ten months, not eight years.

Since Barack Obama took the Oath of Office, the national debt has increased from $ 10,626,877,048,913.08 to $ 12,031,299,186,290.07. That’s an increase of $ 1,404,422,137,376.99 over 302 days, or $ 4,650,404,428.40 per day, $ 193,766,851.18 per hour, $ 3,229,447.52 per minute, and $ 53,824.13 per second.

Anyone want to bet how long it will take to get to $ 13 trillion ?

My guess is August 15, 2010.

Babs Boxer Will Do Anything For Re-Election: Even Cosponsor S.604!

Back in July, I sent letters to Barbara Boxer and Dianne Feinstein urging them to support or even cosponsor S.604, the Audit-The-Fed bill. I received the typical mealy-mouthed responses (posted below after the fold), and like a bad blogger I never actually mentioned the responses here. How mealy-mouthed was Boxer’s response? Well, THIS was the most substantive thing she said:

I believe that all citizens should become involved in the legislative process by letting their voices be heard, and I appreciate the time and effort that you took to share your thoughts with me. One of the most important aspects of my job is keeping informed about the views of my constituents, and I welcome your comments so that I may continue to represent California to the best of my ability. Should I have the opportunity to consider legislation on this or similar issues, I will keep your views in mind.

Great… You thank me for sharing my thoughts. I feel empowered!

What you don’t say is anything whatsoever regarding your opinion on the legislation (at least Feinstein gave me *something*). So how do I interpret your letter?

‘I’m gonna put my finger up in the air and see which way the wind blows, because I have a vulnerable seat in 2010 and I don’t want to piss anyone off. If I see any benefit to myself, I might at some point take a position on this legislation.’

So, today, when I was reading United Liberty, I was reminded of S.604, and decided to check to see if there were any surprises. And to my astonishment, there was! Barbara Boxer actually co-sponsored S.604!!

Do I think she’s really all that interested in an audit of the Federal Reserve? Not from the email response I received. But hey, she knows a populist wave when she sees one, and she’s gonna ride this one to Nov 2010.

There are a lot of forces assembling behind the Audit the Fed movement. Those forces are having traction. Enough traction, in fact, to get a California Democratic Senator to fall into line. It may be a political calculation, but if someone like Boxer has to make that calculation, it proves that there’s actually some real mojo here. Congratulations are due to Ron Paul, because without his tireless work in the House, we wouldn’t be this close to a serious review of what goes on at the Fed.
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Why You Should Support Auditing The Fed

The Fed is tasked with the dual goals of price stability and restraining inflation. Folks like myself would suggest it hasn’t done a very good job of either, but that’s not crucial to the question of whether we should be able to determine how they’re attempting to fulfill their mission.

Particularly irksome when we’re talking about an audit is the fact that they’ve just admitted to engaging in gold swaps, influencing the gold price, in opposition to past denials and with the assertion that they should be able to continue hiding the specifics:

The Federal Reserve System has disclosed to the Gold Anti-Trust Action Committee Inc. that it has gold swap arrangements with foreign banks that it does not want the public to know about.

The disclosure, GATA says, contradicts denials provided by the Fed to GATA in 2001 and suggests that the Fed is indeed very much involved in the surreptitious international central bank manipulation of the gold price particularly and the currency markets generally.

The Fed’s disclosure came this week in a letter to GATA’s Washington-area lawyer, William J. Olson of Vienna, Virginia (http://www.lawandfreedom.com/), denying GATA’s administrative appeal of a freedom-of-information request to the Fed for information about gold swaps, transactions in which monetary gold is temporarily exchanged between central banks or between central banks and bullion banks. (See the International Monetary Fund’s treatise on gold swaps here: http://www.imf.org/external/bopage/pdf/99-10.pdf.)

Gold has been flirting with the $1000/oz level for several weeks (topping it a few times). Those in the gold market have long believed that central banks are suppressing the price to keep fears of inflation from hitting the roof.

How much longer do we have to allow the fed to lie to us, and then when we catch them red-handed, assert that they know well enough that we have to let them hide details on top of their lies?

I say we audit the fed. Then End The Fed.

Chinese Worried Obamacare Is Too Expensive For Them To Pay For

Obama says that he won’t sign a healthcare bill that adds one dime to the deficit. I hope he’s right about that, because the people who are financing that deficit are a tad bit worried about the prospect:

And yet, there was budget director Peter Orszag rushing to a lunch with Chinese bureaucrats on a Monday in late July. To his surprise, when Orszag arrived at the site of the annual U.S.-China Strategic and Economic Dialogue (S&ED), the Chinese didn’t dwell on the Wall Street meltdown or the global recession. The bureaucrats at his table mostly wanted to know about health care reform, which Orszag has helped shepherd. “They were intrigued by the most recent legislative developments,” Orszag says. “It was like, ‘You’re fresh from the field, what can you tell us?’?”

As it happens, health care is much on the minds of the Chinese these days. Over the last few years, as China has become the world’s largest purchaser of Treasury bonds, the government has grown increasingly sophisticated in its understanding of U.S. budget deficits. The issue has become all the more pressing in recent months, as the financial crisis and recession pushed the deficit to record levels. With nearly half of their $2 trillion in foreign currency reserves invested in U.S. bonds alone, the Chinese are understandably concerned about our creditworthiness. And this concern has brought them ineluctably to the issue of health care. “At some point, if you refuse to contain health care costs, you’ll go bankrupt,” says Andy Xie, a prominent Shanghai-based economist, formerly of Morgan Stanley. “It’s widely known among [Chinese] policymakers.” Xie himself wrote a much-read piece on the subject in 2007 for Caijing magazine–kind of the Chinese version of Fortune.

The Chinese, unfortunately for them, have worked their way into a suicide pact with America. They are simply too heavily invested here to see any serious problems with our economy, government, or monetary base. Had they not spent the last decade buying up enormous Treasury holdings, they could let us implode our economy and “fix” our debt/spending issues through debasing our currency, and then swoop in to buy assets on the cheap once we hit bottom. But that’s not on the agenda. If we take the low road, we’re towing them along for the ride.

Obama says he won’t accept a bill that adds to the deficit. I don’t believe him, since I’ve already seen him fail to live up to his promises on taxes and legislative transparency. Even worse, though, he’s got the folks who plan to finance that deficit worried. And the last group you want to scare are the ones you’re trying to get to lend you money.

Hat Tip: Ezra Klein

Inflation Causes Misallocation of Production

The spike in car buying has caused automakers to ramp up production (via John Stossel):

Many auto industry analysts and dealers expect sales volumes to fall now that the program is over. They worry that many people who took advantage of the program were merely accelerating purchases they would have made later in the year.

If that’s true, the premature sales could hurt automakers, which increased production in the third quarter to replenish clunker-depleted inventories that had already grown low because of factory shutdowns over the summer.

Cash for Clunkers is essentially an inflationary policy. This is a policy well described by Adam Smith Milton Friedman, with the exact same consequence:

In a dynamic world demands are always shifting, some prices going up, some going down. The general signal of increasing demand will be confused with the specific signals reflecting changes in relative demands. That is why the initial side of faster monetary growth is an appearance of prosperity and greater employment. But sooner or later the signal will get through.

As it does, workers, manufacturers, retailers will discover that they have been fooled. They reacted to higher demand for the small number of things they sell in the mistaken belief that the higher demand was special to them and hence would not much affect the prices of the many things they buy.

The government has arbitrarily and falsely increased demand for a specific good (new cars). They’ve done so by throwing money at it (a locally inflationary policy) and the automakers are ramping up production in response to what they THINK is a more stable recovery. But they may soon find, as Adam Smith Friedman predicted, that they have been fooled.

Obama: You’re doing a heck’uva job, Bernie

Continuing his George Costanzaesque presidency, Obama has decided to reappoint Ben “Helicopter” Bernanke to another term on the Fed.

Here’s what Obama had to say:

Ben approached a financial system on the verge of collapse with calm and wisdom; with bold action and outside-the-box thinking that has helped put the brakes on our economic freefall

I thought it might be useful to take a look at some highlights of this Solon, this central – planner whom George Bush put in charge of the money supply:

Of course, as usual, Obama is dead wrong: the Federal Reserve’s actions have actually prolonged the downturn, made it worse, and have laid the foundations for an even bigger crash down the road.

Monetary Base of U.S. Dollar

In the days before the election, I told many of my fellow Massachusetts residents that Obama was not so much a break from George Bush as a continuation of his worst policies. I am sorry to say that he has been proving me right since. And this is yet another nail in the coffin of an administration that is showing itself to be even more incompetent than the Bush presidency.

I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.

Government Abandons Lying; Resorts To Pure Naked Threats

I’m at a loss. I don’t know what world can justify this, and can only hope that my readers will be just as appalled as I am, because I have nothing to add.

WASHINGTON (AP) — Former Treasury Secretary Henry Paulson testified on Thursday that he pressured Bank of America Corp. last year to go through with its plans to buy Merrill Lynch but didn’t tell the bank’s chief to hide potential losses from shareholders.

Paulson acknowledged that he warned the bank’s CEO, Kenneth Lewis, that Lewis could lose his job if he dropped the deal. Paulson also said he pledged government aid to the bank but declined to put that promise in writing because the details would have been vague and would have to be disclosed publicly by the Treasury Department.

In testimony to the committee, Paulson said he told Lewis last year that reneging on his promise to purchase Merrill Lynch would show a “colossal lack of judgment.”

Paulson said that “under such circumstances,” the Federal Reserve would be justified in removing management at the bank.

“By referring to the Federal Reserve’s supervisory powers, I intended to deliver a strong message reinforcing the view that had been consistently expressed by the Federal Reserve, as Bank of America’s regulator, and shared by the Treasury, that it would be unthinkable for Bank of America to take this destructive action for which there was no reasonable legal basis and which would show a lack of judgment,” Paulson said.

Paulson said he believed his remarks to Lewis were “appropriate.”

Federal Reserve Chairman Ben Bernanke has denied threatening to oust Lewis and said he never told anyone else to, either. But another Fed official suggested otherwise in an e-mail obtained by House investigators.

Jeffrey Lacker, president of the Richmond Federal Reserve Bank, said in a December 2008 e-mail that Bernanke had planned to make “even more clear” that if Bank of America backed out on the deal, “management is gone.”

Paulson said Bernanke never asked him to relay the message. But, he added, he believed he was expressing the Fed’s opinion that dropping the deal “would raise serious questions about the competence and judgment of Bank of America’s management and board.”

I’ve previously covered this type of activity by Paulson & Bernanke here and here.

Letters To Boxer & Feinstein To Support S.604 On Auditing The Fed

Below is the text of a letter I’ve sent to Senators Barbara Boxer and Dianne Feinstein. H.R. 1207 (introduced by Ron Paul) and S. 604 (introduced by Bernie Sanders) is a bill that requires the Comptroller General to audit the Fed and report back to Congress within the next 18 months. Given that the only oversight they undergo is occasionally having Bernanke lie and befuddle Congress with confusing non-answers, I think it makes sense.

The below letter should be read as a potential template for readers to use when writing to your own Senators and Congressmen. However, there are two caveats to this. First, there are a few points here about California, as we have had some special challenges throughout the tech crunch and the housing collapse. Second, the tone of the letters is geared towards Democrats. If you’re sending this to Republicans, it would make sense to change the language in certain areas.

Either way, I wanted to provide potential talking points for readers who want to contact their Senators and get this ball moving.

July 9, 2009

Dear Senator XXXXX,

Senate bill S.604, a bill to require the Comptroller General of the US to audit the Federal Reserve, is currently under review with the Senate Committee on Banking, Housing, and Urban Affairs. I am writing to urge your support for this bill.

California has been the epicenter of two asset bubbles over the last two decades: the high tech bubble and the housing bubble. Both brought the illusion of wealth to our state, and both caused much pain to our residents and our state government when they collapsed. There are many causes of asset bubbles, but chief among them are the loose monetary policies of the Federal Reserve. These policies cause malinvestment and excessive speculation, the hallmark of any bubble.

The Federal Reserve policies of Alan Greenspan and continued by Ben Bernanke are placing the financial system of the United States in jeopardy. These policies are largely undertaken without Congressional or Federal oversight, and benefit the interests of our financial sector at the expense of our citizens.

Most recently, the Fed has expanded their balance sheet to $2T buying securities, all the while engaging in a policy of “quantitative easing”, which is the euphemistic term for “printing money”. These policies are unprecedented in American history, and their long-term effects may be far worse than the problems they’re expected to address today.

S. 604’s sister bill in the House (H.R. 1207) has widespread bipartisan support, and over 250 cosponsors – including 25 from California. S. 604 is rapidly gaining sponsorship in the senate, with three additional cosponsors added in the last several days to a (now) total of 7 sponsors.

The Federal Reserve is adopting policies that affect every American at the core of their economic life – the value of our dollars and the value of our homes. They are making these decisions without meaningful Congressional oversight and without allowing anyone to “check the books”.

Congress has a duty to Americans to ensure that the Federal Reserve is acting in our interests, and the first step to doing so is to understand what they’ve already done. An audit is necessary. I hope that I’ve convinced you to support and possibly cosponsor S.604.

Sincerely,
Brad Warbiany

(Followed by contact info)

Give it a shot. I prefer to fax things to elected officials, as I believe there to be a more definitive tactical feel to actual paper. When they see that it’s printed out and faxed, I think it carries a little bit more significance than an email. I also emailed this to both of them, just in case their staffers are more likely to read one than the other.

Pope Benedict XVI Would Make Marx Proud

Pope Benedict XVI has decided to wade into territory which he has no understanding or expertise: the global economy. The New York Times reports that the pope is now calling for a “New World Economic Order”*

VATICAN CITY — Pope Benedict XVI on Tuesday called for a radical rethinking of the global economy, criticizing a growing divide between rich and poor and urging the establishment of a “world political authority” to oversee the economy and work for the “common good.”

He criticized the current economic system, “where the pernicious effects of sin are evident,” and urged financiers in particular to “rediscover the genuinely ethical foundation of their activity.

I have to ask the question to my Catholic friends who believe in Papal infallibility that also happen to believe in free market capitalism: how do you square the two philosophies? (Argument withdrawn; I am by no means infallible and was lacking in my understanding of this concept)

The article continues:

In many ways, the document is a somewhat puzzling cross between an anti-globalization tract and a government white paper, another indication that the Vatican does not comfortably fit into traditional political categories of right and left.

“There are paragraphs that sound like Ayn Rand, next to paragraphs that sound like ‘The Grapes of Wrath.’ That’s quite intentional,” Vincent J. Miller, a theologian at the University of Dayton, a Catholic institution in Ohio, said in a telephone interview.

“He’ll wax poetically about the virtuous capitalist, but then he’ll give you this very clear analysis of the ways in which global capital and the shareholder system cause managers to focus on short term good at the expense of the community, of workers, of the environment.”

Indeed, sometimes Benedict sounds like an old-school European socialist, lamenting the decline of the social welfare state and praising the “importance” of labor unions to protect workers. Without stable work, he notes, people lose hope and tend not to get married and have children.

Sorry padre, you can’t have it both ways. If you truly believe the Communist/Socialist model is morally superior to Capitalism (an admittedly selfish system by honest supporters such as Ayn Rand) just come out and say so! If one honestly reads the scriptures, one will see that the teachings of Christ are much more in line with Karl Marx than Adam Smith.

But wait, it gets worse…

Benedict also calls for a reform of the United Nations so that there can be a unified “global political body” that allows the less powerful of the earth to have a voice, and calls on rich nations to help less fortunate ones.

In other words, the U.N. should force the citizens of the most efficient and productive nations at gun point to give money to people in nations who are less efficient and less productive in large part because they subscribe to the philosophy of the Pope: “From each according to his ability, to each according to his need.” There’s a word for this; it’s called extortion.

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