|March 09, 2011||A little understanding goes a long way||no comments|
|February 19, 2010||The Constitution, Secession and Sound Money||6 comments|
|November 09, 2009||Learning Economic lessons the hard way||12 comments|
|November 09, 2009||The incompetency of Bureaucracies to project cost||no comments|
|November 09, 2009||First Draft of Letter to the States By State Representative Susan Lynn, Tennessee||1 comments|
As the world confronts one of the most critical periods of economic upheaval that it has ever seen, it is clear that our most influential economic stewards have absolutely no idea what they are doing. But, like kids with a new chemistry set, they are nevertheless unwilling to let that stand in the way of their experimental fun. As they pour an ever-growing number of volatile ingredients into their test tubes, we can either hope that they magically stumble on the secret formula to cure the world’s ills, or more pragmatically, we can try to prepare for the explosion that is likely to result.
Recent comments from current and former Federal Reserve Chairmen, and from the leaders of the European Central Bank, have starkly illustrated this stunning lack of understanding. In an extended interview on CNBC today, former Fed Chairman Alan Greenspan, once considered the sagest of all economic gurus, admitted that he had no idea whether the Fed’s current quantitative easing program will help or hurt the economy. The Maestro simply said that we must wait and see, and if positive economic indicators come, then we may begin considering the policy to be a success. That’s some serious insight.
In other words, after dedicating his life to the study of macroeconomics, Greenspan is left with no deep understanding of how the injection of trillions of dollars of printed money affects an economy. The chicken who plays tic-tac-toe in Chinatown could likely offer the same level of critical analysis. To paraphrase Nancy Pelosi: according to Greenspan, we have to conclude the policy to know if it works. Although I have never been thought of as an economic expert by anyone with actual access to power, permit me to offer a thought on the subject: printing money creates inflation, which weakens an economy. Unfortunately, this kind of common-sense thinking never seems to penetrate academic circles.
Without fundamental understanding, all economists are left with is surface analysis of current data and an inclination to play probability and statistics. This is like a meteorologist opening the window, checking current conditions, and making predictions based on analysis of recent days. While this may be useful, it is no substitute for an understanding of atmospheric dynamics and climatology. In his interview, Greenspan essentially confirmed this bias for “open window” economics, saying that Ben Bernanke and Jean-Claude Trichet both follow the same models, but with different statistical sensitivities: Bernanke toward growth data and Trichet toward inflation data. In that sense, both are no better than Las Vegas odds-makers, with one putting his chips on inflation risk and the other betting on recession risk.
This gambler's approach helps explain why economists fail to understand the obvious benefits of a strong currency. According to people like Bernanke, a weak currency is like an ace up the sleeve, a clever way to undercut the competition. The problem is either everyone does it and the game ends up swimming in aces, or Bernanke gets caught and other countries decided they don't want to play anymore (sell Treasuries).
Conventional warfare in this arena used to involve central bank buying and selling currency reserves in the open. But in the aftermath of the financial crisis, these timid measures were abandoned. In the last few years, the United States has upped the ante and brought out unconventional weaponry. The trillions of dollars printed by the Fed are the economic equivalent of carpet bombing. Initially our enemies responded in kind, and sought to devalue their currencies in lock step. They fought fire with fire and showered liquidity on their own economies. However, as the collateral damage mounted in the form of surging food and energy prices, they have begun sounding the general retreat.
In an interview on CNBC this week, James Bullard, the President of the Federal Reserve Bank of St. Louis, claimed that the Fed’s easy money policies were not responsible for inflation overseas, arguing that foreign central banks had a choice. They could have allowed their currencies to rise, which would have kept prices from rising in their internal markets. Instead, they chose to prevent their currencies from rising – thereby importing our inflation. In other words, they had to choose between exchange rate stability and price stability. Apparently, they couldn’t stand the heat, so they are getting out of the kitchen.
Bernanke’s recent testimony before Congress, in which he argued that the Fed can’t be blamed for rising commodity prices, will surely increase international unease. Yet still, as the issuer of the world’s reserve currency, the Fed is blazing a trail that other central banks feel compelled to follow. It is no coincidence that inflation is highest in those nations that maintain a peg against the dollar. But making this fundamental connection is beyond the ability of our statistician-in-chief.
Bernanke makes another fundamental error by blaming higher commodity prices on faster global growth. Growing economies produce more stuff, which keeps prices in check. However, if money supply grows faster than production, prices rise. So, the increased demand to which Bernanke refers is merely a function of more money, not faster growth.
In the end, we will overwhelm our competitors with a show of extreme force. By the time the Fed rolls out QE IV or QE V, the US will emerge as the undisputed winner of the currency war. To the victor goes the spoils, which, in this case, will be higher consumer prices and interest rates and lower standards of living. On the other hand, the losers will enjoy rising living standards, as their stronger currencies serve to lower prices and increase consumption. If that doesn’t make perfect sense, maybe we should run it by the chicken.
First of all, there is no constitutional justification for maintaining a standing military during peace time, only a standing Navy. The State governments have militia for that purpose. The right of secession was held by the sovereign states as a recourse to the federal government’s violations of the compact (Constitution). States do reserve and have always reserved the right to secede if they chose to do so. The states and their people are sovereign. The federal government is an agent that serves at the behest of the states, not the other way around. Perpetual Union means that there is no definite time in the future that the compact between the states forming the Union sunsets. It does not mean that they have signed a suicide pact and cannot leave under any circumstances. I do not advocate for the dissolution of the glorious union. But when faced with the decision of choosing between liberty and tyranny under the Union, I choose Liberty. Finally, on the issue of currency. Currency where the constitution is concerned gave the Federal government the authority to regulate through a uniform system of weights and measures, defining the Dollar as a name for a unit weight of commodity currency, To Wit, gold. Therefore the name Dollar in the classical sense meant 1/20 of an ounce of gold. Now through the fiat monetary system we have today the name has no connection whatsoever with commodity weight. The states still reserve the power to coin money and tender payments in gold and silver only. They don't however, have the power to print money, but then neither does the the federal government. The Federal Reserve is therefore unconstitutional. The free market should choose the medium for exchange and regulate its integrity through competition just like any other commodity on the market. Why should Money be any different? There would be, as a result of state criminal statutes against fraud and a free market competition in currency, a negligible amount of counterfeiting going on in a competitive currency free market situation. The mass counterfeiting efforts being undertaken today are by our own Federal government. Money must be returned to the free market from whence it came in order to restore, not just economic stability, but to also restore monetary stability and integrity.
Obviously we haven’t learned our lessons from the many market bubbles created in our past by the Feds Loose monetary policies. We are once again trying to prop up various failing markets and reward those in the market who acted irresponsibly with the very same poisons that caused the economic turmoil to begin with. The only way we can get back to any sense of equilibrium in the market is by removing the government from the equation and allowing deflation to take place. Then the real market bottom can be found. Prices will then meet real market demand thats based on savings and personal productive efforts and not inflationary money creation out of thin air. Then the malinvestments can be cleared from the market and production can resume based upon real capital formation. Capital and labor can then be redirected by the market into their most productive and profitable ends. We don't need government central planners and social engineers to further worsen the situation with yet more governmental interventions. We need our liberties and the free market (not Crony Capitalism) now more than ever. We need to get back to the Constitution and heed the advice of the founders when they advised against having a central bank. They warned us about the evils of inflation and how destructive it would be to this great Republic and our personal liberties.
Below is a Wall street journal article dated October 20, 2009. It is very revealing as to the incompetency of the bureaucrats that we send to Washington and their fundamental lack of understanding of how to project finance and cost. Which will, by the way, never happen in a government run monopoly, because the resources will be directed based on political concerns and not economic concerns. There is also a lack of understanding of economic science and the US Constitution among these same individuals. These are among the many other programs, with their massive cost overruns, that Washington has created over the past four decades and has run into insolvency. This is all in addition to the Unconstitutionality of all these failed programs. Here is the article.
Health Costs and History
Government programs always exceed their spending estimates.
Dated- Oct. 20, 2009- Wall Street Journal
Washington has just run a $1.4 trillion budget deficit for fiscal 2009, even as we are told a new health-care entitlement will reduce red ink by $81 billion over 10 years. To believe that fantastic claim, you have to ignore everything we know about Washington and the history of government health-care programs. For the record, we decided to take a look at how previous federal forecasts matched what later happened. It isn't pretty. Let's start with the claim that a more pervasive federal role will restrain costs and thus make health care more affordable. We know that over the past four decades precisely the opposite has occurred. Prior to the creation of Medicare and Medicaid in 1965, health-care inflation ran slightly faster than overall inflation. In the years since, medical inflation has climbed 2.3 times faster than cost increases elsewhere in the economy. Much of this reflects advances in technology and expensive treatments, but the contrast does contradict the claim of government as a benign cost saver. Next let's examine the record of Congressional forecasters in predicting costs. Start with Medicaid, the joint state-federal program for the poor. The House Ways and Means Committee estimated that its first-year costs would be $238 million. Instead it hit more than $1 billion, and costs have kept climbing. Thanks in part to expansions promoted by California's Henry Waxman, a principal author of the current House bill, Medicaid now costs 37 times more than it did when it was launched—after adjusting for inflation. Its current cost is $251 billion, up 24.7% or $50 billion in fiscal 2009 alone, and that's before the health-care bill covers millions of new beneficiaries. Medicare has a similar record. In 1965, Congressional budgeters said that it would cost $12 billion in 1990. Its actual cost that year was $90 billion. Whoops. The hospitalization program alone was supposed to cost $9 billion but wound up costing $67 billion. These aren't small forecasting errors. The rate of increase in Medicare spending has outpaced overall inflation in nearly every year (up 9.8% in 2009), so aprogram that began at $4 billion now costs $428 billion. The Medicare program for renal disease was originally estimated in 1973 to cover 11,000 participants. Today it covers 395,000, at a cost of $22 billion. The 1988 Medicare home-care benefit was supposed to cost $4 billion by 1993, but the actual cost was $10 billion, because many more people participated than expected. This is nearly always the case with government programs because their entitlement nature—accepting everyone who meets the age or income limits—means there's no fixed annual budget. One of the few health-care entitlements that has come in well below the original estimate is the 2003 Medicare prescription drug bill. Those costs are now about one-third below the original projections, according to the Medicare actuaries. Part of the reason is lower than expected participation by seniors and savings from generic drugs. But as White House budget director Peter Orszag told Congress when he ran the Congressional Budget Office, the "primary cause" of these cost savings is that "the pricing is coming in better than anticipated, and that is likely a reflection of the competition that's occurring in the private market." The Centers for Medicare and Medicaid Services agrees, stating that "the drug plans competing for Medicare beneficiaries have been able to establish greater than expected savings from aggressive price negotiation." It adds that when given choices "beneficiaries have overwhelmingly selected less costly drug plans." Yet liberal Democrats fought that private-competition model (preferring government drug price controls), just as they are trying to prevent private health plans from competing across state borders now. The lesson here is that spending on nearly all federal benefit programs grows relentlessly once they are established. This history won't stop Democrats bent on ramming their entitlement into law. But every Member who votes for it is guaranteeing larger deficits and higher taxes far into the future. Count on it.
First Draft of Letter to the States
By State Representative Susan Lynn, Tennessee
We send greetings from the Tennessee General Assembly. On June 23, 2009,
House Joint Resolution 108, the State Sovereignty Resolution, was signed
by Governor Phil Bredesen. The Resolution created a committee which has
as its charge to:* Communicate the resolution to the legislatures of the several states, * Assure them that this State continues in the same esteem of their friendship,* Call for a joint working group between the states to enumerate the abuses of authority by the federal government,and
* Seek repeal of the assumption of powers and the imposed mandates.
On July 4, 1776 our founding fathers declared their independence from
the government of Great Britain; thus the united colonies became free
and independent states.The Declaration of Independence established the American view of the rights of man and the duties of government. "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from
the consent of the governed." They concluded by stating that our
"separate but equal station" with Britain and other governments of the
world would give us "full power to levy war, conclude peace, contract
alliances, establish commerce, and to do all other acts and things which
independent states may of right do."In 1787, using the model of the Declaration of Independence as a guide to governance, and following the short lived Articles of Confederation; a Constitution was written which provides seventeen specific powers of the federal government (Article 1, Section 8). In 1789, a Bill of Rights was crafted because "the Conventions of a number of the States, having at the time of their adopting the Constitution, expressed a desire, in order to prevent misconstruction or abuse of its powers"; thus "extending the ground of public confidence in the Government." The Bill of Rights consists of natural rights and rights that serve to secure our natural rights. They make clear that all natural rights not specifically enumerated in the Bill of Rights are protected, and clarify that powers not delegated to the federal government by the Constitution, nor prohibited by it to the states, are reserved for the states and the people. The ensuing amendments either do likewise or establish additional powers and terms for our government. Therefore, we are a collection of free and independent states; the purpose of our political system is to secure for its citizens' their natural rights; and our national government is authorized to carry out the seventeen enumerated powers and powers of the ensuing amendments. At the time of the Constitutional ratification process James Madison drafted the "Virginia Plan" to give Congress general legislative authority and to empower the national judiciary to hear any case that might cause friction among the states, to give the congress a veto over state laws, to empower the national government to use the military against the states, and to eliminate the states' accustomed role in selecting members of Congress. Each one of these proposals was soundly defeated. In fact, Madison made many more attempts to authorize a national veto over state laws, and these were repeatedly defeated as well. So there are clear limits to the power of the federal government.
However, today the simple and clear expression of purpose has turned
into the modern expectation that the national government has an
obligation to ensure our life, to create our liberty, and fund our
pursuit of happiness. The national government has become a complex
system of programs whose purposes lie outside of the responsibilities of
the enumerated powers and of securing our natural rights; programs that
benefit some while others must pay. Today, the federal government seeks to control the salaries of those employed by private business, to change the provisions of private of contracts, to nationalize banks, insurers and auto manufacturers, and to dictate to every person in the land what his or her medical choices will be. Forcing property from employers to provide healthcare, legislating what individuals are and are not entitled to, and using the labor of some so that others can receive money that they did not earn goes far beyond securing natural rights and the enumerated powers. The role of our American government has been blurred, bent, and breached. Adherence to the specific powers and the fundamental American ideal that our government is based on the theory of natural rights expressed ever so simply as the right to life, liberty and the pursuit of happiness and that no government can deny these rights; the rights endowed to us by our creator must be restored. To be sure, the People created the federal government to be their agent for certain enumerated purposes only. The Constitutional ratifying structure was created so it would be clear that it was the People, and not the States, that were doing the ratifying. The Tenth Amendment defines the total scope of federal power as being that which has been delegated by the people to the federal government, and also that which is absolutely necessary to advancing those powers specifically enumerated in the Constitution of the United States. The rest is to be handled by the state governments, or locally, by the people themselves. The Constitution does not include a congressional power to override state laws. It does not give the judicial branch unlimited jurisdiction over all matters. It does not provide Congress with the power to legislate over everything. This is verified by the simple fact that attempts to make these principles part of the Constitution were soundly rejected by its signers. With this in mind, any federal attempt to legislate beyond the Constitutional limits of Congress' authority is a usurpation of state sovereignty - and unconstitutional. Governments and political leaders are best held accountable to the will of the people when government is local. The people of a state know what is best for them; authorities, potentially thousands of miles away, governing their lives is opposed to the very notion of freedom. We invite your state to join with us to form a joint working group between the states to enumerate the abuses of authority by the federal government and to seek repeal of the assumption of powers and the imposed mandates.