U.S. Economy Continues to Falter

The Federal Government reported this morning that U.S. employment fell for a second straight month in July as more temporary census jobs ended while private hiring rose less than expected, pointing to an anemic economic recovery.

The unemployment rate was unchanged at 9.5 percent in July for a second straight month, just below market expectations for a rise to 9.6 percent. The steady jobless rate largely reflected a drop in the labor force as discouraged workers gave up the search for jobs.  Glad to see that the Stimulus really worked.  Once the Census jobs are gone, the numbers will look even worse.

In addition to this great economic news, the WH announced late yesterday that another Obama economic "expert" is leaving.  Christina Romer, one of Obama's most vocal supporters of the Stimulus, will be heading back to California where she will teach economics at Berkley.  I'm sure she'll be welcomed with open arms at the epicenter of the Left.

Obama, Reagan, and the Economy

Great opinion piece by Frank Donatelli, GOPAC Chairman, in this morning's Politico...

It’s easy to understand why President Barack Obama’s friends don’t want to acknowledge that July represents 17 months since Congress passed the $787 billion economic stimulus bill — the president’s signature measure to jump-start the economy and fight unemployment.

Obama says the economy is headed in the right direction; jobs are being created, not lost, and he is doing everything possible to revive the “worst economy since the Great Depression.” Most of the national press has been remarkably accepting of this narrative — even if the president has been vague, at best, about when we might finally see an uptick in economic growth and job creation.

But in another economic time, President Ronald Reagan’s economic recovery program took 17 months to take hold. It took from the time Congress passed his tax cuts, in August 1981, until the recession he inherited finally ended in January 1983.

Unemployment hit a high of 10.8 percent in December 1982. But then economic growth spiked, and the unemployment rate began a long, steady decline throughout the 1980s. It was obvious the program was working when people stopped calling it “Reaganomics.”

Tax cuts were a part of Reagan’s effort to cut the size and scope of government to fight economic stagnation. “Government is not the solution,” Reagan said in his remarkably clear inaugural address. “It is the problem.”

In addition to tax cuts, Reagan reduced domestic discretionary spending and streamlined regulations to make them less of a burden on businesses seeking to create jobs. He believed that government should give individuals and businesses the proper incentives to grow and expand and not inhibit the private sector with high taxes and cumbersome regulations.

Reagan faced obstacles that Obama did not. The House he had to work with was always controlled by Democrats. More ominously, inflation was running at double-digit rates, and it took nearly a year for the Federal Reserve to squeeze those pressures out of the system.

Regardless, in the end, Reagan’s program worked. The turnaround began 17 months later.

Fast-forward to today. The Obama administration says that government-directed investment, via huge spending increases, can revive the economy. It’s now stimulus plus 17. Is there a turnaround in sight?

Apparently not. Obama’s own budget estimates, released just last week, project trillion-dollar deficits, anemic economic growth coming out of a recession and unemployment near 9 percent for 2011 and 8 percent for 2012.

You have to go back to the 1930s to find a period in which unemployment has been so high for so long. This economic record would make former President Jimmy Carter blush.

Yet Obama continues to get a pass on his version of recent economic events. He has said that he inherited the worst recession since the Great Depression. He didn’t. The economies inherited by both President Gerald Ford in 1974 and Reagan in 1981 were far worse.

Obama has said the stimulus has saved 3 million jobs. It hasn’t. We have nearly that many fewer jobs than before the stimulus was passed in February 2009, and the unemployment rate is 1½ percentage points higher than what he claimed would be the high point once his program was enacted.

Obama has said he is doing all he can to revive the economy. Actually, he’s doing too much. The economic uncertainty that his “historic” health care and budget bills have created is doing more to hold back economic growth than anything else. Companies are hoarding cash rather than invest in Obama’s uncertain economic climate.

As a result, the recovery is anemic by historic standards.

So we have two historic presidents. Both inherited bad economies. One cut spending and taxes, and then, 17 months later, the economy boomed. The other increased taxes and spending. It’s now 17 months later.

Mr. President, we’re waiting.

Frank Donatelli is chairman of GOPAC, which helps and advises young Republican leaders.

Observations from a Busy Week....

Apologies for not posting any updates last week on the many happenings that took place across the country affecting our lives and liberty.  The week was a lot busier than we had hoped, which kept us away from the posting thoughts to the RC Blog.  Anyway, enough excuses.  Here are a few thoughts on some of the bigger events of the past week:

McDonald vs. City of Chicago -- On Monday, the Supreme Court handed down a 5-4 decision in favor of gun rights of individuals.  This landmark decision follows a similar ruling in the Heller case which ruled in favor of handgun ownership in the District of Columbia.  Kudos to the NRA and other organizations for helping get this long battle through the court system.   This decision has the anti-gun groups up in arms!  We must add, however, that the RC Blog is greatly disappointed in the NRA's decision to drop its fight against the Disclose Act, only after it received an exemption from the bill along with the unions.  This bill is a blatant violation of our First Amendment rights and is an example of the Left's crooked attempts to downplay the impacts of the Citizens United ruling on the upcoming November elections. The bill ultimately passed the House 216-209 in late June and awaits action in the Senate.  The NRA has traditionally being a strong supporter of both First and Second Amendment rights of Americans, but in this case it ignored the First Amendment. 

Obama Accepts Foreign Help for Oil Cleanup -- On Day 70, that's 7-0, President Obama finally accepted some help from foreign allies who have been offering their assistance since the first few days of the disaster.  This acceptance still requires all the bureaucratic hurdles that come with such assistance -- approvals from State, DOD, DHS, USCG, EPA, etc.  President Obama's has exhibited in the past month some strange tendencies of being a Globalist and a Protectionist at the same time.  We nearly gagged when he encouraged other countries to continue government-type spending in order to stop the global recession that is before us.  Is he kidding?  European countries like France are finally looking to reduce long-standing entitlements and other facets of welfare state economics, while we seem to be doing the opposite.  Who would have thought that we would see a day when France is moving toward our economic model and we are moving towards theirs.  Sad....

Kagan Hearing -- We did listen and/or watch a good amount of the Elaina Kagan confirmation hearings this week in the Senate.  Ms. Kagan was stymied by several questions, especially those posed by Senators Sessions, Hatch, and Kyl.  At one point during the questioning, Ms. Kagan wouldn't answer a question asking if the government has the right to tell Americans what they can or cannot eat.  In addition, Senator Franken fell asleep during the hearings and doodled some cartoons instead of paying attention.  Sadly, the RC Blog expects her to be confirmed as the newest member of the court.  She will be as Left as any previous judge in history.  The only good news is that she is replacing another Liberal judge, so the vote counts should not expect to change much.  We are hard pressed to believe that President Obama could not have selected a more experienced candidate for this important position.  Instead, he selected a close associate who will be sure to enforce his Leftist agenda on the highest court in the land.

The Economy -- After a brief and artificial bump in the economy over the past several months, led only by tax incentives and temporary federal hiring for the Census, the economy has begun another downward path.  We envision a major tumble in jobs, consumer spending, and the stock market.  Not only did the stock market take a major dip this week, but the employment and housing numbers released were pitiful.  How many more times will we be fooled by Keynesian economic model, which supports heavy government spending, as a solution to improve our economy!!!

Virginia's Battle for Liberty -- We did get a post in earlier this week on the results of the oral arguments made by Virginia in federal court against the Federal Government's opinion that the lawsuit against ObamaCare be thrown out.  Keep your fingers crossed for a decision in Virginia's favor in late July or early August.  As Virginia AG Cuccinelli has pointed out on several occasions, this is not a lawsuit against the health care reform; it is a lawsuit for liberty.  The exact same lawsuit would have been filed if the government was trying to force us to be crayons.

"Very Encouraging News..."

"And today, I'm happy to report that we received some very encouraging news... I should also note that the unemployment rate ticked up slightly from 9.7 to 9.9 [percent]." President Obama, May 7, 2010.

Unemployed More Than 6 Months

Median length of unemployment:

January 2009: 10.6 weeks
April 2010: 21.6 weeks
May 1983 (highest prior to April 2009): 12.3 weeks

Source: St. Louis Fed

U.S. unemployment rate jumps to 26-year high of 9.7%

The U.S. unemployment rate jumped to a 26-year high of 9.7% in August as nonfarm payrolls fell by 216,000, the 20th consecutive monthly decline, the Labor Department estimated Friday.

U.S. payrolls have dropped by 6.9 million to a total of 131.2 million since the recession began in December 2007, the government data showed. Unemployment has increased by 7.4 million during the recession to stand at 14.9 million.

The 216,000 decline in payrolls was close to market expectations of a 233,000 drop, but the unemployment rate rose higher than the 9.5% level expected. The unemployment rate was 9.4% in July.

Details of the August report were generally weak, however.

Payrolls fell in most sectors of the economy except for health care. Total hours worked in the economy dropped by 0.3%, long-term unemployment worsened, and the number of people working just part time who want full-time work reached 9.1 million, up 278,000.

The number of people who've been out of work longer than six months nudged up to 5 million, representing about one-third of the unemployed.

An alternative measure of unemployment that includes discouraged workers and those forced to resort to part-time work rose to 16.8% from 16.3%, marking the highest on record dating back to 1995.

Average hourly earnings on the month rose 6 cents, or 0.3%, to $18.65 an hour. In the past year, average hourly earnings are up 2.6%.

Obama to Raise 10-Year Deficit to $9 Trillion

Of course, the White House waiting until 6:30 p.m. on Friday night (the best time of the week to bury a bad news story...) to announce that it is raising the deficit projections for the next decade.

Here's the report from Jeff Mason of Reuters:

The Obama administration will raise its 10-year budget deficit projection to approximately $9 trillion from $7.108 trillion in a report next week, a senior administration official told Reuters on Friday.

The higher deficit figure, based on updated economic data, brings the White House budget office into line with outside estimates and gives further fuel to President Barack Obama's opponents, who say his spending plans are too expensive in light of budget shortfalls.

The White House took heat for sticking with its $7.108 trillion forecast earlier this year after the Congressional Budget Office forecast that deficits between 2010 and 2019 would total $9.1 trillion.

"The new forecasts are based on new data that reflect how severe the economic downturn was in the late fall of last year and the winter of this year," said the administration official, who is familiar with the budget mid-session review that is slated to be released next week.

"Our budget projections are now in line with the spring and summer projections that the Congressional Budget Office put out."

The White House budget office will also lower its deficit forecast for this fiscal year, which ends September 30, to $1.58 trillion from $1.84 trillion next week after removing $250 billion set aside for bank bailouts.

Record-breaking deficits have raised concerns about America's ability to finance its debt and whether the United States can maintain its top-tier AAA credit rating.

Politically, the deficit has been an albatross for Obama, a Democrat who is pushing forward with plans to overhaul the U.S. healthcare industry -- an initiative that could cost up to $1 trillion over 10 years -- and other promises, including reforming education and how the country handles energy.

DEFICIT WORRIES

Republicans have pounced on Obama for planning to spend too much when deficits are so high, and the issue is likely to loom large in next year's Congressional elections.

Obama, who has promised to halve the deficit by the end of his four-year term and likes to remind constituents he inherited a $1.3 trillion deficit from former President George W. Bush, says bringing down healthcare costs is critical to long-term deficit reduction.

Treasury markets have been worried all year about the mounting deficit. The United States relies on large foreign buyers such as China and Japan to cheaply finance its debt, and they may demand higher interest rates if they begin to doubt that the government can control its deficits.

"It's one of those underlying pieces of news that is liable to haunt the bond market at some point in the future," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco, referring to the revised 10-year deficit projection.

Many economists think it is unlikely the government can curtail spending, which means taxes would have to go up to cover the rising costs of providing retirement and healthcare benefits to aging Americans.

Higher taxes, which could slow economic growth, are also a major concern of voters on both sides of the political divide. Obama has promised not to raise taxes on Americans making less than $250,000 a year.

Think the Housing Problem is Over?

Think again!

Take a look at this report from Fitch, the ratings agency....

Fitch, in a downgrade of yet another 543 mortgage-backed securities of 2005-07 vintage, gives us the following side notes: "The home price declines to date have resulted in negative equity for approximately 50% of the remaining performing borrowers in the 2005-2007 vintages. In addition to continued home price deterioration, unemployment has risen significantly since the third quarter of last year, particularly in California where the unemployment rate has jumped from 7.8% to 11%... The projected losses also reflect an assumption that from the first quarter of 2009, home prices will fall an additional 12.5% nationally and 36% in California, with home prices not exhibiting stability until the second half of 2010. To date, national home prices have declined by 27%. Fitch Rating's revised peak-to-trough expectation is for prices to decline by 36% from the peak price achieved in mid-2006. The additional 9% decline represents a 12.5% decline from today's levels."

Staying Rich in the New Normal

Bill Gross, PIMCO Managing Director and one of the planet's top gurus on bonds prepared this outstanding article for his clients:

“Behind every great fortune lies a great crime.” Balzac

Balzac was on to something 200 years ago, but to be fair to modern day multi-millionaires, the only real way to accumulate wealth prior to the 18th century was to steal it, or tax it, I suppose, as was the case with kings and their royal courts. It was only with the advent of capitalism and annual productivity gains that entrepreneurs, investors, and risk-takers with luck or pinpoint-timing could jump to the head of the pack and accumulate what came to be recognized as a fortune. Still, the negative connotations persist. I remember a cocktail party in the early 80s where a somewhat inebriated guest engaged me in a debate about the merits of capitalism. “You’re filthy rich,” he said, which struck me as most unfair from a number of angles. First of all, he hadn’t seen anything yet, I thought, and second, I wasn’t quite sure where the “filthy” came from. Resentment that he’d missed out on my presumed good deal, I suppose, and in the process using a hackneyed phrase that was bitter and biting, yet had some context of historical sociological relativity. Still, he might have been on to something there – not about me, hopefully, because I’ve always felt that while PIMCO has prospered, it’s only because its clients have benefitted even more so – but about the developing sense of one-sided, perhaps off-sided wealth generation that was to dominate the next several decades. Granted, we had Bill Gates and Steve Jobs and other true capitalistic dynamos who benefitted society immeasurably. But growing percentages of fortunes were being made by those who could borrow or aggregate other people’s money. Because our economy was still in a relatively early stage of leveraging, those who borrowed money and used it to invest in higher-risk yet higher-return financial or real assets didn’t require a lot of skill, they just needed to be able to convince a bank or an insurance company to lend them some money. After that, the secular wave of leverage would be enough to multiply their meager equity many times over and carry them to a beach where a fortune awaited them much like a pirate’s buried treasure.

I remember as a child my parents telling me, perhaps resentfully, that only a doctor, airline pilot, or a car dealer could afford to join a country club. My how things have changed. Now, as I write this overlooking the 16th hole on the Vintage Club near Palm Springs, the only golfers who shank seven irons into the lake are real estate developers, investment bankers, or heads of investment management companies. The rich are different, not only in the manner intoned by F. Scott Fitzgerald, but also in who they are and what they do for a living. Whether some or all of them are filthy is a judgment for society and history to make. Of one thing you can be sure however: over the next several decades, the ability to make a fortune by using other people’s money will be a lot harder. Deleveraging, reregulation, increased taxation, and compensation limits will allow only the most skillful – or the shadiest – into the Balzac or Forbes 400.

Readers who are interested in such things as the Forbes annual list of hoity-toities will have noticed that more and more of them are global, not U.S. citizens. The U.S., in other words, is not producing as much wealth in proportion to the rest of the world. Its fortune-producing capabilities seem to be declining, which might suggest that its relative standard of living is doing so as well. If so, the implications are serious, not just for Donald Trump but for wage earners and ordinary citizens, as reflected in their income levels and unemployment rates. Stockholders, 401(k) investors, and yes, bond managers will be affected too. Last week’s furor over the possibility of an eventual downgrade of America’s AAA rating demonstrates that only too clearly. On the night of May 20, Standard & Poor’s announced a downgrade watch for the United Kingdom and since the U.S. and U.K. are Siamese-connected, financially-levered twins, the implications were obvious: the U.S. might be next. In the space of 48 hours, the dollar declined 2%, and U.S. stocks and long-term bonds were down by similar amounts. Such a trifecta rarely occurs but in retrospect it all made sense: a downgrade would cast a negative light on the world’s reserve currency, and since stocks and bonds are only present values of a forward stream of dollar-denominated receipts, they went down as well.

The potential downgrade, while still far off in the future in PIMCO’s opinion, seemed dubious at first blush. While country ratings factor in numerous subjective qualifications such as contract rights, military might, and advanced secondary education, the primary focus has always been on the objective measurement of debt levels, in this case sovereign debt, as a percentage of GDP. Yet, as shown in Table 1, both the U.S. and the U.K. entered the Great Recession with attractive ratios compared to such grievous offenders (and AA rated) as Japan.

Yet as the markets recognized rather abruptly last week, both countries seem to be closing the gap in record time. To zero in on the U.S. of A., its annual deficit of nearly $1.5 trillion is 10% of GDP alone, a number never approached since the 1930s Depression. While policymakers, including the President and Treasury Secretary Geithner, assure voters and financial markets alike that such a path is unsustainable and that a return to fiscal conservatism is just around the recovery’s corner, it is hard to comprehend exactly how that more balanced rabbit can be pulled out of Washington’s hat. Private sector deleveraging, reregulation and reduced consumption all argue for a real growth rate in the U.S. that requires a government checkbook for years to come just to keep its head above the 1% required to stabilize unemployment. Five more years of those 10% of GDP deficits will quickly raise America’s debt to GDP level to over 100%, a level that the rating services – and more importantly the markets – recognize as a point of no return. At 100% debt to GDP, the interest on the debt might amount to 5% or 6% of annual output alone, and it quickly compounds as the interest upon interest becomes as heavy as those “sixteen tons” in Tennessee Ernie Ford’s famous song of a West Virginia coal miner. “You load sixteen tons and whattaya get? Another day older and deeper in debt.” Pretty soon you need 17, 18, 19 tons just to stay even and that describes the potential fate of the United States as the deficits string out into the Obama and other future Administrations. The fact is that supply-side economics was a partial con job from the get-go. Granted, from the 80% marginal tax rate that existed in the U.S. and the U.K. into the late 60s and 70s, lower taxes do incentivize productive investment and entrepreneurial risk-taking. But below 40% or so, it just pads the pockets of the rich and destabilizes the country’s financial balance sheet. Bill Clinton’s magical surpluses were really due to ephemeral taxes on leverage-based capital gains that in turn were due to the secular decline of inflation and interest rates that at some point had to bottom. We are reaping the consequences of that long period of overconsumption and undersavings encouraged by the belief that lower and lower taxes would cure all.

The current annual deficit of $1.5 trillion does not even address the “pig in the python,” baby boomer, demographic squeeze on resources that looms straight ahead. Private think tanks such as The Blackstone Group and even studies by government agencies, such as the Congressional Budget Office, promise that Federal spending for Social Security, Medicare, and Medicaid will collectively increase by 6% of GDP over the next 20 years, leading to even larger deficits unless taxes are increased proportionately. Collectively these three programs represent an approximate $40 trillion liability that will have to be paid. If not, you can add that present value figure to the current $10 trillion deficit and reach a 300% of GDP figure – a number that resembles Latin American economies such as Argentina and Brazil over the past century.

So the rather conservative U.S. government debt ratio shown in Table 1 will likely be anything but in less than a decade’s time. The immediate question is who is going to buy all of this debt? Estimates suggest gross Treasury issuance of up to $3 trillion this calendar year and net offerings close to $2 trillion – almost four times last year’s supply. Prior to 2009, it was enough to count on the recycling of the U.S. trade/current account deficit to fund Treasury borrowing requirements. Now, however, with that amount approximating only $500 billion, it is obvious that the Chinese and other surplus nations cannot fund the deficit even if they were fully on board – which they are not. Someone else has got to write checks for up to $1.5 trillion additional Treasury notes and bonds. Well, you’ve got the banks and even individual investors to sponge up some of the excess, but a huge, difficult to estimate marginal supply will have to be bought. The concern is that this can be accomplished in only two ways – both of which have serious consequences for U.S. and global financial markets. The first and most recent development is the steepening of the U.S. Treasury yield curve and the rise of intermediate and long-term bond yields. While the Treasury can easily afford the higher interest expense in the short term, the pressure it puts on mortgage and corporate rates represents a serious threat to the fragile “greenshoots” recovery now underway. Secondly, the buyer of last resort in recent months has become the Federal Reserve, with its publically announced and near daily purchases of Treasuries and Agencies at a $400 billion annual rate. That in combination with a buy ticket for over $1 trillion of Agency mortgages has been the primary reason why capital markets – both corporate bonds and stocks – are behaving so well. But the Fed must tread carefully here. These purchases result in an expansion of the Fed’s balance sheet, which ultimately could have inflationary implications. In turn, nervous holders of dollar obligations are beginning to look for diversification in other currencies, selling Treasury bonds in the process.

The obvious solution to both dollar weakness and higher yields is to move quickly towards a more balanced budget once a sustained recovery is assured, but don’t count on the former or the latter. It is probable that trillion-dollar deficits are here to stay because any recovery is likely to reflect “new normal” GDP growth rates of 1%-2% not 3%+ as we used to have. Staying rich in this future world will require strategies that reflect this altered vision of global economic growth and delevered financial markets. Bond investors should therefore confine maturities to the front end of yield curves where continuing low yields and downside price protection is more probable. Holders of dollars should diversify their own baskets before central banks and sovereign wealth funds ultimately do the same. All investors should expect considerably lower rates of return than what they grew accustomed to only a few years ago. Staying rich in the “new normal” may not require investors to resemble Balzac as much as Will Rogers, who opined in the early 30s that he wasn’t as much concerned about the return on his money as the return of his money.

"Why Your World Is About to Get a Whole Lot Smaller"

Very interesting new book is out by Jeff Rubin, a former Canadian economist, entitled, ""Why Your World Is About to Get a Whole Lot Smaller". Mr. Rubin has released a short video on his new book. Looks like a great book and a must read...

Democrats Stop Pretending and Words Re-Gain Their Meaning

Here's the latest from R.C.'s Blogger Christian Stockel.....

Thoughts from the Right Side
May 6, 2009

The first 100 days of the Obama Administration has come and gone. While the mainstream media has spent their time shouting accolades for Obama's looks, his coolness, his dog, and his “swagga” (yes CNN hit a new low there), I have my own list of “achievements” upon which I could provide criticism – some of which I have discussed here on ReaganConservatives.us. However, I have to admit that President Obama has been very successful in packaging a radical, leftist agenda in a moderate veneer. Obama's skill at sounding like a moderate and the Democrat's uncharacteristic discipline to stay on message have handed Republicans a string of political defeats. Fortunately, there appears to be an unlikely trend developing that provides Congressional Republicans an opportunity to seize the initiative in the public debate over key issues. It is becoming clear that Congress is even more liberal than President Obama and willing to act on their pent up desires to implement what they consider to be the “Great Society Part II”. Some members are no longer content to rely on Obama's soft euphemisms like healthcare reform, energy independence, and education investment to sell policy. They are boldly declaring their intentions without fear of being called socialist or liberal – they are seizing on the political environment as an opportunity to implement policies and programs that have been - previously - impossible to achieve politically. This change in strategy offers conservatives a rare opportunity.

One example of this can be seen in the discussions on health care reform. To date, Obama's objectives have been described in broad and comfortable terms and has managed to explain a $680 billion budget line item for healthcare as a down payment. Obama's stated objective is to lower cost and increase access (the difficulty of doing both will requires a separate discussion) yet he fails to explain that accomplishing this will require reduced levels of care spread ever more thinly among the people. During these discussions, President Obama has been careful to not utter the words single payer or National Health Service. Well it appears that some on the Democrat bench are tiring of that restriction and are ready to lay bare their plans. Rep. Jan Schakowsky (D-IL) has publicly, and on camera, stated that the goal of “healthcare reform” is to bankrupt private insurance and implement a single payer plan (Click on the Link to watch the video). She states her objectives boldly:

“I know many of you here today are single payer advocates and so am I … and those of us who are pushing for a public health insurance don’t disagree with this goal. This is not a principled fight. This is a fight about strategy for getting there and I believe we will,” Rep. Jan Schakowsky (D-IL)

Granted, this is only one statement from one Congressional representative from Illinois. However, it is one of many examples illustrating a trend away from President Obama's strategy of using moderate and obtuse language to steer clear of controversy. With absolute control over the White House, Congress, and favorable polls, Congressional Democrats are losing the fear of these labels and are more open about their objectives. They are going for “the gusto”. While Representative Schakowsky's comments are grating to conservative sensibilities, we do have to see this as a positive trend that can clarify the public debate on key issues and restore the meaning and value to the words used in such a debate. Up to this point, conservatives and the Republicans have been rather ineffective to counter President Obama's lethal ability to look and sound moderate while implementing radical policies. Since the cost of Obama's budget and stimulus bill has not impacted American taxpayers, his personal poll numbers have stayed relatively high. A reasonable person can assume that as Obama's initiatives on healthcare (as well as energy and education) come into focus and the reality of their impact become clear, Obama's obtuse use of language will lose its effect on voters who are still under the impression that they elected a moderate Democrat as President. However, by the time this happens, the damage done to the country could be too much to overcome.

Republicans and conservatives should take advantage of the new clarity in language offered by the Democrats and contrast them with clear, bold, and Conservative approaches to healthcare, energy, the economy, and entitlements. Conservatives have a small opportunity to pull the curtain back and expose the charade that is this Administration and the current Democrat party. More importantly, we need to illustrate the ultimate impacts of these policies in ways that overcome the seductive power of offering people something for nothing. Once voters are provided with an understanding of what the Administration's proposals mean to their freedom, their property, and control over their lives, it will be easier to make an alternative argument and increase resistance towards government expansion and the populist arguments that have defined the Obama administration thus far. Clarity will reveal President Obama and Congressional Democrats as the same old liberals that has haunted Washington DC since the days of FDR.

President Obama and the Democrat's in Congress have achieved significant political gains through the clever use of language, obfuscation, and moderate terminology to package their policies and disguise their real objectives. Obama was successful in convincing a large segment of the voting population that he was a Reganesque moderate Democrat. His policy initiatives were couched in vague terms like healthcare reform (i.e., government healthcare), energy independence (i.e., ban on domestic drilling, nuclear power, and a push to buy Dutch windmills), and education investment (federalizing K-12 education and the elimination of private schools). Obama has been able to convince the American people that he is not interested in running corporations. Meanwhile he fires the CEO of General Motors and hands over American industrial icons over to the Treasury and labor unions. His skill at oratory in general and the ability to sell the American people one thing while doing another in particular is a core pillar of Obama's political strength. It seems the Democrats are feeling confident about the political environment to abandon his strategy and to go “naked” with their plans. This is an opening that must be exploited if Republicans are to begin their long journey back to political relevance.

History has shown that liberals succeed when they disguise their policies in moderate and dishonest language. Conservatives thrive when they use clear, concise, and bold language. Recently, Republicans have tried to use the same strategy as the Democrats in an effort to seem more moderate resulting in a muddled message. It is time to change the playing field back to our advantage. I just hope there are still members in the Republican party with the intellect and the backbone to do so.

Audaces fortuna iuvat

Obama's War on the Private Economy

Another outstanding submission from R.C. Blog's very own, Christian Stockel...


Thoughts from the Right Side
Obama’s War on the Private Economy
RC Blogger -- Christian Stockel
March 19, 2009

Charles Krauthammer authored an outstanding and insightful article in the Washington Post discussing the gap between President Obama's policies and his public statements on the need to get the economy out of a recession. Mr. Krauthammer clearly points out that his stated priorities - universal health care, clean energy, and universal access to college do not address our current challenges in any way shape or form. The issues impacting the banking industry and credit markets will not be addressed by any health care, energy, or education policy – as President Obama has argued. Mr. Krauthammer is correct in the effect of Obama’s current policy; however, I feel that there is a larger narrative that best describes the policies coming out of Washington; there is a deliberate effort to destroy the private economy and replace it with governmental institutions. Yes I am saying it; President Obama wants to establish the United States as the newest member of the club of socialist economies. If there were any doubts that Obama was a far left liberal – they can now be comfortably laid to rest.

If America continues on this path, its private sector economy will be murdered and buried next to Jimmy Hoffa (and yes I am betting someone in the Democrat party knows where he is). Private wealth is being devastated by the lack of a coherent economic policy addressing the real issues affecting the economy. Instead, the Administration has focused its efforts on pushing through a historic expansion of government that will increase the size and scope of government to unprecedented levels. With the economy in free fall and the American people shaken, President Obama has the perfect political environment to foist radical and alien policies on a country built upon the traditions of limited government, free enterprise, and private wealth. He can use his gifted communication skills and political slight of hand to sneak in government run healthcare, appropriate private retirement accounts, and get its hands into the banking system and credit markets with little or no resistance. Using the cover of the current recession President Obama is achieving in a few short weeks what far left radicals have only been able to dream about in coffee shops and universities. One only has to look at the proponents of President Obama's budget: Robert Reich, Paul Krugman, and any one of the traditional Democrat Party constituencies to determine the radical bona-fides of his agenda.

Contrasting his words against his actions and measuring the disconnect between the objectives of his policies and their obvious results, I cannot help but conclude that President Obama wants to damage the private economy to such an extent – through rhetoric or policy – so as to dismantle public confidence in private enterprise and engender within the body politic the sentiments of class warfare and a default reliance on government instead of private initiative. The market has looked at Obama's policy initiatives and reacted accordingly. Share prices for major industrial icons like General Electric, General Motors, and Citibank are in the single digits. The 401K and IRAs of average Americans are plummeting in value leaving them scared and unsure about the future. Obama responds to the precipitous drop in the Dow Jones Industrial Average with indifference and tries to refocus the discussion towards “remaking America”. He has done very little to address the core issues impacting the economy or developing a coherent package of policies that would strengthen the private economy. Instead all of his policies, his budgets, and the actions of his Administration have only moved to strengthen the hand of the federal government.

Just in case the private sector economy starts showing signs of life, one can be confident that a Congressional hearing on executive excesses or "mismanagement" will be held to keep private industry in check or President Obama will simply take the credit using whatever twisted logic he can palm off to the press. If a company or an industry gets out of line, it can expect Congressional scrutiny, new regulations, IRS audits, or targeted taxes.

In fact, we see it now with the AIG “bonus scandal”, this very scenario. Despite the fact that the bonus payouts were contracted and announced a year ago before the bailout, Congressional Democrats knew about them, and Senator Dodd put an amendment to the bill - that enabled the government bailout of AIG - that specifically protected bonuses under contract prior to any government aid we are hearing howls out of Congress and threats about taking back “our money”. All the hue and cry is for show. These bonuses are 1/10th of 1 percent of all the TARP funds given to AIG – most of which has been paid to European banks to keep them afloat. All legitimate concerns about the actions of AIG management aside, what we should be worried about is the precedence this situation established for federal intrusion into the economy and private companies.

Let’s review some of the events of March 17, 2009:

Senator Chuck Schumer makes an ominous threat regarding legal contracted bonuses paid to AIG employees – “If Mr. Liddy does nothing we will act and we will take this money back and return it to its rightful owners, the taxpayers," Schumer warned. "So for those of you who are getting these bonuses, be forewarned -- you will not be getting to keep them." If the Senator can specify specific individuals against whom the government will confiscate assets – he can do it to others.

President Obama considers policies making veterans pay for healthcare related to battle injuries using private insurance. This is not only a spit in the eye to our Armed Forces it is also one of many back door ploys to break the private insurance system leaving a government run healthcare system as the only alternative.

Congress pushes the misnamed Employee Free Choice Act that will make every business a hostage of big labor and ensure that the government is party to every negotiation point between a private business and unions. This will go a long way towards slowing the growth of small and medium business – the backbone of the American economy.

Nancy Pelosi has urged the Department of Justice to relaxing anti-trust restrictions on news-media companies – specifically those in her area that are left leaning and supportive of her policies – so they could consolidate and stay in business. This is an obvious move to protect a constituency and support union jobs. This maneuver could also open the door for future government bailouts of media corporations which would result in the government having a hand in the operations of newspapers and media outlets in the same way they are exercising control over AIG.

These are examples from just for one day and signal the things to come. As this Administration continues to implement its policies, we will be hearing and seeing more Congressmen and federal entities getting involved in the day-to-day management decisions of major American corporations or whole industries. If you thought taxes and regulation were a pain, imagine Nancy Pelosi sitting in on your Monday morning planning meetings!

We are witnessing nothing less than an all out war on private industry and capitalism. The United States stands before a crossroad and the decisions made in Washington will determine its future course. One path leads to America’s traditional founding principles; while the other path leads towards an expansive federal government, socialism, and a subservient citizenry.

Given these circumstances, where is the Republican leadership highlighting the Trojan horses hidden in the spending plan passed by Congress? Who is sounding the warning bell about the economic and social impacts of an all encompassing welfare state? Who is pointing out the intellectual and political fraud being committed by the administration? If President Obama's agenda gets passed unchecked, we will have government rationed health care, government managed banks whose primary business will be to enact a left-wing social agenda, and industry held sway to the ever changing political winds of an activist Congress and White House. More importantly, the idea that individuals must look first and foremost to government for their needs will displace the traditional American values of initiative, self-reliance, and individual liberty. Once established, such public sentiment is hard to displace or reverse. The United States will be disfigured into a shadow of European social democracies. The economic and social sclerosis that goes hand-in-hand with EU style socialism will soon follow.

The question before conservatives is this - will we go quietly into that dark future or will we fight? Will we fight and resist every action of this administration to turn us into a failed socialist utopia? Our freedom, our lives, and our property hang in the balance.

There's No Pain-Free Cure for Recession

Belt-tightening is required by all, including government
By PETER SCHIFF

As recession fears cause the nation to embrace greater state control of the economy and unimaginable federal deficits, one searches in vain for debate worthy of the moment. Where there should be an historic clash of ideas, there is only blind resignation and an amorphous queasiness that we are simply sweeping the slouching beast under the rug.

With faith in the free markets now taking a back seat to fear and expediency, nearly the entire political spectrum agrees that the federal government must spend whatever amount is necessary to stabilize the housing market, bail out financial firms, liquefy the credit markets, create jobs and make the recession as shallow and brief as possible. The few who maintain free-market views have been largely marginalized.

Taking the theories of economist John Maynard Keynes as gospel, our most highly respected contemporary economists imagine a complex world in which economics at the personal, corporate and municipal levels are governed by laws far different from those in effect at the national level.

Individuals, companies or cities with heavy debt and shrinking revenues instinctively know that they must reduce spending, tighten their belts, pay down debt and live within their means. But it is axiomatic in Keynesianism that national governments can create and sustain economic activity by injecting printed money into the financial system. In their view, absent the stimuli of the New Deal and World War II, the Depression would never have ended.

On a gut level, we have a hard time with this concept. There is a vague sense of smoke and mirrors, of something being magically created out of nothing. But economics, we are told, is complicated.

It would be irresponsible in the extreme for an individual to forestall a personal recession by taking out newer, bigger loans when the old loans can't be repaid. However, this is precisely what we are planning on a national level.

I believe these ideas hold sway largely because they promise happy, pain-free solutions. They are the economic equivalent of miracle weight-loss programs that require no dieting or exercise. The theories permit economists to claim mystic wisdom, governments to pretend that they have the power to dispel hardship with the whir of a printing press, and voters to believe that they can have recovery without sacrifice.

As a follower of the Austrian School of economics I believe that market forces apply equally to people and nations. The problems we face collectively are no different from those we face individually. Belt tightening is required by all, including government.

Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. If the government doesn't have a surplus, then it must come from taxes. If taxes don't go up, then it must come from increased borrowing. If lenders won't lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value those already in circulation. Something cannot be effortlessly created from nothing.

Similarly, any jobs or other economic activity created by public-sector expansion merely comes at the expense of jobs lost in the private sector. And if the government chooses to save inefficient jobs in select private industries, more efficient jobs will be lost in others. As more factors of production come under government control, the more inefficient our entire economy becomes. Inefficiency lowers productivity, stifles competitiveness and lowers living standards.

If we look at government market interventions through this pragmatic lens, what can we expect from the coming avalanche of federal activism?

By borrowing more than it can ever pay back, the government will guarantee higher inflation for years to come, thereby diminishing the value of all that Americans have saved and acquired. For now the inflationary tide is being held back by the countervailing pressures of bursting asset bubbles in real estate and stocks, forced liquidations in commodities, and troubled retailers slashing prices to unload excess inventory. But when the dust settles, trillions of new dollars will remain, chasing a diminished supply of goods. We will be left with 1970s-style stagflation, only with a much sharper contraction and significantly higher inflation.

The good news is that economics is not all that complicated. The bad news is that our economy is broken and there is nothing the government can do to fix it. However, the free market does have a cure: it's called a recession, and it's not fun, easy or quick. But if we put our faith in the power of government to make the pain go away, we will live with the consequences for generations.

A Shot in the Fannie (Mae)

Special thanks to Mark H. for forwarding to me this PowerPoint slideshow that includes excellent background info. on the Fannie/Freddie debacle. Click the link below and enjoy!

http://www.ReaganConservatives.us/SHOTINTHEFANNIEMAE.pps

Fannie and Freddie...What Next?

Today, the Heritage Foundation released a "Web Memo" on its recommendations for the future of Fannie Mae and Freddie Mac, now that the Treasury Department has stepped in and seized control of the two mortgage giants.

It is interesting to note that Heritage produced a report in June 2005 that detailed its recommended steps for reforming Fannie and Freddie. Sadly, they were left to falter on their own and now we, the American taxpayer, will suffer the consequences of the actions of highly paid executives at the two institutions.

The Fannie and Freddie Disaster is another example of why private-sector operations do not belong in the public arena. Too much bureaucracy and too little scrutiny to make it effective.


September 9, 2008

Fannie and Freddie: Time to Clean up the Mess and Move Forward
by J.D. Foster, Ph.D., David C. John and Stephen Keen
WebMemo #2055

After years of warning and months of high drama, the Treasury Department recently took the unfortunate but necessary step of seizing Fannie Mae and Freddie Mac (Fannie and Freddie).

Treasury placed the two institutions into conservatorship and provided the means and terms by which Treasury would recapitalize them as necessary. The cost to the taxpayer is unknown at this time and represents payment for serious mistakes made years ago and repeated regularly.

The Treasury's actions were unfortunate because the problems with Fannie and Freddie could have been avoided had previous Congresses heeded the many warnings about their systemic risk.[1] The actions were necessary, however, because the collapse of either or both of Fannie and Freddie would have had devastating repercussions for the housing market, credit markets, and the economy generally. By acting as it did, Treasury chose the lesser of two evils.

The takeover of Fannie and Freddie was a vital move toward reform, but this should be seen only as the first step. Fannie and Freddie are the result of outdated "Great Society" programs, and they should be wound down—not replaced, reformed, or rejuvenated. The private sector can and should be allowed to perform the roles formerly exercised by Fannie and Freddie. At the very least, as Congress crafts future legislation it must ensure that neither Fannie and Freddie nor any successor institution ever again becomes a systemic risk by becoming "too big to fail."

The First Step

Placing Fannie and Freddie into a conservatorship is not an end unto itself but a first step toward the final breakup. Unfortunately, the vital step of settling the long-term policy will have to be left to the next President and Congress.

Looking to the future, the worst action Congress could take would be to retain the current structure whereby Fannie and Freddie are quasi-governmental entities with conflicted goals and distorted incentives. This system has failed at an as yet untold cost to U.S. taxpayers.

The Treasury's current plan is to shrink Fannie and Freddie's portfolios of mortgage-backed securities gradually over the coming years. Just as important is denying Fannie and Freddie the authority to continue securitizing mortgages in the future. Many years ago the private sector could not have picked up this business, which is why Fannie Mae was created in the first place. However, the private sector today is already a major participant, rising to a market share that reached 56 percent in 2006. Fannie and Freddie should be forced to step aside and allow private-sector participants to perform this role. If preserved in any form, Fannie and Freddie should be so constrained in their activities that they can never again be suspected of being too big to fail.

Going Forward

First, clean up the mess. Then, implement real reform. The Treasury Department was put in a tough spot, and Secretary Henry Paulson did what was necessary. Decades of policy mistakes creating and protecting Fannie and Freddie finally led the predicted system risk to become a dangerous financial reality. However, once the market is stabilized, free-market reform must be implemented to prevent a recurrence. The next President and Congress should allow Fannie and Freddie in their current form to wither to extinction. The private sector is ready, well-prepared, and subject to the proper incentives to continue to ensure a steady flow of correctly priced capital to America's housing markets.

J. D. Foster, Ph.D., is Norman B. Ture Senior Fellow in the Economics of Fiscal Policy, David C. John is Senior Research Fellow in Retirement Security and Financial Institutions, and Stephen A. Keen is a Research Assistant in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

[1] Ronald D. Utt, "Time to Reform Fannie Mae and Freddie Mac," Heritage Foundation Backgrounder No. 1861, June 20, 2005, at http://www.heritage.org/Research/GovernmentReform/bg1861.cfm.