Federal Reservations

Given that Rep. Ron Paul has long been a champion of frugal, ethical government, while supporting calls to audit the Federal Reserve, his lack of cooperation with Roll Call in two reports on what appear to be duplicate reimbursements for airline travel he’s received exposes the Congressman to charges of hypocrisy.

Today, Roll Call follows up a previous item with this report.

But James’ recollection and new documents obtained by Roll Call suggest Paul was aware that he was often being reimbursed twice for individual flights. In all, Roll Call found 26 flights in which several layers of documentation show double payments: credit card statements that detail the ticket purchases, a payment to Paul from his taxpayer-funded House account for reimbursement of a flight and Federal Election Commission records or copies of checks that verify a second payment from a separate group for the same flight.

Roll Call obtained copies of checks from the Liberty Committee to American Express that paid for Paul’s expenses. The records obtained by Roll Call cover about 17 nonconsecutive months. Beyond the 26 flights, documents show an additional 31 flights where it appears Paul was double-reimbursed but the records lack sufficient detail to prove duplicate payments.

The initial item from February 6 can be found here.

Roll Call identified eight flights for which the Texas Republican, a GOP presidential candidate and leading champion of smaller government, was reimbursed twice for the same trip. Roll Call also found dozens more instances of duplicate payments for travel from 1999 to 2009, totaling thousands of dollars’ worth of excess payments, but the evidence in those cases is not as complete.

Rep. Paul, through his offices, has repeatedly refused to cooperate by providing access to the Congressman and pertinent staff members. As an elected member of government, it would look better if Paul set an example for the same type of transparency in his professional financial dealings, as he has long advocated for with regard to other branches of government.

Originally from Big Government

All things good and bad come to an end, and that is true of the long recession, which, according to the economic statisticians, we are in no longer.  When the jobs numbers for last month came in President Obama was quick to proclaim that the recovery is on track, and let us hope he is correct.  But the story can’t end there if the country is truly to be restored to economic health.

There are lessons to be learned about government policy actions, which have been adversely affecting the private sector where jobs are created. While employers are beginning to hire again, real and sustained growth historically has been stimulated by new business start-ups, especially among small businesses. While there has been an encouraging uptick in job creation, net of jobs lost, the level of new business start-ups still lags well behind pre-recession levels.  And while, as we stated in our last essay, the job creation numbers for the last couple of months have certainly been encouraging, we cannot lose sight of the reality that the share of working-age people in the labor force (the so-called participation rate) has declined to the lowest level in 29 years.

Fed Chairman Bernanke correctly stated last week that the technical improvement in the unemployment rate obscures the vulnerabilities in the job market. “It is very important to look not just at the unemployment rate, which reflects only people who are actively seeking work,” Bernanke said in response to a lawmaker’s question during testimony last week, “There are also a lot of people who are either out of the labor force because they don’t think they can find work” or who have taken part-time jobs.

As the headline for this essay opines, government needs to get out of the way of the recovery that, while still feeble, has the potential for quickened momentum. Those who invest in the establishment of new businesses need clarification and a higher degree of certainty regarding their healthcare costs, healthcare penalties, tax rates on returns on investment, new regulatory hurdles, etc. The current climate in Washington exudes uncertainty, which in turn creates a vacuum that sucks the willingness to take entrepreneurial risks out of the economy.  Either Steve Jobs was right when he lectured President Obama about why he took all of his manufacturing out of the country, or the President and his statist advisors know best.   Both political parties need to learn from the lessons our lackluster recovery is teaching us, and stop their efforts at short-term, politically motivated fixes.  That almost seems impossible in Washington, D.C

The Federal Reserve issued a report that the 2007-2009 recession, the affects of which still burden the recovery, was the longest one in the postwar period.  Most important was the magnitude of the decline in economic activity.  During the recession, employment fell by 6.3 percent and output fell by 5.1 percent.

The U.S. economy experienced 10 recessions from 1946 through 2006.  The 2007-2009 recession began in December 2007 and ended in June of 2009.  The 10 previous postwar recessions ranged in length from 6 months to 16 months, averaging about 10½ months.  The 2007‑09 recession was the longest recession in the postwar period having lasted, as we noted above, for 18 months.  In addition, the federal debt has increased by about $5 trillion–more than the total national debt of about $4.2 trillion accumulated by all 41 U.S. presidents from George Washington through George H.W. Bush combined.

This increase in the national debt means that during Obama’s term the federal government has already borrowed about an additional $40,000 for every American household–or about $45,000 for every full-time private-sector worker.  When Obama was inaugurated on Jan. 20, 2009, according to the Treasury Department, the total national debt stood at $10.6 trillion.

At the end of January 1993, the month that President George H. W. Bush left office, the total national debt was $4.2 trillion, according to the Treasury Department. Thus, the total national debt accumulated by the first 41 presidents combined was about $44.8 billion less than the approximately $5.0 trillion in new debt added during President Obama’s term.  This is all borrowed money, which will have to be paid back by future generations; generations of primarily private sector wage earners whose wages and benefits are substantially lower than those of government employees whose salaries they pay.

According to Adam Summers a policy analyst at the Reason Foundation:

“Average wages and benefits in the public and private sectors reveal that state and local government workers earn more than private sector workers.  According to the most recent Employer Costs for Employee Compensation survey from the U.S. Bureau of Labor Statistics, as of December 2009, state and local government employees earned total compensation of $39.60 an hour, compared to $27.42 an hour for private industry workers - a difference of over 44 percent.  This includes 35 percent higher wages and nearly 69 percent greater benefits.

Data from the U.S. Census Bureau similarly show that in 2007 the average annual salary of a California state government employee was $53,958, nearly 32 percent greater than the average private sector worker ($40,991)”.

The public debt of the U.S. now exceeds $15 trillion and will soon climb to $16.4 trillion as a result of the President’s latest request to raise the debt ceiling by another $1.2 trillion.  The increases in our national debt, during the Obama Administration have been staggering, and, by any rational assessment, have accomplished little.  Specifically, the debt was increased by $1 trillion in FY2008, $1.9 trillion in FY2009, and $1.7 trillion in FY2010. As of January 31, 2012 the gross debt was $15.356 trillion. The annual gross domestic product (GDP) at the end of 2011 was $15.087 trillion, with total public debt outstanding at a ratio of 101.8% of GDP. Public debt at 90% of GDP is widely accepted as a danger point beyond which economies begin to contract. On top of all the policy issues we have enumerated, the economy faces other major pitfalls.  Among them are,

1. Unemployed who have given up returning to the labor market thereby technically lowering the unemployment rate. ;
2. A huge rise in oil prices;
3. Government risking inflation (“accommodating” Fed monetary policy);
4. Small businesses bracing for tax increases;
5. Higher income families bracing for tax increases;
6. Business expecting new and restrictive regulations;
7. Potential collapse of the Euro, setting up severe recession in Europe;
8. Stronger dollar driving down U.S. exports;
9. People who are living on dividends from stocks accumulated over a lifetime of sound retirement planning facing a tripling of their federal tax rate; and

10.  Lack of serious entitlement reform creating strong headwinds as baby boomers begin to retire.

The recession, put this nation in such a deep hole that our present rate of growth simply will not get us back to where we need to be.  At this point, our economy, consistent with all prior postwar recoveries should be growing by four to five percent on a sustained basis.  Given the hazards enumerated above, we fear a serious downturn is still something about which we need to worry.

As stated at the top of our essay, all recessions end.  That is the very essence of economic cycles.  Sooner or later they commence, and sooner or later they conclude.  Whoever is in the oval office when they commence will take the heat, and whoever is in the oval office when they end will take the credit.  We understand that.  But when a recession lasts so much longer than all prior postwar recessions, there are lessons to be learned.  And when government spends and borrows at unprecedented levels to tame a downturn with no discernible affect, then, too, there are lessons to be learned.  The current economic malaise is a product of Minsky’s Law; that is, prolonged infusion of easy money into the economy will always produce a bubble.  Years of terribly misguided public policy and a private sector all too willing to accommodate the government’s imperative to push home ownership at any cost got us where we are today.  The slow depletion of inventories throughout the economy as consumers zipped their wallets and spent very sparingly, and the current replenishment of those inventories has, at last, begun to stimulate positive economic activity.

The Obama Administration should (but won’t) immediately adopt the simplified tax proposals recommended by Simpson‑Bowles, and issue an executive order that new regulations on the private sector be halted except on an absolutely as needed basis.  That would provide the positive jolt the economy needs if it is to avoid being sandbagged by the substantial perils that still encumber the path to recovery.

By Hal Gershowitz and Stephen Porter

Originally from Big Government

If one was looking for fiery, crowd pleasing, political rhetoric from former Speaker Newt Gingrich as he addressed CPAC today, they were likely disappointed. What Gingrich did do was run through a litany of policy solutions he claimed he has committed to implement immediately upon taking office in January of 2013.

Contrasting an America that can versus an America that can’t, Gingrich compared America’s speed and might in winning WWII versus her current inability to seal its own border. In a lighter moment, the former Speaker contrasted the efficiency of package tracking by Federal Express with the government’s inability to track illegal immigrants, suggesting sending each one a package may be the best way to apprehend the latter.

He also mentioned repealing Obamacare, Dodd Frank, and Sarbanes Oxley on his first day in office. He stated his desire to be a “paycheck president” versus a “food stamp president,” a term he used to denigrate Barack Obama.

Calling for a Fall campaign focused on substance, Gingrich also mentioned eliminating the Capital Gains tax and implementing 100% expensing for all new equipment written off in one year to help get the economy growing. Additionally, he called for a modernization of the workforce, proposing that unemployment compensation be linked to business training programs to avoid paying people for 99 weeks “for doing nothing.”

The solutions were bold but would obviously involve more than giving one speech. He called for the elimination of the EPA, replacing it with a new agency that would take economics and business interests into account in all decision-making. On tax policy, Gingrich called for a 12.5% corporate tax rate, abolishing the death tax, and the option of a 15% flat tax for individuals he called a tax cut.

Citing the need to shrink spending to meet revenue levels and the replacement of the current Civil Service system with a new modern personnel management system, his remarks appeared to be well received. Gingrich also cited abolishing the Dept of Energy (DOE) and a task forced to be headed by Texas Governor Rick Perry focused on the 10th amendment to return power to the states, as appropriate.

Gingrich also called for an audit of the Federal Reserve and an end to Ben Bernanke’s term as Chair of the Federal Reserve. The former Speaker also called for a more honest foreign policy, one acknowledging the dangers of radical Islamists intent on doing America and Americans harm.

Originally from Big Government

Just over a week ago in an article I published here in Big Government: “New California Budget Crisis May Torpedo November Tax Increase Initiative.” The article illuminated how State Controller John Chaing had shocked California’s spendthrift politicians by announcing the State would be out of cash beginning March 8th and would miss up to $5.4 billion in vendor payments through May 1st. The timing of the Chaing announcement was disastrous for state politicians; because it destroyed any hope that Governor Jerry Brown’s $6 billion tax increase initiative on the ballot in November would pass.

Now it appears that Brown successfully lobbied for California to get $6 billion in cash and siphon off a total of $18 billion from the $25 billion mortgage settlement with the five largest U.S. banks, who were accused of fraud in the handling of foreclosures and loan modifications. But as Franklin Center Fellow, Steven Greenhut asks in a deliciously sarcastic article: “Why should a taxpayer in Houston or Wichita bail out irresponsible California homeowners, banks and the state’s public employees’ retirement fund?” Greenhut highlights that the mortgage settlement money is really just another accounting entry, because the real source of cash to fund the “Left Coast” is “implicitly via Federal Reserve/Government coffers.”

Most Americans still snarl about crony capitalism when they think of multinational banks taking $1 trillion slurp of taxpayer’s hard earned cash and then paying themselves record bonuses, while hiking fees and cutting off borrowers. But with the United States President and Congress solemnly telling Americans healthy banks were key to our future, most Americans gritted their teeth and came together to bail-out of banks, insurance companies, and other financial firms.

When the good people of the other 49 states learn the terms of this bail-out, I believe they also come together. But this time they will be showing their fangs and carrying pitch forks! With only 13% of the GDP of the United States, California gets 72% of the settlement proceeds. Undoubtedly, the five national banks will pass 100% of the cost of this settlement on to all their customers nationally. Consequently, 87% of the increased bank fees will be paid by other states increases to bail-out California’s insolvent budget.

Kamala Harris, California’s Attorney General, claimed the settlement may help roughly 250,000 California borrowers by requiring the banks to cut mortgage debt amounts and extend $2,000 payments to homeowners who already suffered foreclosure. But Greenhut points out that powerful interest groups, like the California Public Employees’ Retirement System, which had nothing to do with individual mortgage holders being unfairly foreclosed upon, carved off a piece of the settlement money to bail-out some of their investment losses on real estate speculation that resulted from bad advice.

According to the L.A., a 17-month investigation recently found that some of that bad advice came from Federico Buenrostro Jr., the former chief executive of the $250 billion California public employee pension fund. It seems that he and , and a couple of his pension Board buddies were recently accused of pressuring subordinates to invest billions of dollars of pension money with politically connected firms and strong-armed a for a $4 million in fee to be paid to consultant Alfred J.R. Villalobos, who later hired Buenrostro.

Most Californians refer to Jerry Brown as left wing, but I think he just proved he is more left brained. Left brain thinkers excel in math, language studies and logic problems. Since the banks that settled only control or own only 7.3% of all outstanding single-family mortgages, every time Brown wants to increase spending, he just needs to do another “settlement.” After all, California bank customers only pay 13% of the settlement costs, while the State gets 72% of the proceeds. Either Brown is a very smart or the other 49 governors and their Legislatures are really stupid.
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Originally from Big Government

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss the recent foreclosure settlement, why it’s not that bad for banks, and whether or not there is another round of QE on the horizon.

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Originally from Big Government

I have watched Ron Paul for a very long time and one trend I see over and over is the split that emerges between people of roughly under the age of 40 and those who are older when his name is mentioned. I have no polling data to back this up, but young people seem to like Ron Paul and older people seem not to.

This is by no means uniform. I know plenty of older folks who love the good doctor and plenty of young people who do not like him, but generally the above statement holds I think. Why is this?

Fundamentally I believe it comes down to faith in the markets and whether or not one is playing for the future, or if one is clinging to the past.

Young people have much to lose in the economic quagmire we find ourselves in, namely their future. They recognize that times have changed, that the old economic regime is corrupt, and in order to get things going in any real way (not government stimulated) fundamental reforms must be implemented. Many, including myself would embrace a gold standard or a standard based on a basket of commodities. This is a radical departure from the Fed centered fiat currency regime. It would disrupt the current economic order, but a reset is needed and many young people recognize that it is vital that we head in this direction before it is too late. The economic hubris of the 20th century has come home to roost. We would like a real economy.

Older people understandably believe they have much to lose with a reality based economic system(I know this is a loaded term) such as the one Ron Paul advocates. In fairness they likely do.

If one has spent a lifetime compiling paper currency, amassing sums large and small in IRAs and retirement plans, a gold centered revolution could be pretty scary. For many people, especially those who are just now retiring, they have lived their entire lives with the understanding that the money they have saved will provide for their future. It’s a pretty reasonable assumption.

They, and even many long committed “conservatives” believe in the current system. The truth is, they like a large state. They like Social Security, and indeed many rely on it (which makes economic sense if one believes that the current New Deal based system is sustainable and they had always been told that it was.)

The baby boomers are also children of the Cold War where a massive military in the face of the Soviet threat seemed to, and arguably did, make sense. A large state is deeply engrained in the grey matter of the older generation and this is completely understandable.

However even older people must adapt when the alternative is catastrophe.

We are not yet at the point where a majority of thinking people understand the extent of the economic challenges that lay before us. My sense is that many smart older people know that there is much that is wrong, and that something must be done, but that the regime to which they have given so much of their lives can still be saved without real change. In fact many bristle at the thought. Ron Paul is an agent of change, and so they bristle at Dr. Paul.

Aside from the new economic paradigm Ron Paul introduces, something that is at least equally as scary for some is Ron Paul’s foreign policy stance. The thought that the United States should dominate the world, and that it would be dangerous for it not to, runs deep in the baby boomer generation.

For a generation that it is said to not only recognized the folly of Vietnam but brought an end to it, the boomers seem pretty keen on keeping the war machine going. The concept of the military as “big government” is lost on many baby boomer conservatives.

It doesn’t seem lost on many active duty members of the military however, who have given more to Ron Paul than to any other presidential candidate in this election cycle. But most of those active duty folks are young.

What I write here is probably moot of course. It looks like the establishment has gotten Mitt-”I don’t worry about the poor” -Romney, just as it wanted. But Ron Paul will collect enough delegates to make noise at the convention that is for sure.

Also, though the Republican establishment may feel that it has effectively put down the libertarian uprising, liberty oriented Republicans are the future if the GOP wishes to remain viable.

The libertarians are young, committed, information savvy, economically correct, and they are going to see their time in the sun like it or not.

The smartest, most innovative political thinkers on what is called the “right” aren’t in the Romeny, or Gingrich camp, they are in the Ron Paul camp. And the GOP knows it. But the party will fight this reality every step of the way. The real question is whether the Dick Cheney types would rather commit party suicide than capitulate to the New Wave. We’ll see.

Just as the Goldwater Republicans overtook the Rockefeller Republicans, the Ron Paul Republicans will take things further down the freedom path as they eclipse the Bushies.

Time may not have come today, but it is coming.

This article was originally posted at AgainstCronyCapitalism.org.

Originally from Big Government

A couple of years ago, after the bubble crashed, my wife and I decided to buy a condo in Vegas.  There were many reasons behind that decision, but Sin City is known for delivering the unexpected.  And so, political junkie that I am, I suddenly found myself eligible to participate in an early, swing-state, caucus.  Las Vegas had taken me into virgin territory.

Being a caucus neophyte, I approached the matter gingerly.  I called the Clark County Republican Party office seeking guidance.  What happens at a caucus?  How long does it run?  What’s the procedure?  No one possessed definitive answers to these complex questions, but we were able to determine that folks in my precinct were caucusing at a nearby High School.  The doors opened at 8:00 AM, with the caucus itself slated to start at 9:00.  Anyone could speak on behalf of any candidate; each speaker would have two minutes.  Beyond that, things got a little vague.  I pre-registered on line “to avoid the crowds” of caucus day.

I arrived at Valley High School at 9:00 AM, impressed to see a sizable packed parking lot.  Perhaps these are the political activists I hear so much about, I thought.  Great to see how many of them show up early on a Saturday morning.  But for a group of activists, the lot seemed singularly inactive.  Where were the Paulistas, gesticulating wildly to emphasize that the Fed is our enemy, while Iran is not?  Where were the Romney and Gingrich surrogates deflating each other’s tires?  Where were Santorum’s nattily-dressed minions?  Where were the folks waving Perry and Bachmann signs, refusing to admit that their party was over?  Two helpful teenagers provided the answers: the caucus was on the other side of campus.  The folks parked in this lot were there for—get this—Valley High School.

I dutifully drove around the block to find the much smaller but equally pacific lot bearing two signs marked “Caucus here,” one sign for Ron Paul, and a TV truck.  I entered the school cafeteria, where a helpful volunteer directed me to the table for pre-registrants.  I surveyed the scene quickly: Fifty or so small tables, broken into groups, and perhaps two hundred people.  No politicking as far as I could tell, no speechifying, just a room full of Americans out enjoying their morning.  The young woman who checked me informed me that my precinct was convening in the gym.  I thanked her for the directions.  Then I told her that it was my first caucus, and asked her what the procedure was.  “It’s my first caucus, too,” she said.  “So I don’t know.”  I thanked her again and headed to the gym.

I found groups of people sitting either in the bleachers or in chairs on the gym floor.  Each group had a sign with a four-digit number—a precinct number, I presumed.  I found my precinct.  A gentleman with a list—the precinct captain, I guessed—checked me in.  I told him that it was my first caucus, and asked him what to expect.  “It’s my first caucus, too,” he said, “but I think that pretty soon we get to vote.”  I thanked him for the information and struck up a conversation with some of the other voters.

A man named Steve wandered by.  He wore a T-shirt with what appeared to be some sort of caucus logo and carried a clipboard, so I sensed an air of authority.  “How many voters do you have?” he asked.  “Fourteen,” said our captain, forgetting to count himself.  Steve counted out fourteen blue ballots.  “You get eight delegates and one alternate,” he said, then ran off to the next precinct.

Our captain distributed the ballots, each of which bore the names of the four remaining GOP candidates.  “Now we have to select eight delegates and an alternate,” he announced.  “Then we get to vote for President.”  “Why don’t we just see who is not interested?” suggested the man to my right.  I looked around to see if, perhaps, I might make a good delegate.  I realized that I was the youngest voter in the precinct, likely by at least a decade (I’m 48), but reasoned that I could nevertheless represent the group admirably if chosen to do so.

“I’m not sure that I want to go to Tampa during the summer,” one voter mused.  “Oh,” said our captain.  “I don’t think we’re electing delegates for the national convention.  Are we?  Does anyone know?”  “I would imagine that there’s some sort of state thing,” someone suggested.  We agreed that that sounded right.  “Does anyone know when that is?  Or where?”  “Probably around here somewhere,” someone suggested, “or maybe Carson City.”  “My vote would be Chicago,” our captain offered, but conceding that such a venue was unlikely, he set off to ask some questions.  He returned.  “Someone says they think its in Reno, but they’re not sure when,” he announced to the group.

I decided that it was time to pull up a browser on my iPhone.  Apparently, between today’s caucuses and the national convention, the Nevada Republican Party plans to hold a series of county conventions—sometime tentatively scheduled to fall between March 10 and March 17 at places to be determined—and a state convention in Reno in May.  I suggested that perhaps we were selecting delegates to the Clark County convention.  Everyone agreed that my analysis seemed plausible, but our captain went to find Steve to verify this new information.

He returned with answers.  We were tasked with selecting delegates for the county convention, to be held some time in March somewhere in Clark County.  Then we could vote for President.  “What do the delegates do?” someone asked.  “Are they bound by our votes for President?”  “Is there any relationship between our votes for President and delegate?”  “Are we supposed to support delegates who share our preferences for President?”  Our captain looked perplexed.  He set out once more in search of Steve.  He returned.  Delegates to the county conventions get to vote on delegates to the state convention, and on a platform, he announced.

“Does any of that have anything to do with our presidential votes?” someone asked.  “Well, those are distributed proportionally,” someone else answered.  We collectively deemed this answer sufficient, marked our X’s on our blue ballots, and handed them back to our captain.  He sealed them in an envelope and put check marks near those of us who had agreed to serve as delegates.  “Now what?”  someone asked.  “I think we’re done,” said our captain.  We all wandered off.

I surveyed the broader scene again, this time from my vantage point as an experienced caucus-goer and a freshly minted delegate to the Clark County Republican convention.  I was pleased to note that I was not the youngest person in the room, though everyone younger did seem to be either wearing a volunteer’s badge or providing mobility assistance to someone in need.  Very definitely not the crowd you see at Lavo, I thought.

I found myself standing next to a guy who appeared to be about my age—one of three men in the room wearing a suit.  “Are you a reporter?” he asked me.  “No,” I said.  “Just a voter.  But I do blog from time to time.”  “Same thing, these days,” he said.  “Are you a reporter?” I asked.  “Yes,” he said.  “For whom?” I asked.  “From Israel,” he said, starting to edge away from me.  “For Israel Hayom.  I cover elections all over the world.  Egypt.  Tunisia.”  I laughed.  “Very different,” he said.  “Yes,” I agreed.  “No one gets shot here.”  He nodded.  “This is a very good thing,” he said, completing his escape.

I realized that I must have wandered into some unmarked press area, because the one other obvious reporter in the room—the one with the TV truck and camera from the local NBC affiliate—was  interviewing another man in a suit.  I overheard the interviewee’s bold prediction that Romney would win Nevada and then take the nomination.  The reporter took this news in stride.  With his interview concluded he sat back down and struck a pose that seemed to say don’t bother me.  No one did.

I determined that I had learned all that I could learn, and that it was time to leave.  As I turned to go, I saw Steve, standing still behind a table.  I seized the opening.  “So I think I’m a delegate, but I’m not sure what comes next,” I said.  “Did you fill out one of these forms?” he asked, waving a form at me.  “No,” I said.  “But none of us did.  We just put check marks near the names of folks who agreed to be delegates.”  He looked concerned.  “Would you like me to fill out a form?” I offered.  “No,” he said.  “Just give me your name.”  I did.  He wrote it on a yellow post-it note.  “Would you like my e-mail address?” I asked.  “Yes,” he said.  “That would be a good idea.”  He handed me the post-it note.  I jotted down my e-mail address and handed it back.  He folded it in half and put it in his pocket.  “We’ll let you know,” he said, and ran off.

I headed back to the parking lot.  Looked my watch.  The whole thing had taken about an hour.  Grassroots democracy in action, I thought.  And no one got shot.  Gotta love it.

Originally from Big Government

The Senate’s 96-3 vote to ban members of Congress from using nonpublic information to inform their private investments brought with it important additional amendments that stand to shape the debate next week as the House takes up the STOCK (Stop Trading On Congressional Knowledge) Act.

In addition to outlawing members of Congress and their staffs from engaging in insider trading and requiring a 30 day public disclosure rule for all investments, an amendment by Sen. Richard Shelby (R-AL) successfully expanded the STOCK Act to also include the executive branch’s 28,000 workers.  Sen. Shelby said the reason for his amendment , which passed on a 58-41 vote, is simple:

It only seems fair that executive branch officials who are already required to file annual financial reports, also be directed to meet the same additional reporting requirements being imposed on the legislative branch.

The specifics of Sen. Shelby’s added provision will have to be hammered out in a House-Senate conference committee, as Sen. Shelby’s language conflicts with that of Sen. Joseph Lieberman (I-CT) who wants to limit the provision to just include the 2,000 top policymakers, such as the president and vice president, as well as the Federal Reserve Board.  Sen. Lieberman claims the amendment would apply to 300,000 federal workers and place an undue burden on them.  Sen. Shelby’s aides contend that his amendment would only include 28,000 workers.

Another important amendment that was added to the STOCK Act would subject so-called “political intelligence” operatives to the same kinds of disclosure and registration requirements lobbyists must submit to.   The amendment, proposed by Sen. Charles Grassley (R-IA), would apply to the $100 million, 2,000-person political intelligence industry that seeks to gather tidbits of relevant information in and around Capitol Hill and sell them to stock traders.  According to Sen. Grassley:

Political intelligence professionals aren’t considered lobbyists, so they don’t have to disclose that they’re seeking information and are paid for it.  As a result, members of Congress and congressional staff have no way of knowing whether such meetings result in information being sold to firms that trade based on that information.  My amendment would shed sunshine on this kind of political intelligence gathering.

Finally, Sens. Barbara Boxer (D-CA) and Johnny Isakson (R-GA) successfully passed an amendment that would require all members of Congress, the president, vice president, and most Senate-confirmed appointees to publicly disclose all residential mortgages, something current law does not require senators to do.   Sen. Boxer said that:

This measure makes it clear that any mortgage held by a member of Congress must be disclosed to ensure that lawmakers are treated the same as every other American.  The amendment corrects an omission in Senate ethics rules that did not require disclosure of all residential mortgages.

Sen. Isakson agreed and added:

I am a firm believer that the greatest accountability mechanism for members of Congress is transparency, and this amendment will add more transparency to our financial disclosures.  The Senate’s passage of this amendment demonstrates a commitment to making ourselves more accountable to the American people.

The Senate’s overwhelming 96-3 bipartisan passage of the STOCK Act readies the bill for consideration next week in the House.

Originally from Big Government

Okay, we made up the word. But in medicine, as any physician knows, a blastoma is a malignancy of so-called precursor cells called blasts.  Should such an anomaly go untreated…well, let’s not go there.  Anyway, we decided to refer to any chronic economic conditions that threaten the health of our economy as econoblatomas, because of the real risk that they are precursors to a potential economic crisis; that is, they can spread.   What follows are what we call the Seven (there are, of course, others) Warning Signs of Econoblastoma.

1. The Euro – A default by any other name:

Greece will default on its debt, probably within the next 60 days.  They’re working on a plan that will allow the EU leaders to call it something else, but whenever lenders get taken to the cleaners by a borrower there has generally been a default.  Greece’s lenders (bond holders) are soon to be taken to the cleaners (again) so we’re about to see the first default in a Euro Zone country.  Now this Econoblastoma has been under treatment for a long time with, we’re sorry to say, poor results.  The prognosis is dire.

The reader will recall that over a year ago, the private bondholders who loaned money to Greece (based on fabricated economic assurances by the Greek government) were informed they would have to take a 20% haircut in order for Greece to meet its obligations.  Then last July the bondholders were told that 20% just wouldn’t do it, and that a 50% haircut would be required.  Now the bondholders are being told,  “fifty percent?” well, “that was okay for starters,” but it’s not nearly enough to treat this particular Econoblastoma.

No, it seems the cure for years of Greek profligacy will require that the holders of about  $206 billion in Greek bonds will have to swap them for bonds that will pay, upon maturity, 60% less.

And, oh yes, that maturity date will have to be strung out somewhat longer too. And, did we mention, Greece wants the interest rate they will have to pay to be reduced to something under 4%, like maybe 3.5%.  Now, that’s within 375 basis points of what the United States of America pays for its long bonds.  And, to complicate matters more, the private creditors are insisting that if they have to take a 60% haircut (or more) than it is only fair that the public bondholders (think European Central Bank) take the same haircut. “It would be outrageous if the ECB doesn’t take part as keeping their Greek bonds to maturity would allow them to make a profit, while everybody else is taking 70 percent (losses) or even more,” one source close to the talks said.  To complicate matters even more the ECB is demanding greater austerity commitments by Greece, many of whose elected officials are facing elections in the spring.

Now, the real concern isn’t about the fate of Greece.  After all, Greece’s entire GDP is about the size of one major American city.  The reason Greece is creating such heartburn throughout Europe and, yes, here in the United States, is that if the coming default get’s sloppy, as we believe is likely, an entire gaggle of EU countries could see their cost of borrowing go through the roof as Portugal is experiencing as we write this essay.  That’s why the EU is cobbling together the biggest “firewall” it can.  What does all of this mean?  It means that the recession into which Europe has really already descended could rapidly deteriorate into an economic depression and that would have severe implications for America given the importance of Europe as the leading destination for American exports.

2. Declining Job Creation

This is the symptom we most want to avoid. Job creation ticked up nicely at year’s end and that’s good.  Net job creation is a far more important indicator of economic recovery, or lack thereof, than the monthly unemployment claim data on which the media tends to focus.  People taking poor jobs or multiple jobs just to make ends meet, or people who just throw in the towel and stop looking may lower the claims for unemployment compensation in a given month, but it doesn’t tell us much about the health of the economy.  Job creation data, however, do.  According to the Bureau of Labor statistics, 2011 ended with 200,000 new jobs created in the month of December.  That was encouraging, but whether it can be sustained month after month is questionable.

According to economist Nouriel Roubini of New York University’s Stern School of Business and Chairman of Roubini Global Economics, US job growth is still too mediocre to make a dent in the overall unemployment rate and on labor income. The US needs to create at least 150,000 jobs per month on a consistent basis just to stabilize the unemployment rate. More than 40 percent of the unemployed are now long-term unemployed, which reduces their chances of ever regaining a decent job. Roubini also notes that firms are still trying to find ways to slash labor costs in order to stay competitive and grow their companies.

While the trend has been in the right direction, the average seasonally adjusted number of jobs created per month last year was below Roubini’s estimate of what it takes just to break even.  Monthly Job creation is, perhaps, the most critical measure of the economic health of the country. We’ll closely watch this indicator.

3. A Decline In US Exports

Our exporting industries are vital to the American economy, accounting for somewhere around 11% to 12% of our entire GDP.  We are the world’s leading trading nation although we import considerably more than we export.  Our goal, of course, is to sell more (abroad) than we buy.  While that is a goal we rarely achieve, a sustained net decline in exports will most certainly have a negative impact on the American economy.   As 2011 came to a close the United States was experiencing a decline in new orders for durable goods and that was probably a pretty reliable sign that Europe’s slowdown has begun to affect the U.S. economy.  While, overall, exports dropped 0.9%, exports to Europe fell more sharply — nearly six per cent. We believe Europe is in major trouble and the odds are that things will only get worse in the short to medium term, which will cut demand for American-made goods. Europe accounts for about 20% of all U.S. exports, so the mess in Europe (Euroblastoma #1 above) is also a mess for us. A decline in exports translates to a decline in US economic growth. Less production at factories and weaker revenue for U.S. companies obviously means a weaker US economy.

4.  More Quantitative Easing

Quantitative Easing is a euphemism for printing money in order to buy US debt, which, in turn, keeps the nation’s cost of borrowing down…at least temporarily.  When the Federal Reserve steps in and buys US debt at auction it creates what we think is pseudo demand for our debt.  Given the uncertainly about future demand for European sovereign debt, there may be no other place for bond holders to go, assuming they place a high priority on preservation of principle, so there may be no need for further Quantitative Easing.  There are three reasons to keep interest rates unrealistically low.  First, easy money generally stimulates an economy and our economy still needs plenty of stimulating (although not way the government chooses to stimulate the economy). Second, the government really can’t afford to pay higher interest rates on its debt and, finally, and somewhat cruelly, it forces almost everyone to take greater risks.  This causes generally conservative fixed income investors to turn to riskier equity investments, driving up the price of equities thereby generating an aura of wealth creation.  Unfortunately, our past experience with Quantitative Easing suggests that the price of commodities will also rise driving up the cost of many essentials.  Talk about Voodoo Economics.

5. Bond Vigilantes Turning the Tables On The Fed

The Fed doesn’t quite have the free hand many politicians think it has.  It is true that, so far, Quantitative Easing has created enough demand for our debt to keep down the government’s borrowing costs.  The ECB has been practicing it’s own version of Quantitative Easing in Europe and we’ve still seen great volatility in borrowing costs among troubled Euro Zone countries.  In other words, when bond purchasers dig in their collective heels and stay home when sovereign bond auctions take place, they send a sudden and drastic message.  They become bond vigilantes and they can and have forced up interest rates.

The United States has already had its debt downgraded by Standard & Poor’s, and should the bond vigilantes decide they deserve a greater return for the risk they take when lending to the United States the results could be catastrophic given the fragility of our economy.

For the time being, US Treasuries are a hot item with a $15 billion auction of Treasury Inflation-Protected Securities (TIPS) this month drawing the strongest demand in nearly a year even though yields on the notes average less than zero percent for the first time. Yields on all types of Treasuries are at or near record lows and, except for the 30-year bond, provide negative real returns net of the Consumer Price Index.  Given the paucity of fixed income alternatives, we do not see Bond Vigilantes lurking in the shadows, but it would be a very serious precursor of serious trouble ahead should they awaken from a long slumber.

6. A Decline in Consumer Spending

When all is said and done, if the American consumer won’t buy, the American economy won’t grow. The fourth quarter, which started out with a bang ended with a whimper, with December sales much weaker than expected.  The Wall Street Journal reported that sales all but stalled in December increasing only 0.1% from November.  December sales were driven by deep retailer discounts and the strong sales for the fourth quarter overall were a significant draw on consumer savings. Spending at retailers sagged each month as the quarter progressed.  It is expected that much of the first half of 2012 will see reduced spending as consumers replenish their savings.  A steep decline in consumer spending will be a severe blow to our recovery hopes, and the current politics of envy, whereby the Administration targets for tax increases the so-called 1.0% who happen to pay nearly 40% of all federal income taxes is, in our judgment, very ill-conceived.

7. Inflation

Conventional wisdom and generations of experience teaches that a surplus of money in the economy will, sooner or later, result in inflationary price increases.  Inflation, would, of course, torpedo any hope of economic recovery. Those on the left who advocate robust and muscular spending initiatives argue that we needn’t constrain government spending because the beast of inflation hasn’t raised its head.  That seems akin to a physician counseling a patient that there is no reason for him or her to stop smoking because there seems to be no evidence yet of lung cancer.  We would counsel such a patient to change doctors.

By Hal Gershowitz and Stephen Porter

Originally from Big Government

Just hours after winning the Florida primary, Mitt Romney let loose a potential gaffe that turned what should have been a rallying moment for Republican supporters into an uncomfortable position of having to defend the man that is likely to face Obama in the general election.

If taken out of context, which the media is very adept to doing, Romney’s comment, “I’m not concerned about the very poor” sounds heartless and indefensible. In fact, that is exactly how many conservative commentators reacted.

From a purely political position, the criticism is reasonable. Romney effectively handed Democrats a shiny set of brass-knuckles to use against, not only him, but the Republican Party in general as being out of touch with every day Americans. As NRO’s David Kahane put it, “In the Fight of the Century between the Apologetic Oligarch and the Tribune of the Folks, who do you think the fans will be rooting for?” In other words, Romney unwillingly played into the class-warfare meme that Obama has wrapped himself in.

Jonah Goldberg says there are risks with Romney because he has yet to show he has mastered the art of the “stump” even after close to decade of practice.

These are examples of criticism on the face of the issue. Other conservative commentators chose to hammer Romney on his acceptance of the welfare state, and no doubt relished at the opportunity to attack him before having to reluctantly support him in the general election. To this group, not only did Rommey make the mistake of choosing his words poorly, he also spoke of the welfare state as status-quo. Erick Erickson at Red State, and Mark Levin, are charging Romney of the same class-warfare tactics Obama and the Democrats use. Furthermore, from his choice of words Romney effectively endorsed poverty as a thing to be accepted instead of engineering ways for them to lift themselves up out of poverty. Alas, a New England, Rockefeller, Republican.

… Mitt Romney said he wasn’t concerned about the poor. The poor, after all, have food stamps and Medicaid. But don’t worry. If the safety net is broken, Patrician Mitt Romney will fix it so the poor can stay comfortably poor (E. Erickson).

In an environment such as politics, perception is key. After all, there is a saying that is usually applied to politicians “Once you learn to fake sincerity, the rest is easy.” So maybe Romney does have a sincerity problem. But if sincerity is faked, which it usually is, why bother to do it? After all we have a president totally comfortable faking sincerity, and one who took Rousseau’s thought “the more obscure and uncertain the cause, the greater the effect: the greater the number of idlers one could count in a family, the more illustrious it was held to be” and won the presidency with it.

Romney’s full comment was a little deeper than some of the reactions suggested.

I’m not concerned about the very poor. We have a safety net there. If it needs repair, I’ll fix it. I’m not concerned about the very rich. They’re doing just fine. I’m concerned about the very heart of America, the 90-95 percent of Americans who right now are struggling.

It isn’t my job or even my concern to defend Romney by putting a positive spin on his comments. However, his remark did not cause this conservative to react negatively. I heard what he was saying loud and clear. It isn’t the duty of a president, Congress, or state governments to pull people up out of poverty. In fact, one could argue convincingly when those things are tried, poverty increases and wealth declines. So what we do have in place is a safety net for those who are down. It isn’t a permanent residence, it’s an interim position. The focus should always be growth and capital. When the economy is well, so is America’s labor force.

The economy is the engine that drives mobility because as long as our economic system rewards success and punishes failure (such as life) no station in life is monolithic. There is nothing destined in America.

Mobility is not limited to the top-earning households. A study by economists at the Federal Reserve Bank of Minneapolis found that nearly half of the families in the lowest fifth of income earners in 2001 had moved up within six years. Over the same period, more than a third of those in the highest fifth of income-earners had moved down. Certainly, there are people such as Warren Buffett and Bill Gates who are ensconced in the top tier, but far more common are people who are rich for short periods.

Very well then, Romney’s concern shouldn’t be with the poor. His concern should be with those who help drive the economy. Those who buy and produce, start businesses, buy homes and cars and hire employees. With a growing economy comes a rising tide of activity. And it’s from this activity that allows the poor opportunities to pull themselves up out of poverty. For lack of better words, the horse really does come before the cart. Or better, a physician is only concerned with a patient insofar as he can help cure the aliment. That is Romney’s position. Conservatives would do well if they thought more and reacted less.

We can belly-ache and lash our faces from grief and despair over the plight of the poor, or we can actually do something about the conditions for which there are so many poor among us.

Originally from Big Government