Why I am Angry

The Kansas City Star’s front page article recently was about anger of town hall meeting participants. They only partially got right why people are angry in the first place. I agree that many people are acting rather stupidly by comparing Obama to Hitler, but our anger is very real and the actions of a class of morons should not diminish that fact. I am also disturbed that the Speaker of the House Nancy Pelosi has the gall to call the anger an astro-turf movement. There is nothing fake about the anger; let me tell you why I am angry, and I don’t need some schmuck from a right-wing organization to coach me either:

We, the people, feel we no longer have a voice. We call our elected representatives in Washington, D.C. to tell them in overwhelming numbers that we do not support TARP or a stimulus plan and they refuse to listen and pass those measures anyway. We are suffering through a terrible economic downturn and are cutting back our own spending habits while the Washington, D.C. crowd continues to dole out the pork. They give themselves a pay raise while millions of jobs are being lost. They decide that health care reform is needed immediately, which I agree it is, but they try and ram through complex legislation that they have no time to read, no one really understands and it does not even include the basics like tort reform. It appears that over and over again, legislation is being written by special interests for special interests and not for the people. Meanwhile our national debt continues to increase to an unfathomable $12 trillion, the budget deficit for this year alone is nearly $2 trillion, and we pay over $300 billion a year in interest on debt. A recent Kansas City Star article stated that the latest forecast from 2010 to 2019 estimated an additional $9 trillion budget deficit for a potential national debt of more than $21 trillion. How are we supposed to dig ourselves out of that hole? Washington, D.C. is not making tough decisions for fear of the political ramifications; rather they continue to pass legislation that is dubiously funded by increasing the taxes on the “rich” while ignoring the very real long-term fiscal consequences. They are intent on a carbon cap and trade system, which some have argued will not do anything against “global warming” and it gives away most of the initial credits instead of charging for them (again special interests and their influence). They institute a cash-for-clunkers program that is not well administered and is nothing more than a car bubble akin to the housing bubble. At a time when more and more people are getting back to basics they seem to be running in the opposite direction.

I have no ties to the “invisible hand” supposedly behind all the “manufactured” outrage. I am an independent voter that despises the republican and democrat parties. I worry what the future has in store for my children because I see that they will have it very hard if we continue down the road we are currently on. Our elected officials consistently refuse to change course. It is simply unsustainable to continue to run this country the way they are doing. It is not working and the rest of the world is beginning to see that. And I refuse for my children to be sold into debt bondage because of the ambivalence, ignorance, and arrogance of our elected officials. They seem to be more concerned with getting their names on bridges and buildings than doing the right thing.

Gee, I wonder why we are angry.

“Your silence gives consent.” - Plato

State of Bliss

For those of you that frequent my blog I should provide an explanation as to my extended absence. There are several reasons for this: 1) My trip to Haiti in late April; 2) my journey along the path of Ignorance to find that elusive sanctuary of Bliss; and 3) I have been swamped at work. The first two reasons are intimately tied to each other, although maybe not in the way you might think.

When I returned from a week long Engineers without Borders implementation trip in Haiti I was in a good mode, relaxed, and oddly stress free. We had installed perhaps the largest solar array in Haiti. The solar array is able to provide all the electricity needs for a health and birthing clinic in rural Haiti with the sun. We are potentially saving the NGO thousands of dollars per month in diesel fuel costs.

I had not listened to any news in more than a week and did not know the crap our politicians were up to in my absence. I decided that I would continue to ignore the news, stop watching TV, and stop listening to NPR and the all news channel on the radio. I had decided that ignorance was truly bliss after all. I read books and listened to music stations. I was happy and my wife were not getting into political arguments.

My experiment at closing myself to the realities of today thereby saving my sanity, not to mention my health, lasted for a couple of months. Occasionally, a colleague or friend would impart some of the insanity Washington, D.C. was cooking up. I would go off the deep end for about an hour or two and then slowly come back to my senses. I reasoned with myself that it did not do any good to get upset with the morons running the country. I reminded myself that they would do whatever they were going to do no matter how stupid or irrational it was. I was ignorant about cash for clunkers and the health care debate did not seem to upset me. I got a little upset when I was looking at a newspaper in Nebraska and there was nothing but bright red budget deficits projected every year for the next ten years. I firmly reminded myself that it was not my problem. It was helpful that I was working overtime every week and had no time to surf the interweb or watch inane television programming.

Alas, my blissful existence did not last long. While I was staining my deck and thinking deep thoughts I came to the conclusion that, while ignorance is indeed bliss, I cannot remain silent while the ridiculous self-importants in Washington, D.C. decide that a national debt of $12 trillion is not enough and they are willing to allow that to grow to $21 trillion over the next 10 years. I cannot remain silent while they take this once great country and through ignorance, arrogance, and ambivalence slowly run it into the ground. I cannot stand idly by while our so called elected representatives lay the groundwork for my children to be quasi sold into debt bondage because they are weak and stupid. I decided that I needed to get back into the game.

I mostly maintained one aspect of those blissful months; I hardly watch any television anymore. This more than anything has perhaps helped me as I continue to struggle with the addiction of futilely fighting the stupidity of the democrats and republicans. Television is one tool in their arsenal to make us complacent robots. For your sake, as well as your children’s, turn off the drug – you will feel better after about a week. You may go through some withdrawal, but in the end you will never know you missed it.

Photo of Phase I MN Solar Array Installation Team "Caption Ron and the Kissing Gourami"

RAW: Socialism versus Capitalism

Some nutter on a website left a comment that 7 of 10 Americans prefer socialism to capitalism.

First, I doubt those polled could even give the proper definition of either (the definitions are below in case you were wondering.) Second, if they really knew the definitions I doubt they would chose one over the other. When you get down to it, neither in their true form is palpable.

There is much hype on talk radio about how we are marching towards socialism. However, the reality is that the United States is already part of the way there. I would also argue that the United States will never be 100 percent socialist, just like the United States will never be 100 percent capitalist. Why you may ask? Because of what it is that makes the United States unique. We value freedom. We also look out for one another.

You see, the United States is neither a capitalist nor a socialist country. Even the European countries are not socialist by definition, they just pay more taxes and have larger social programs. The United States has a combination of socialist tendencies (defense, health care, education, social security) and capitalist tendencies (incentives to produce, ability to own shares of companies, own property, invest your money). Government also regulates the capitalist system.

We have a prime example of when capitalism is allowed to run amuck with the real estate bubble and the subsequent fall out which is why capitalism cannot be allowed to run unchecked. On the other hand, without a capitalistic system creating goods and services that the government can tax we cannot provide for the socialist programs which we can agree, to one degree or another, is needed for those destitute and downtrodden. Yes, when government grows too much and people start seeing everything as a right we tip the scales towards socialism. However, socialism may work on a micro level (Amish farmers come to mind – but even they sell goods for money), it does not work by itself on a macro level. Even countries like China are using capitalism – they have no choice but to embrace certain aspects of it.

The key to everything in life is finding moderation (the foods we eat, the debt we take on, activities we are involved in, etc.). The key for the United States is finding the balance between socialism and capitalism. I hope that President Obama and his fellow democrats in Congress understand that economic freedom is good for the economy and the American people just has I hope Rush Limbaugh and the republicans understand the need to keep businesses in check (everyone is human afterall).

socialism–noun (http://dictionary.reference.com/browse/socialism)
1. a theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole.
2. procedure or practice in accordance with this theory.
3. (in Marxist theory) the stage following capitalism in the transition of a society to communism, characterized by the imperfect implementation of collectivist principles.

capitalism–noun (http://dictionary.reference.com/browse/capitalism)
An economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market. In such a system, individuals and firms have the right to own and use wealth to earn income and to sell and purchase labor for wages with little or no government control. The function of regulating the economy is then achieved mainly through the operation of market forces where prices and profit dictate where and how resources are used and allocated.

Do the opposite of whatever they want to do

Caveat: I know full well that the policies of President Bush and others got us where we are today. I was against all of his fiscal policies. I also know that the democrats sat idly by and said nothing about the explosion in spending. They certainly did nothing about Freddie Mac and Fannie Mae. Sure they protested the Iraq war, but I never heard them complain about the other $4 trillion Bush added to the debt.

There are many within the “intellectual” elite circle and ruling class calling for more stimulus. Paul Krugman, Nobel Laureate, and Robert Reich, former Secretary of Labor under President Clinton, are among those that support such thinking. President Obama appears to be listening to these wunderkids and is making rumblings of more stimulus spending coming our way. They say we need more stimulus than Japan had in their lost decade. Really? Have any of them stopped to think about what that would mean? If you compare the size of the Japanese and American economies and extrapolate we would need a stimulus package worth more than $20 trillion. Now does that pass the sniff test? I don’t think so. Most people in their gut know that this, just like bailing out AIG or GM, is the wrong course. Unfortunately for us, those people are not in charge.

Many of these people wanting more stimulus spending subscribe to Keynesian economics. Keynesian economists believe that government spending is the only way to get an economy in the doldrums going again. Please someone explain to me how the path we are on is sustainable and will not have long-term consequences. Let’s sum up where we are today:

National debt: $11 trillion and growing.
Budget deficit: $1.5 trillion this year and likely $1 trillion for years to come.
Unfunded liabilities for Medicare, Medicaid, and Social Security: $60 trillion and growing.

Looking at those numbers I cannot fathom how spending more money will help. Sure short-term, it may do some good, but then how are we going to pay the tab? It is the height of irresponsibility to push this bill onto our children and grandchildren. President Obama wants more programs and more spending. How is that possible without completing destroying the dollar and creating a Wiemar Republic scenario? Even Keynes pointed out that “governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance.” Sound familiar? That’s where we are at now folks. But there are some people out there that have no problem with monetizing our debt. While small, short-term monetization may not pose a problem we are well beyond that. And I think they know it and are trying every stop gap measure hoping that the economy will turn around enough to naturally get us out of trouble. Of course they will claim that it was their massive spending that lifted us out of this recession. BULL SHIT.

Frederick Soddy, a 1921 Nobel laureate in chemistry turned economist, understood how bad debt was. In a recent op-ed piece in the New York Times, Eric Zencey, a professor of historical and political studies at Empire State College, wrote that Soddy

offered a perspective on economics rooted in physics — the laws of thermodynamics, in particular. An economy is often likened to a machine, though few economists follow the parallel to its logical conclusion: like any machine the economy must draw energy from outside itself. The first and second laws of thermodynamics forbid perpetual motion, schemes in which machines create energy out of nothing or recycle it forever. Soddy criticized the prevailing belief of the economy as a perpetual motion machine, capable of generating infinite wealth — a criticism echoed by his intellectual heirs in the now emergent field of ecological economics.

A more apt analogy, said Nicholas Georgescu-Roegen (a Romanian-born economist
whose work in the 1970s began to define this new approach), is to model the economy as a living system. Like all life, it draws from its environment valuable (or “low entropy”) matter and energy — for animate life, food; for an economy, energy, ores, the raw materials provided by plants and animals. And like all life, an economy emits a high-entropy wake — it spews degraded matter and energy: waste heat, waste gases, toxic byproducts, apple cores, the molecules of iron lost to rust and abrasion. Low entropy emissions include trash and pollution in all their forms, including yesterday’s newspaper, last year’s sneakers, last decade’s rusted automobile.

Matter taken up into the economy can be recycled, using energy; but energy, used
once, is forever unavailable to us at that level again. The law of entropy commands a one-way flow downward from more to less useful forms. An animal can’t live perpetually on its own excreta. Neither can you fill the tank of your car by pushing it backwards. Thus, Georgescu-Roegen, paraphrasing the economist Alfred Marshall, said: “Biology, not mechanics, is our Mecca.”

Following Soddy, Nicholas Georgescu-Roegen (a Romanian-born economist whose work in the 1970s began to define this new approach) and other ecological economists argue that wealth is real and physical. It’s the stock of cars and computers and clothing, of furniture and French fries, that we buy with our dollars. The dollars aren’t real wealth, but only symbols that represent the bearer’s claim
on an economy’s ability to generate wealth. Debt, for its part, is a claim on the economy’s ability to generate wealth in the future. “The ruling passion of the age,” Soddy said, “is to convert wealth into debt” — to exchange a thing with present-day real value (a thing that could be stolen, or broken, or rust or rot before you can manage to use it) for something immutable and unchanging, a claim on wealth that has yet to be made. Money facilitates the exchange; it is, he said, “the nothing you get for something before you can get anything.”

Problems arise when wealth and debt are not kept in proper relation. The amount of wealth that an economy can create is limited by the amount of low-entropy energy that it can sustainably suck from its environment — and by the amount of high-entropy effluent from an economy that the environment can sustainably absorb. Debt, being imaginary, has no such natural limit. It can grow infinitely, compounding at any rate we decide.

Whenever an economy allows debt to grow faster than wealth can be created, that economy has a need for debt repudiation. Inflation can do the job, decreasing debt gradually by eroding the purchasing power, the claim on future wealth, that each of your saved dollars represents. But when there is no inflation, an economy with overgrown claims on future wealth will experience regular crises of debt repudiation — stock market crashes, bankruptcies and foreclosures, defaults on bonds or loans or pension promises, the disappearance of paper assets.

It’s like musical chairs — in the wake of some shock (say, the run-up of the price of gas to $4 a gallon), holders of abstract debt suddenly want to hold money or real wealth instead. But not all of them can. One person’s loss causes another’s, and the whole system cascades into crisis. Each and every one of the crises that has beset
the American economy in recent years has been, at heart, a crisis of debt repudiation. And we are unlikely to avoid more of them until we stop allowing claims on income to grow faster than income.

Soddy would not have been surprised at our current state of affairs. The problem isn’t simply greed, isn’t simply ignorance, isn’t a failure of regulatory diligence, but a systemic flaw in how our economy finances itself. As long as growth in claims on wealth outstrips the economy’s capacity to increase its wealth, market capitalism creates a niche for entrepreneurs who are all too willing to invent instruments of debt that will someday be repudiated. There will always be a Bernard Madoff or a subprime mortgage repackager willing to set us up for catastrophe. To stop them, we must balance claims on future wealth with the economy’s power to produce that wealth.

Now I agree that Soddy and Georgescu-Roegen were on to something: too much debt is bad and our economic model based on consumerism and loose credit hurts us. But Soddy could not leave it at that. He had to develop his own five policy principles that he thought would combat that. His first four were once considered eccentric but are now conventional practices.

1. Abandon the gold standard
2. Let international exchange rates float
3. Use federal surpluses and deficits as macroeconomic policy tools that could counter cyclical trends
4. Establish bureaus of economic statistics (including a consumer price index) in order to facilitate this effort

I would argue that these principles have led to the situation we are in. Abandoning the gold standard has led to the ability to print money and fund government programs that are unsustainable and allows trillion dollar deficits and an $11 trillion debt – the fiat currency.

Letting exchange rates float has hit Greenland and the former Eastern Bloc countries particularly hard as loans made in a foreign currency have created havoc as loan amounts increased as a result of a floating exchange rate – the owners of those loans cannot afford to pay them now. This has also allowed people like George Soros to speculate on currencies and make billions by gaming the system.

Soddy’s third principle is the most nefarious of them all. This principle has produced the mindset that cyclical trends are bad and government intervention is good. This is a very dangerous idea in my opinion. Cyclical trends are natural and we want them; they naturally regulate economies. The idea that a government can manage an economy is ridiculous – that should not be the role of government in the first place. Yes, you can provide some monetary policy, but controlling the economy like he suggests is the same stupid notion that we can control the climate. When people like Paulson or Greenspan meddle they make things worse, not better – like keeping interest rates artificially low. Government debt also takes money away from other private entity capital projects that create real jobs and not the government ones that leech money from our economy (made up work that has little to no value). Government surplus should be used to pay down debt and if it is not needed for that it should go back to the people so that they can use it how they see fit.

The stock market and our lives are now ruled by economic statistics thanks to Soddy’s fourth principle. We hear how the markets react to various economic statistics. Bad stats lead to bad days on Wall Street. Good news and the markets go up. More data manipulates the system and places value on short-term outcomes rather than long-term reality.

“Soddy’s fifth proposal, the only one that remains outside the bounds of conventional wisdom, was to stop banks from creating money (and debt) out of nothing.” Well, this runs counter to his first principle above anyway. The Federal Reserve has long been creating money out of nothing. If you want to stop them from making money out of nothing you need something like the gold standard. This has led our ruling political class to seek our favor by showering us with fake money in the form of inefficient and incompetent government programs we can’t afford. The more they sink their talons into our lives the less likely we are tell them to go to hell.

Lastly, Mr. Zencey, probably as much of an economist as I am, claims that we need a “100-percent reserve requirement on demand deposits”. This is unworkable and would unnecessarily lock up capital in banks and make investment onerous. Please leave the economics to those with common sense. The intellectual elite that include Krugman, Reich, and Zency, should shut themselves up in their offices and leave us alone. Please keep your intellectual workouts to yourself. Have you not done enough damage already? We do not need more of your meddling. You and your ilk landed us in this mess in the first place.

Finally, one last anecdote to dispel the notion that we need more stimulus or onerous regulation (some regulation, yes, not what Reid, Pelosi, Frank, or Schumer want). On a radio program here in Kansas City they were talking with a local bank president. His bank is largely unaffected by the whole subprime mess because he followed two simple rules:-1) they did not make risky loans and 2) they did not allow loans to exceed 70% of their deposits. He claimed that the banks now suffering had loan to deposit ratios greater than 100% and they invested heavily in the subprime market. Damn that Midwestern common sense.

The fix is pretty simple when you get down to basics and let common sense guide your business model. What the brain trust in government does not understand is that we are paying for years of negligence. We cannot simply make a 180 degree turn and suddenly everything is sunshine and lollipops. We need to let the markets correct themselves. Will it be painful? Yes. Will it be better this way and not place a huge burden on our children? Yes. There is no need for complex economic models or scraping our economic system; we just need to do what makes sense, and that does not include what the ruling class is suggesting we do. A better approach may be to do the opposite of whatever they want to do.

Misplaced Anger

There goes President Obama whipping up the populist anger once again. He goes in front of town hall meetings and talks about how angry and disappointed he is that AIG gave $165 million in bonuses. Our lawmakers than decide that they need to punish those receiving bonuses in companies that receive government bailout money and pass legislation to tax the bonuses at 90 percent. They hope the states follow suite and tax the remaining 10 percent.

No matter if you are against or for the bonuses, you should be very concerned about the knee-jerk measures Congress is taking to appease the populists. Where are those crying fascism now? This is the government leading us down a slippery slope we do not want to start down. What next, more legislation targeted at another specific group of people they disagree with or that President Obama decides to target? A contract is a contract, no matter how much it disgusts you. If you want to be disgusted, try looking in the mirror.

How about this for an example and let’s rate its fairness. Let’s say I work for a company that is getting money from the government for one reason or another. The reason the company is getting this money is that one or more divisions of the company really screwed up. But the division I am working in is going gangbusters. In fact, I did very well last quarter and exceeded my targets. According to my employment contract if I meet or exceed my targets I am entitled to a bonus. Now should I not be given the bonus just because the other divisions caused my company to be in such dire straits that it needed to belly up to the Frank-Reid-Pelosi-Dodd trough?

Try this one. I work in a competitive market. My job skills are constantly sought by other companies. I could go anywhere and they would pay me well. My company is going through some rough times and happens to be receiving government bailout money. They want to make sure they keep me because they know full well I can jump ship. So they provide me an incentive to stay through a cash bonus. Now should I not be given the incentive just because my company needed to belly up to the Frank-Reid-Pelosi-Dodd trough? Shouldn't my company try to retain talent it desperately needs as it rights its ship?

All the supposed outrage at AIG is another way to misdirect our ire at the complete incompetency of our federal government. The fact remains that Congress did not act as it should have when formulating the bail outs.

Democratic leaders scrambling to strip AIG executives of bonuses are having a hard time answering a key question: Why didn't Congress act to prevent the bonuses in the first place?

"There's always more we can do, and hindsight is 20/20," said Senate Majority Leader Harry Reid Tuesday.

But though some lawmakers did move to prevent bonuses in the stimulus bill last month, the final language actually makes an exception for pre-existing contracts, effectively exempting AIG.

Senate Banking Committee Chairman Chris Dodd, D-Connecticut, who originally proposed the executive compensation provision, said he did not include the exemption clause, which said new rules "shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009."

Really Senator Dodd? You do not know how that got in there? Let’s see, does you and President Obama the leaders in AIG political contributions have anything to do with it? I wonder.

The top ten recipients of AIG donations for the 2008 election cycle:

Sen. Chris Dodd, D-Connecticut: $103,100
President Barack Obama: $101,332
Sen. John McCain, R-Arizona: $59,499
Secretary of State Hillary Clinton: $35,965
Sen. Max Baucus, D-Montana: $24,750
Former presidential candidate Mitt Romney: $20,850
Vice President Joe Biden: $19,975
Rep. John Larson, D-Connecticut: $19,750
Sen. John Sununu, R-New Hampshire: $18,500
FormerpPresidential candidate Rudy Giuliani: $13,200

Oh yeah, Senator Dodd did have something to do with that after all. Huh, I wonder if that $103,100 jogged his memory.

Senator Christopher Dodd (D-Conn.) suffered a political blow Wednesday with the
admission that he had been involved in key legislative changes that helped pave
the way for AIG to pay controversial bonuses.

In a retreat from earlier statements, Dodd said Treasury Department officials had come to him last month urging him to modify an amendment to the stimulus bill that capped bonuses for firms receiving aid.

The real people that should be punished here are the members of Congress. They should forgo any pay increases until the budget is balanced and I would recommend that we retroactively tax them at 5 percent per year for each year there was no balanced budget and they served in Congress. Now that would be a step in the right direction.

All this misplaced anger is yet another smokescreen created by those in Washington, D.C. to hide their truly ugly incompetency. Thanks. This is definitely not change I can believe in.

Really as Bad as You Think

“One of the most important skills for political success is the ability to make confident assertions of absurdities or lies.” -Thomas Sowell

If you think I am some rethuglican, guess again. I opposed the Bush tax cuts. I opposed the Iraq War. I opposed the Bush stimulus in early 2008. I opposed TARP 1. I also opposed Obama’s stimulus. Why? I see ineffective and dangerous governmental policy behind each one. I look beyond the short-term effects to the long-term consequences. Looking at the result of the first four I can state with some confidence that I was right in opposing each and every one of them.

The stimulus touted by Obama to create 3.5 million jobs (funny how that number keeps increasing) provides a paltry $16 extra per paycheck this year ($400 dollar credit divided by 26 paychecks) which drops to $8 per paycheck next year. NPR was interviewing some so-called expert. The interviewer asked if the “expert” really thought that extra $16 per paycheck would be stimulating. The “expert” actually said that he thought it would. You have got to be kidding; what freaking planet was this idiot from? The only thing an extra $16 per paycheck will stimulate is McDonald’s. Don’t get me wrong, I am all for creating jobs. But this is not the way to do it.

The stimulus is nothing more than a spending stop gap to hide the underlying issues of our economy and delay the inevitable real pain (You can put your finger in the dam to stop the leak…). It does very little to stimulate innovation which creates real jobs. True stimulus would have been a massive $500 billion+ investment in energy of the future and a rehab of our electric grid - I could have supported that because I understand the need for it and I can see how it would benefit our economy. The little dribs and drabs towards an investment in infrastructure in the current stimulus plan fall far short of providing a healthy footing for an economy beyond the next election cycle. As one comment put it: “[The stimulus is] like eating more food to lose weight!”

We had the tech bubble, the housing bubble and next we will have the government spending bubble. When the government money runs out, what then? Will we be told that we need another porktastic spending spree because the first one was not large enough? Can’t we see that this is simply no longer sustainable? And here I thought the progressives were all about sustainability. It is obvious that their idea of what sustainability is does not translate to the pocket book. Of course, if they really adhered to the idea of a sustainable society they would kill themselves because the majority of what humans do is not sustainable. But I digress.

Do not believe for one instant the pundits when they say that the national debt is still only a percentage of the gross domestic product (GDP). They forget to add in the debt held by business and you and me. That total is $52 trillion – three times the GDP of around $14 trillion. Adding more debt is a very bad idea. Some pundits want us to do what Japan did in the 1990s. If only it were that simple. We would have to have a stimulus package worth more than $20 trillion to match what Japan did because we have a much larger economy. And I am not including the unfunded liabilities of social security and Medicare that is an estimated $60 trillion.

Even scarier is what the Federal Reserve (Fed) is doing to straighten out the mess the banks are in. The Fed has committed trillions to the bail out of insolvent financial institutions. Robert Reich in his blog recently wrote:

“To date, the Fed has already committed some $2.5 trillion to rescuing the financial ystem, yet no one outside the Fed knows exactly how or where this money went. The Fed is subject to almost no political oversight. Yet if the trillions of dollars the Fed has already committed and the trillions more it's about to commit can't be recouped, the federal debt explodes and you and I and other taxpayers are left holding the bag.

In other words, Geithner and Fed Chair Ben Bernanke continue to do pretty much what Hank Paulson and Bernanke did: They hide much of the true costs and risks to taxpayers of repairing the banking system.”

And we should trust Turbo Tax Tim? Why am I and others like me marginalized for speaking out? We are raising the alarm and the sheeple simply would rather watch American Idle. Congress voted on nearly a $1 trillion spending plan that contained more than 1,000 pages of text and had less than 24 hours to look it over before voting on it. We are simply to take on faith that politicians are looking out for our best interests?

The dumb are leading the dumber towards the cliff. The sheeple look idly by without a clue as to what is going on. We the Idiots deserve every bit of what we have sown.

Question everything and everyone. Trust no one.

Photo by KCThinker, Butterfly at Ohama Henry Doorly Zoo

Repeating Mistakes of the Past

Probably one of the most frustrating things about the financial crisis we are in is that the response is eerily familiar to past crises. Yes, I am talking mainly about the Great Depression. The history we learned in school that FDR’s New Deal brought us out of the Great Depression is patently false.

World War II did end the Great Depression, as revisionists are apt to claim, in a manner of speaking, but not in the way you may think. The U. S. did benefit from the massive war building effort, but after the war was over all that manufacturing had to be turned somewhere else, it simply could not keep churning out guns and ammo for a war that did not exist. When WWII finally came to a close the majority of countries with industries similar to ours before the war were in shambles. The U. S. was intact, had the manufacturing infrastructure and was able to quickly start producing. Another key was that the war effort led to considerable innovations which spurred more job growth. In conclusion, FDR’s New Deal did nothing. In fact, Henry Morgenthau, FDR’s Treasury Secretary, testified before the House Ways and Means Committee in May 1939:

“We are spending more money than we have ever spent before and it does not work. I want to see this country prosperous. I want to see people get a job. We have never made good on our promises. I say after eight years of this administration we have just as much unemployment as when we started and an enormous debt to boot.”

Of course the economists today (and even presidents) don’t let the truth stop them from making idle claims. It is interesting to note that, like psychologists, economists adhere to different schools of thought (or ideology if you will). There are the Keynesians, the Austrian School, and others. Frederic Bastiat, a French politician in the 19th century wrote:

“Essentially, economics is the science of determining whether the interests of human beings are harmonious or antagonistic.”

In a way, economics is like psychology because much of it is based on human emotion and interaction, so it should not come as a surprise that economists rally around different schools of thought than reality.

The idea that the government is like Superman coming to save the day is absolutely ludicrous. Time and time again, history has shown us that the government is inept. Yes, they are necessary, but only to a point. The role of government is not to be some big brother making sure you don’t fall and if you happen to fall not only picking you up, but dusting you off and carrying you to bed to rest. Government may provide some programs for people to better themselves by, but for the most part it is not government’s responsibility to make sure you have a roof over head and food on your table – that is called personal responsibility, something that seems to be a foreign concept nowadays. The role of government is to provide a safe environment for life, liberty and the pursuit of happiness; to ensure there are sufficient, but not burdensome, laws to protect society. Government is at its best when it gets out of the way of commerce. Government also wastes a lot of our tax-payer funded time on moral issues like homosexuality, abortion, and gay marriage, and non-political issues like steroids in baseball and the NCAA football championship.

What is now going on is the perversion of the idea of government. President Bush presided over a doubling of our national debt and was at the helm of largest expansion of federal government in decades. Republicans insisted that regulations on financial institutions be relaxed. Democrats forced banks to make bad loans. The Federal Reserve cut interest rates to rock bottom levels. You and I spent more money than we had. Everyone wanted everything now. People borrowed against a home with an inflated value. They ran up their credit cards. People bought houses with no credit, no job, and no money down. Financial instruments like Credit Default Swaps were created. Banks bundled the loans and sold them off only to be sold again by others. The result: a combined $56 trillion debt - $12 trillion for the government and $44 trillion for businesses and individuals. That is approximately four times our annual gross domestic product. How is something like that sustainable? It simply is not.

The government’s response? Pump billions (soon to be trillions, mark my words) into insolvent banks. Spend nearly $1 trillion to get the economy going. It did not work in the 1930’s and it won’t work today. Why? Even though the circumstances are somewhat different, the fundamentals are the same. The banks also don’t trust anyone, especially government, after they got burned for making stupid decisions. They are rightfully (and finally) tightening up credit again. There is no credit crunch. Banks are just getting back to fundamentals. If you don’t have a job you should not be given a loan for a car, let alone a house. The government refuses to understand that the last couple of decades have been built on personal and public debt. The government tries to prop up businesses that should be allowed to fail because they are poorly run (banks and American car companies). The government also refuses to understand that government spending projects do not grow an economy. There needs to be real demand and not more artificial demand based on borrowed money no one has. Once the money is spent to build a road, there is no incentive for that employer to employ that person any more. Once the food stamps are spent, more are needed. Yet, the government, in its infinite wisdom (more like denial), is galloping to the rescue of an empty burning building.

As usual, the government is blind to the consequences of its actions. It cannot think beyond Stage One. “In the Economic Sphere,” Frederic Bastiat wrote:

“An act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.”

To prove his point, Bastiat described what happens when a vandal breaks a shopkeeper’s window. The seen effect is that repairing the glass creates economic value in the payment to the glazier, who then has money to buy a new suit or hire a part-time employee. What is unseen is that the shopkeeper has to pay the glazier with money that he would otherwise have used to buy a suit or add an employee. “The broken-window fallacy, under a hundred disguises, is the most persistent in the history of economics,” wrote the economic journalist Henry Hazlitt in 1946. Another similar parable is Uncle Sam, Cousin Maynard, and the miracle seeds.

There is a hidden cost to everything. It is in the stimulus package and it will be in other legislation that the Obama administration will try to ram through Congress. This so-called stimulus will cost each and every household approximately $6,700 in additional debt, paid for by our children and grandchildren. That does not include the $12 trillion of debt we already have - add each citizen's share of that debt is more than $35,000!

The longer government keeps its blinders on, the more likely the real problems will never get solved and the more likely the future integrity of the U. S. is in doubt. Of course, historians will probably take creative license with Obama’s story and undoubtedly shape it in positive nature, much like they have with Lincoln and FDR.

Photo by KCThinker. My daughter walking along the beach.

Why the Stimulus is a Bad Idea

I may just be a simpleton from "fly over country" who sees this stimulus as an utter waste of money. Only about $100 billion is for true infrastructure. You might as well as throw the rest in the fire along with the TARP money. That’s trillions of dollars we will never see any benefit from and that my children will have to pay for now. Why is no one asking how this largesse will be paid for? They simply take it on face value that we need to rush headlong into unwisely spending nearly a trillion dollars. The same crap was pulled with TARP and the Patriot Act and look at where it got us. I am tired of the fear mongering. I thought that would be over when President Bush left office. However, President Obama obviously took a page out of Bush’s playbook and is using fear to get this travesty of a spending bill passed.

What will creating a massive spending government spending bubble actually do? The way I see it, once the money is spent the jobs go away. Government spending as a means to create jobs is not sustainable from my perspective, especially when you have to borrow that money in the first place. How does the stimulus provide long-term sustainable job growth, if at all? That is not change I can believe in.

A good number of jobs were created under during the Clinton Administration because there was innovation in the form of the internet boom. Innovation leads to positive job growth. Under the Bush Administration there were far fewer jobs created because there was no innovation behind the government’s deficit spending. The majority of the stimulus is deficit spending. Little in the stimulus package is geared towards innovation. Sure there is a portion directed to renewable energy and increasing broadband accessibility, but the vast majority of the $800+ billion package is directed to short-term jobs with absolutely no innovation.

The whole idea of getting back to where we were is ridiculous. It was all artificial in the first place. Just when we are finally coming to our senses after decades of spending like sailors in a whore house and now everyone wants to once again spend money no one has. Have we learned nothing? How can that possibly be a good idea when we have so much debt in the first place and we are nowhere close to addressing the long-term fiscal problems associated with social programs such as Medicare?

My gut tells me that this is a bad idea and we will regret it. I look at it and I shake my head because it seems common sense has left the building. You can quote all the economists you want, cite all the job creation numbers from one president to another, and compare it to Sweden or Japan, but ask yourself if you can truly make those apple to apple comparisons. Something tells me that the situation we are in is far worse, much deeper, and far more complex than any of those other situations. Throwing money at it is not necessarily the answer to every problem. Taking a step back and coming up with the right response is always better than merely responding quickly.

We need to feel some true pain. And an unemployment rate of 7.6% is not true pain (yes, those without a job would disagree, but let’s be realistic and look at historic jobless rates and we must also consider ourselves fortunate when looking at the state of the rest of world). All we are doing is providing temporary pain relief but not looking at the symptoms. We want to give aspirin when we may have to amputate a leg.

Please keep in mind I am no economist, I am just a simple civil/environmental engineer who has not knowingly cheated on his taxes so obviously I am not qualified to have made any of the comments above.

Photo by my daughter. Winter weather in Iowa.

Living Beyond Our Means - A Short Story

"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship." - Unattributed

The curator sighed. After 36 years working for the Smithsonian he was filled with sadness. This is not how he wanted to end his career. This would be the last piece of artwork that would be boxed up from this gallery. It was one of his favorites from the early 1900s – a beautiful painting from the Arts and Crafts era of the Snake River with the Grand Teton mountain range in the background.

Under the Debt Reconciliation and Repayment Act all valuable artwork was categorized and sold off in large lots to countries holding the United States’ massive $43 trillion national debt – even after making payments it was now still 127 times the current estimated gross domestic product. Most of the extremely valuable pieces had already been packed up and sent away. Even priceless artifacts were given an estimated value. The majority of the Library of Congress had been divided up and sold to collections in Europe, Asia, Africa, and South America. The most horrifying acquisition was the sale of the Declaration of Independence to China. He supposed that everything had its price in the end. He wondered why America was still suffering when the rest of the world had returned to ecomonic normalcy more than 6 years ago.

The less valuable pieces and displays were merely discarded or burned rather than being placed in long-term storage. During a recent trip to a Smithsonian Warehouse to catalog a number of items destined to Venezuela, he had even caught a glimpse of a minor modern piece of art being used as a roof in one of the many shanty towns outside of Washington, D.C. The Emergency Homeland Austerity Measures Act called for strict budget expenditures. They had no choice; the International Monetary Fund and World Bank had stepped in to mediate the settling of the America’s debt in the aftermath of the collapse of the dollar. Under the terms of the agreement, the United States had to enact the EHAMA. Such trivial things like preserving history were ignored in favor of feeding Americans.

His thoughts drifted to the many times he discussed the economy with friends. They all assured him that everything would be fine. He was convinced that America could no longer afford to live beyond its means. His friends told him that he was overreacting, that the trillions spent in financially securing the banks and the many stimulus packages would finally set America on the right course. Of course, no one in the government considered how all that spending would be paid for. They were all surprised when foreign investors stopped buying U.S. Treasury Bills. With no funding, the bottom finally fell out from under the unsustainable initiatives. He grimaced with a pang of guilt at being right. He felt the heat in his head rising as his anger of what had been done to his country surfaced.

Five years ago a ragtag contingent of Iraq and Afghanistan war veterans disabled security and managed to storm the Capital. They demanded real change and ended up killing 15 senators and 53 congressmen before being killed themselves in the standoff. The government fearing another act like that quickly instituted martial law, disbanded the armed forces, formed the National Police, and passed The Firearm Prohibition Act. It took over three years but the majority of firearms had been confiscated. Rumor had it that there were some serious firefights between the National Police and the last holdouts who loudly proclaimed “…From My Cold, Dead Hands.” Well that is exactly what ended up happening. The metal from the guns was melted down and sold to countries to pay down the debt. The remaining gun stocks were initially destroyed in huge public bonfires vaguely reminiscent of the infamous Nazi book burning pyres. Later they were quietly destroyed after some environmentalists complained about the pollution. Now and then there was a report of someone who had slipped through the system and was caught with a firearm – mainly hunters trying to feed their families – and were sent to prison work camps without a trial. It was hard labor. Many in the camps died.

The official government press was tightlipped during the firearm prohibition campaign. The main news providers quickly towed the government line. Those that did not where conveniently shut down by the Federal Communications Commission under an emergency law. What real news was available from the internet was quickly silenced when Congress passed The Fairness in Media Act in an attempt to control what was being said in the media. The act essentially shut down the internet. They felt that too much negative news would incite more violence and demoralize Americans.

He stared at the blank walls around him. After so many years of providing the public with a venue to see, hear, and touch the history of the United States and the world one more Smithsonian Museum would be closed. Not that the public had been allowed access to the National Mall in several years; the entire area around the Capital and White House was cordoned off and only accessible to government employees on official business. The public was not allowed to enter the area because of security concerns.

The painting he was packing up was part of a collection destined for Brazil and their new museum of North American Art History. Not much he could do about it now. He called his wife and told her that he was leaving soon. It would be the last call made from the building. The workers were coming tomorrow to salvage the wiring and gut the building of anything of worth. The windows and doors would be bricked over and the yet another government building would be mothballed. He doubted the interiors would ever see any daylight except when the roof finally caved in. There was no money in the budget for even simple maintenance. The only living things to step in these halls again would likely be rats, spiders, and other insects.

Over the phone his wife told him that the elderly man next door had died that day. One of the more heinous parts of The Emergency Homeland Austerity Measures Act was the refusal of medical care for anyone over 65 years of age. The man next door had a history of cancer. Ten years ago at the age of 63, he had survived colon cancer. He was supposedly in remission, but he had not been feeling well of late and many of the same pains he had when he had first been diagnosed with cancer were returning. The hospital turned him away saying there was nothing they could do for him. They told him that he had no right using up valuable medical resources. His wife could not afford any outside treatment. They were left to suffer. To add insult to injury, dead bodies were discarded on the streets because no one could afford burial or cremation. The government came around and collected the bodies and dumped them in large pits. He was thinking of setting fire to his house just before he died to save them the trouble. At least he would go out on his terms.

He hoped that he would not have to wait long to get his rations today; one piece of hard bread, a bit of meat with questionable origin, rice or potatoes and if he was lucky a piece of fruit or vegetable. A tear rolled down his cheek as he turned from the building and walked down the overgrown and unkempt National Mall to his government-issued home.

An original short story by KCThinker. The story pretty much sums up how I feel right now – hopeless.

Give, Give, Give... for a party of all things?

One would think that spending nearly $1 billion on a political campaign is enough, now they want the most lavish inauguration funded off the backs of the people. How absolutely shameless. Where is the humility - where is a tame event in light of the financial mess the country is in? You lead by example Mr. Obama.

Will he start asking for donations to decrease the national debt? Unlikely.

Will he start asking for donations to help get Medicare back in the black? Doubtful.

No, we should give money for a party. That money won't even go to starving kids in South America or a potable water program in Africa. It will go for a celebration. This is what we can expect from an Obama presidency? That is not change I can believe in.

Below is an actual email my wife, an Obama supporter, received recently:

On January 20th, our journey to bring change will officially begin.

We're organizing the most open and accessible inauguration in our nation's history. And we're doing it without contributions from Washington lobbyists or big corporations.

Just like we did on the campaign, we're relying entirely on supporters like you -- ordinary people giving whatever they can afford to make this an event for all Americans.

I know we've asked a lot of you. But changing the way business is done in Washington will take a commitment from all of us. Right now, you can help give this administration a strong start [by throwing a huge party?].

And if you make a donation of any amount before midnight tonight, you could be selected to come to Washington, D.C., and be part of the welcome ceremony, the swearing in, the Inaugural Parade, and the Inaugural Community Ball.

Will you make a donation of $100 or more and be part of the historic moment you made possible?

We have a long road ahead of us, and we're going to face some major challenges as soon as we start. But I know I can count on you every step of the way.

Thank you for everything you've done and happy New Year,

Barack

P.S. -- You could be there for this historic moment even if you cannot make a donation. You can show your support by sharing what this inauguration means
to you.

Photo by KCThinker, Batey outside of La Romana, Dominican Republic.