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Views on the News

December 20, 2008

 

Views on the News:          

A financial research and consulting firm has released a major analysis of the “credit crisis” that concludes that the claims made by Treasury Department Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke to justify a socialist takeover of the financial industry were demonstrably false.  The 30-page report does not accuse Paulson and Bernanke of lying about the “credit crisis,” but it does say that “It is startling that many of Chairman Bernanke’s and Secretary Paulson’s remarks are not supported or are flatly contradicted by the data provided by the very organizations they lead.”  The report says there is “a contradiction” between what Paulson and Bernanke have said and the reality of the situation, as demonstrated in the official data. It calls these “discrepancies” and says that some of their remarks are “puzzling.”  Paulson had claimed that, by mid-September, when he persuaded President Bush to go public with demands for Congress to approve a $700-billion bailout plan, the financial system had “seized up,” credit markets had “froze,” and interbank lending had been “substantially reduced,” but none of this was true and “is not visible in the data.”  Paulson also made the claim that blue chip industrial companies could not issue longer-term commercial paper, but this claim “finds no support” in the data, the report says.  Bernanke had claimed that businesses were “confronting diminished access to credit” when in fact “the opposite” was true, the study demonstrates.  The suggestion is made that Bernanke and Paulson were acting on behalf of “a particular set of businesses and financial institutions” and exaggerated the problem in order to justify “unprecedented levels of government intervention in the markets.”  The study says that, “A clear and cogent analysis of the credit crisis has not been presented by policymakers, despite the fact that unprecedented levels of public funds are being deployed.”  As a result, the “massive injection of funds could well exacerbate the problem rather than help.”  It then concludes by suggesting that the real danger to the U.S. is not a great depression like that of 1929 but a hyperinflationary period comparable to the Weimar Republic in 1922. 

 

Americans have begun an angry backlash against bailouts that could become a national revolt in 2009.  Government agencies have poured close to $8 trillion into banking bailouts.  The Treasury secretary has promoted massive government support of troubled, failed and corrupted institutions.  Virtually none of this money directly helps average Americans.  Virtually none of it trickles down to the people who suffer the most and pay for the program.  After $8 trillion we are still debating whether any money should be used to directly help average Americans.  The banks don’t trust the banks.  The banks don’t trust their customers.  Business does not trust the banks or the government.  Taxpayers don’t trust anyone.  The only trust is from the Fed and the Treasury Department that transfer huge sums of money to the large institutions that caused the problem, often in secret, often involving complicated financial derivatives that neither Congress nor many CEOs understand, based on trust that these institutions will use this money wisely, which often they have not.  The Securities and Exchange Commission is discredited.  The Federal Reserve has failed in its duty as banking regulator.  Congress has failed in its duty of oversight.  The public backlash is only beginning.  It will rise with every new scandal and Ponzi scheme and every new increase in credit card rates.  It has already infected good judgment in the auto case, where major support is needed, tied to major plans for industry renewal.  I do not oppose bailouts, but I oppose bailouts managed with banana-republic standards of secrecy and incompetence in which recipients of massive taxpayer largesse work against those who pay for this largesse.  Bailout money is not a private account that belongs to Fed Chairman Ben Bernanke, Fed governors, the Treasury secretary or the banks.  Bailout money is the people’s money that should be used to benefit the people and monitored through the checks and balances of the democratic process.

 

Stop rewarding incompetence and let people experience the natural consequences of failed business models and poor decisions and let the free-enterprise system work!  Democrats and our “Republican” President are trying to take away the possibility of failure!  President-elect Barack Obama and the Democrats have campaigned and won on equal outcomes for all!  In a time of recession, the government turns increasingly socialist; independent business owners become the target of confiscation and interference.  Punishing the strong and successful doesn’t help the weak; poor people don’t hire anyone!  The Republican Party has always affirmed that the strength of America comes from its citizens, not its government.  The American Dream isn’t an entitlement or a right; it’s to be earned anew in each generation.  Instead of promising equal outcomes, America has always been about ensuring the equal opportunity to “pursue happiness!”  Optimism doesn’t come from political programs in Washington; true optimism is earned the way it has always been earned—by each citizen overcoming obstacles on the way to success.  The American Dream allows movement between the classes.  There will always be poor, but 95% who started poor don’t remain poor.  Many aspiring workers work hard to save, then to invest and ultimately to become entrepreneurs or owners of capital that works for them to create their own wealth.  These new “capitalists” provide the capital, the entrepreneurs, and the jobs that fuel new opportunities for new workers to earn the money to save, to invest, and to fuel new dreams.  Capital needs labor willing to work, spend and save; labor needs applied capital willing to take a risk on new dreams.  Both need a government that’ll ensure that Americans remain free to makes dreams happen and to reap the rewards from their hard work.  At the 1992 Republican Convention, Ronald Reagan shared his secret of success as a President: “I appealed to your best hopes, not your worst fears, to your confidence, rather than your doubts.” 

 

If Obama follows through on his campaign promises, in three or four years, the main political fact in this country could well be a ruinous crisis of Democratic liberalism.  The mood of the country in 2008 is much like 1976, with a pervasive sense of disgust at politics as usual and widespread fears of national decline.  The oil crisis pointed to a vast transfer of wealth and power to the Middle East, while many pundits predicted environmental catastrophe.  The sharp economic downturn resulted in heavy unemployment and rising inflation.  Like Barack Obama, President Carter claimed to rise above failed partisanship, while his New South background allowed him to symbolize racial healing.  Carter, like Obama, sold himself mainly on the virtues of his character.  He presented himself as a man of simple honesty, faith, and decency, and his lack of a track record allowed voters to see in him what they wanted, however far-fetched those hopes might be.  Above all, Carter promised change, a message that carried weight as long as its details remained nonspecific.  The problem with messiahs from nowhere is that when they do exercise power, people discover to their horror what their leader’s actual views and talents are, and the disillusion can be dreadful.  Democrats now show every sign of repeating the blunders that led to a generation-long discrediting of liberalism.  As the phrase goes, they have learned nothing in the intervening years, and they have forgotten nothing.  Liberal triumph in 1976 led inexorably to evisceration in 1980, and the same trajectory is likely to recur in the Obama years.  Democrats acted as if they had a sweeping mandate for cultural transformation—for social libertarianism, affirmative action and egalitarianism, dovish internationalism, and idealistic notions of human rights.  In 1976, liberals were wrong on multiple counts, and all the signs point to them repeating the same mistakes.  During the campaign Barack Obama called for a 10% to 12% annual increase in government spending, which "is increasing the federal share of the nation's economic activity close to $1 out of every $4, the highest level since World War II," and will give us "a budget deficit headed towards a record $1 trillion."  Mr. Obama is urging several other pieces of government control legislation that would quickly Europeanize America's future.  After automobile manufacturing control, the next effort will be to mandate government regulation and operation of health care: a federal statute regulating the price, content and supervision of health care, and a government council to significantly regulate the content and cost of health care policy.  Liberals believe that the public will support radical change in three highly sensitive areas, and in each area they will overreach to the point of self-destruction.  In domestic affairs, they believed the culture wars are over and that revolutionary social changes like gay marriage can now advance unchecked.  They also thought that popular concern over environmental problems will translate into a blank check for limitless government spending and the decisive transfer of U.S. sovereignty to international agencies.  And liberals are now sure that all that foolishness with international dangers and crises is firmly behind us so that we no longer need the military or intelligence capabilities developed to respond to them.  Despite a Democrat President, Senate, and House, Nancy Pelosi has already drawn a line in the sand with President elect Obama demanding that she be an equal partner!  As the coming three or four years will show, liberals are dreadfully wrong on all counts.

 

Obama is off to a shaky start buttressed by a fawning media spinning every press release into something momentous (a legend in his own mind).  Remember that diversity of opinion is not defined as a variety of different liberal, progressive ideas as Obama would have you believe with his so called “team of rivals.”  Mr. Change has turned out to have only really thus far changed one thing – his own mind!  Watch for the so-called “infrastructure investment” to actually be a government slush fund to be handed to the states who will use the money to perform normal repairs and routine projects.

·         Much of the infrastructure spending is in politically popular but ineffective anti-poverty and “community development” programs.

·         “Infrastructure” has been redefined to mean everything from senior citizen centers to “historic renovations” of old, unused train stations.

·         In the process we’ve neglected basic, essential investments in roads and bridges, so that even when the feds do ante up new money every few years, much of what the states and cities do with it is fill potholes and pave over neglected roads.

·         More than 2,400 of these projects have been conceived as part of the Community Development Block Grant program, a repository of ineffective federal spending at best, and patronage and corruption at worst.

·         When Uncle Sam is your sugar daddy, you can justify spending money on lots of marginal projects of questionable economic value, ranging from cultural centers that can’t support themselves to “heritage” tourism trails to “greenways.”

·         When Japan tried to spend their way out of a recession beginning in the early 1990s contributed to a reduction in Japan’s economic growth and a decrease in its level of prosperity.

Democrats are searching for a silver lining to the economy: A recession could force us to spend more time with our families; it could curb the excesses of our consumerist culture; make us learn to live within our means; and ultimately purify our greedy capitalist souls.  The media has invested so much TV time and barrels of ink in putting the most idealistic sheen they can on Obama's New Politics that to find him anywhere within miles of corruption is too much for them to bear.

·         Anyone in politics knows it would be extremely normal, acceptable and even necessary for the governor and the president-elect (or their aides) to have a chat about who would fill this Senate seat.

·         Obama not only supported Blagojevich for governor in 2002, when he was still a state senator, he took credit for advising him to victory.

·         He went on television saying electing his friend "Hot Rod" was a priority.

·         He endorsed him for re-election in 2006 -- at the beginning of 2005.

·         Now Obama wants us to believe that no one in his campaign had any contact whatsoever with Governor Blagojevich, and the prosecution has directed him not to comment!

·         To insist that he had “no contact” when his top aide was involved in so many contacts is precisely the kind of parsing that undermines confidence.

Not to be outdone New York has found someone with a slimmer resume with similar family heritage like Hillary to fill-in as New York Senator and may simply anoint another Kennedy!  Obama has fumbled his first press challenge, before even taking office, by allowing a one-day Blago scandal story to become a full-blown public relations crisis, by mismanaging the media.

 

Republicans continue to flail around despite having the right economic policies, but hindered by a lack of coherent messages and uncoordinated Republican leadership.  Republicans, even under President Bush, pretty much had tax policy right but failed on the spending side.  The tax cuts skewered then prevailing Keynesian economic theory, producing sustained peacetime economic growth without inflation.  The reductions in marginal-income- and capital-gains tax rates even increased revenues.  The relative deficit explosion during the Reagan years was not caused by the tax cuts but by increases in government spending.  The evidence is clear that neither one-time demand-side tax rebates nor Keynesian-type government spending generates economic growth.  None of the massive spending hikes tried in the 1930s, 1960s or 1970s worked to stimulate growth.  Yet in the 1980s and 1990s -- when the federal government shrank by one-fifth as a percentage of gross domestic product (GDP) -- the U.S. economy enjoyed its greatest expansion to date.  But Keynesian-type government spending fails to stimulate the economy because it just substitutes one type of spending (government) for another (private-sector).  In fact, such spending plans usually produce the negative effect of reducing incentives to produce because they subsidize leisure and unemployment and they are often funded out of growth-zapping tax increases.  The government expenditures also tend to reduce production because they are in place of more efficient private-sector spending.

 

If you are sick and tired of government and politics as usual, read my web site with its individual issue analysis and recommendations at: http://www.returntocommonsensesite.com Remember this site is updated every Saturday. Individual issue updates this week include:

 

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David Coughlin

Hawthorne, NY