Wire Report

Dominick T. Armentano -Research Fellow, The Independent Institute/Professor Emeritus of Economics, University of Hartford

Dominick T. Armentano is a Research Fellow at The Independent Institute and Professor Emeritus of Economics at the University of Hartford. He received his Ph.D. in economics from the University of Connecticut, and he is the author of the books, Antitrust and Monopoly: Anatomy of a Policy Failure, Antitrust: The Case for Repeal, Intervention in the Petroleum Industry, and The Political Economy of William Graham Sumner. His articles have appeared in such scholarly journals as the Antitrust Bulletin, Business and Society Review, Antitrust Law and Economic Review, and Business History Review, as well as in the Financial Times, New York Times, Wall Street Journal, Reason, National Review, and Hartford Times. Professor Armentano is frequently interviewed on numerous TV and radio programs including “Economically Speaking” (PBS).

(Wire/Ind.Inst.) The economic landscape still looks pretty gloomy despite (because of?) massive increases in federal government spending by Congress. Want something else to worry about? What if your government suddenly went “belly up” on some or all of its public debt IOU’s?

Impossible you say? Not really.

When individuals or businesses have long-run expenses that exceed anticipated income—and have neither capital nor savings to fill in the gap—they often declare bankruptcy. And though it is rare, even some city governments (i.e., Vallejo, Calif.) have been plunged recently into insolvency and bankruptcy, and some state governments (with heavy pension costs) might consider it. But could it happen to our own federal government?

Most economists have always regarded this possibility as nearly unthinkable. After all, the U.S. government has never defaulted on a penny of its debt obligations in over 220 years. What this means is that when the Treasury sold government bonds, the bondholders have always received their interest payment and have always had their original principal returned at maturity. In that sense, U.S. government bonds have been 100 percent safe.

There are several ways that U.S. debt could become risky and unsafe and increase the likelihood of a general or partial default. The most obvious problem would be that Congress becomes unwilling or unable to raise taxes sufficient to pay, by law, the interest on the national debt.

So far this has not been an insurmountable problem despite the fact that in FY 2009, the interest cost to “carry” the U.S. public debt was $383 billion. (For a frame of reference, the budget for NASA last year was $19 billion.) The carrying costs by year 2019 are estimated to be more than $700 billion.

But these historical costs and projections are based on conservative guesses about deficits and interest rates. What if annual deficits now become trillion dollar holes (as they have) and rising interest rates (as are likely) force governments to pay far more to fund their increasing debt?

The analogy here would be to a credit card holder who already has debt, spends more this month than last, accumulating even more debt and, in addition, faces increasing payments every month because of higher interest rates. It becomes an impossible situation.

In the case of ever-increasing public debt, where does the new money come from to “carry” this increasing burden? Federal taxes would have to be increased to extraordinary levels; but this effort would prove self-defeating since it would likely destroy incentives and the economy to boot.

Another possible debt/default scenario, and just as depressing, is that the Federal Reserve continues to purchase more and more U.S. government debt. When the Fed purchases government securities in the “open market” it tends to push bond prices up and interest rates down, making it easier for the Treasury to market new debt and keep its funding costs low.

Unfortunately, the purchase of government securities (public debt) by the Fed leads to what economists call a “monetization” of that debt. Sellers of the securities get “new money” from the Fed and that new money normally works its way into the economy and raises prices for almost everything including interest rates.

The resulting inflation (or even the anticipation of it) also starts a vicious cycle of dollar depreciation that makes it even harder (at existing interest rates) to sell U.S. debt abroad. Again, as rates increase on more and more debt, the interest and refunding burden grows exponentially, and the once unthinkable becomes at least debatable.

Depressing as it is, however, the U.S. currency and debt/funding situation is actually in reasonable shape (as measured, say, by recent credit-default swap spreads) at least when compared to near basket-case countries such as Ireland, Spain, Portugal, and especially Greece.

A particularly dangerous example is Japan, where government debt is currently an astounding 200% of its GDP and is expected to rise to 230% by 2012. But none of this should make U.S. government bondholders at all smug since defaults on “sovereign debt” abroad could start a contagion that could swamp all boats. Stay tuned.

Copyright 2010 The Independent Institute

Allison Bricker

In his weekly update, Dr. Ron Paul of Texas illustrates the disastrous consequences of following the Keynesian economic model, which advocates in perpetuity. Just last week, the House voted to raise the debt ceiling by another $1.9 Trillion, a move undertaken to avoid defaulting on current obligations, but nonetheless just delaying the inevitable. In reality, no one can merely continue borrowing funds in order to service the interest on the existing debt and make payment on bill that are currently due. This simple idea universally understood by the People, seems to escape those in government, who care more about reelection than charting a fiscally responsible course for the nation.

Allison Bricker

“He who would learn to fly one day must first learn to stand and walk and run and climb and dance, one cannot fly into flying”. -Friedrich Nietzsche

BOWLING GREEN, KENTUCKY – On Monday, former Governor of Alaska, and 2008 Republican Vice-Presidential candidate, Sarah Palin endorsed Dr. Rand Paul¹ over his Primary opponent, Secretary of State, Trey Grayson stating:

“I’m proud to support great grass roots candidates like Dr. Paul — While there are issues we disagree on, he and I are both in agreement that it’s time to shake up the status quo in Washington and stand up for common sense ideas.” Sarah Palin Former Governor of Alaska

Recent polling was already showing Rand widening the gap substantially between himself and Grayson² as well as beating every possible Democratic contender in the General Election prior to Sarah the Rogue’s verbal thumbs-up, so it appears to this blogger at least, as more of a calculated political move by the former Governor, than a huge plus for Candidate Paul.

In addition to her official statement endorsing the younger Paul, her political action committee, SarahPAC donated $2,000 to the doctor’s already burgeoning campaign war chest, again mostly thanks to money-bombs from the grassroots and not PAC’s. Her endorsement, in conjunction with recent controversial actions taken by the Campaign for Liberty, the attempted co-opting of the Tea-Party movement by the likes of Dick Armey³ and indeed the questionable platform stances by Rand Paul himself have left many in the Liberty movement, myself included, scratching our heads. It begs the question whether cozying up to establishment figureheads will lead to a watering down of the message, or derail the momentum thus far gained on the road to restoring the Republic.

However, where some see the aforementioned as nails into the coffin of all the progress thus far, upon further contemplation, I see opportunity; opportunity to make strides towards the reclamation of our natural rights formerly unfathomable in the wake of the Bush administration, September 11th, and the status-quo’s brand of neo-patriotism.

Nevertheless, it was very deflating to listen early on to Scott Horton’s interview of Rand Paul over at Anti-War.com⁴. During the interview, the younger Paul espoused believing in the Chief Executive’s right to act unilaterally without a Declaration of War, support for continuing the war in Afghanistan, and the absurd notion of keeping Club Torture, i.e. Guantanamo up and running in lieu of a total and complete shuttering.

Additionally, while continuing to observe Rand’s campaign it seems pedantic to me when he offers, “term limits”, code for lazy democracy, as a way to combat corruption in Washington D.C. As we all know, the 22nd Amendment has done little to spare us of corrupt, disastrous, power-hungry Chief Executives. It has only succeeding in perpetrating the illusion of change with each successive changing of the puppet.

But wait, there is hope; Rand like his statesman father, understands the insidious parasitic relationship of the FEDERAL RESERVE and the U.S. government. This my fellow readers in my opinion is our “golden arrow”; our chance to come face to face with the absolute root which enables the promulgation of its siblings, the FEDERAL RESERVE. The reality that a private cartel of bankers and the cottage supporting industries, i.e. Goldman Sachs have intertwined themselves so tightly into government via currency creation and the endless list of their crony sycophants receiving high level cabinet and department level appointments are the core reason for the current dilapidated condition of our Constitutional Republic, once known as America.

The central banker puppet masters alone through legislation enacted almost a century age, ergo the FEDERAL RESERVE Act, 16th, and 17th Amendments succeeded in delegating ‘We the People’ as collateral to finance their odious debt, corrupted the Senate, and morphed us from Republic to populous democracy, whilst simultaneously bestowing upon themselves monopoly control over the currency.

Moreover fellow readers ask yourself this question, where was your political philosophy and understanding of the issues five, ten, twenty years ago? My sophomore year in high school for example, my mother and myself sat glued to the television watching Tom Brokaw declare Bill Clinton the 42nd President of the United States. Upon Mr. Brokaw’s announcement, I remember turning to my mother and asking, “Things are going to be better now –right?”

Up until the election of William Clinton, the previous Presidents were all ‘evil’ Republicans, save my infancy during the Carter administration, and we were a rust-belt working class “Democrat” family, so surely a Democrat in office would make life peachy. Unfortunately, reality painted a different picture and the election of Clinton was a furthering of my education rather than salvation for working-class families such as my own.

The actions of the Clinton Administration were the catalyst for me to dig beneath the nationalist sugary sweet veneer that was beat into my head throughout my tenure at government school. The nauseating actions undertaken especially by his Attorney General, Janet Reno forever removed my rose-colored glasses and prompted me to purchase my first copy of Thomas Paine’s Rights of Man/Common Sense from a local bookstore.

In addition, contrasted against the largely college-centric movement of the late 1960’s whereby the focus was largely on the dissatisfaction of college-aged anti-war protesters, the Liberty movement is not so one-dimensional.

We are made up of not only the 13th Generation, a generation literally written off in our infancy as “the lost generation”, the roots to the movement run deep and are of a diverse stock. The movement includes not only those of us in our 30’s and 40’s, but we also benefit from the excellent work undertaken at the college level by Young Americans for Liberty, and are blessed with the veteran elders of the movement like Dr. Paul, Lew Rockwell, and Judge Andrew Napolitano, to name just a few.

In addition to spanning generations, my time in the movement has afforded me the opportunity to meet those from every walk of life under the sun; black, white, yellow, red, Christian, atheist, rich, poor, queer, straight, it matters not. The liberty movement redefines “big-tent” simply as American, people-group be damned.

So please ask yourself the last time you can remember something that freely unified such a wide swath spanning generations, race, and class. Liberty, my fellow readers is a most glorious unifier like no other. Thus, this is why we shake the puppet masters to their core. Fear not the endorsement of “Sarah the Rogue”.

As such, as we all continue to learn and expand our understanding; we must make room for this to apply to individuals like Sarah Palin as well, and seize the opportunity to begin a dialog with her and her supporters about the insidious nature of Central Banking, true Constitutionally limited government, and the doctrine of just, not preemptive war.

The Kentucky Senate race is likely to be watched closely both to gauge the threat to the establishment’s entrenched power via the inclusion of a Paul in the Senate and to see if Democrats could steal the seat currently held by Senator Jim Bunning (R-KY) who announced his retirement last year. Let us seize the opportunity before us to spread the warm glow of the Sunshine of Liberty through educating and conversing with others on the principles of natural rights and the dangers of Central Banking.

Our posterity and our Republic deserve no less and the opportunity before us has never before in my lifetime been so self-evident.

Source(s): ¹Rand Paul U.S. Senate Campaign Website “Sarah Palin Endorses” by David Adams 02/01/2010 • ²Public Policy Polling “Paul Takes Big Lead in GOP Primary” 12/22/2009 • ³ Huffington Post “Operation Steele/Armey: GOP/Tea party Co Opt Each Other” by Alex Brant-Zawadzki published: December 17, 2009 • ⁴Scott Horton Interviews Rand Paul May 17, 2009 •

Allison Bricker

This week Dr. Paul discusses the empty promise made by President Obama during his State of the Union speech last week to “freeze” discretionary spending. While the politicians in Washington are taking notice of the growing discontent as it relates to the ever-expanding bloated federal government and escalating national debt, the establishment and the puppet in Chief who campaigned on “Change We Can Believe In” are merely offering more lip service instead of actually offering a true reduction in spending. (FULL TRANSCRIPT)

Related Material(s)
	Representative Ron Paul “Texas Straight Talk – The Washington Establishment’s Empty Rhetoric of a Spending Freeze (PDF 171Kb)

Source(s): Representative Ron Paul’s House Webpage • Minnesota Chris YouTube Channel

Wire Report

Jack Hunter, The Southern Avenger: Host/Commentator
	The “Southern Avenger” Jack Hunter is a conservative commentator WTMA 1250 AM talk radio and columnist (Charleston City Paper) living in Charleston, South Carolina.

(WIRE/TAC) -In the wake of the Haiti earthquake tragedy, something unusual has been happening amongst conservatives. On talk radio, the blogosphere and elsewhere, some have been wondering how our government can afford to help Haiti given the current economic crisis in the United States. Considering the magnitude of the tragedy in Haiti, I found this to be a rather insensitive question. It’s also a good one.

Republican opposition to the Democrats’ national healthcare agenda is in large part due to the exorbitant cost, perceived inefficiency and intrusive, bureaucratic character of the plan. Still, argue liberals, there are too many Americans suffering for government to do nothing. Conservatives argue that there is only so much government can, or should, do. It’s time for conservatives to apply their argument more comprehensively.

In 2007 during a FOX News interview, when Republican presidential candidate Ron Paul suggested that the US was involved too much militarily around the world, talk host Sean Hannity asked “Are you saying then that the world has no moral obligation, like in the first Gulf War, when an innocent country’s being pillaged, and people are being raped and murdered and slaughtered, or in the case of Saddam, he’s gassing his own people, are you suggesting we have no moral obligation there? Do you stand by and let that immorality happen?” Paul responded “We have, on numerous occasions.” Hannity’s co-host Alan Colmes chimed in “the fact is the Reagan administration stood by while the Kurds were being gassed, it happened in 1988, we didn’t do anything.” Paul followed up “And what did we do with Pol Pot, what did we do with Moscow, what did we do at the time? We stood by while they did it to their people.” Flustered, Hannity replied “We got it, Ron, you would stand by and do that, I would not… I think that’s immoral.”

President Obama and the Democrats believe it’s immoral for government to stand by and not help uninsured Americans receive healthcare. Hannity disagrees and devotes a significant portion of his radio and television programs to opposing national healthcare. Is Hannity being immoral? Or is he simply taking the conservative position that despite the suffering that exists, government benevolence has its limits?

A nation possessing the wealth and power of the US should be in a position to help Haiti, at least temporarily, and this is something countless Americans have already done privately, donating millions. But these same Americans might not think it’s a good idea to provide government healthcare in their own country. Does this mean they simply do not care? Americans who donated to Haiti may not believe, for instance, that we should send our military to stop the genocide in the war-torn nation of Darfur, something liberals have long advocated using the same “we can’t stand by and do nothing” logic many conservatives used with Iraq. In continuing to just stand by, does this make the US “immoral?” Will Hannity soon devote significant portions of his radio and television programs to highlighting Darfur, a country that’s “being pillaged, and people are being raped and murdered and slaughtered?”

Haiti is close to the US in proximity and the earthquake was so overwhelmingly disastrous that it makes sense to most Americans to lend a helping hand, something that occurred even without government prompting. The US should be able to afford to help Haiti and the extent to which we technically are not—our government operates on a monstrous debt—is due in large part to the hyper extension of our supposed benevolence in other areas. Yet, how many conservatives who now oppose national healthcare due to the cost, or even more strangely, now question the US’s ability to send dollars to Haiti given our own bad economy, didn’t blink an eye over spending trillions on wars in the Middle East, often citing humanitarian reasons as an excuse?

This week the US Senate is debating whether to raise the national debt ceiling by $1.9 trillion, totaling a whopping $14.3 trillion, which is about the same size as the nation’s overall economy. Some estimate the cost of national healthcare would be in the ballpark of $1 trillion. The initial relief donation to Haiti by the US government was a relatively measly $100 million while the cost of the Iraq war alone has been estimated at $3 trillion dollars. Regardless, our government, and the debt to maintain it, keeps growing astronomically.

The old fashioned, biblical concept of charity is that it begins at home, and once a man has taken care of his family, property and immediate surroundings he can then afford to address greater concerns. Increasingly and sometimes tragically, America can no longer afford to address greater concerns—not that affordability will prevent our government from continuing to do so. The conservative’s task should be to prevent it from doing so, or “limiting” government–and not promoting its unlimited use at home or abroad, and certainly not to save the world.

Copyright © 2010 The American Conservative – All Rights Reserved

The Smoking Argus

OAK BLUFFS, MASSACHUSETTS – According to sources close to President Obama; the President will nominate current Chairman of the FEDERAL RESERVE Board of Governors, Ben Bernanke to a second term. The announcement is expected to come on Tuesday morning.

Keynesian economists largely credit Chairman Bernanke with guiding the economy through the worst economic recession in fifty years. During the economic malaise, the FEDERAL RESERVE expanded a variety of programs and intervened into the economy utilizing new sweeping powers granted to the third Central Bank said to stave off a larger collapse. Consequently, the FEDERAL RESERVE pumped trillions of Reserve Note Dollars into the economy, thus increasing the national debt to its highest point in American history.

Central economic planners however, remain confident that Chairman Bernanke will know when to reel in the excess money supply in order to avert the possibility of inflation. While this appointment is likely to soothe the growing concerns on Wall Street, a multitude of challenges in addition to avoiding inflation remain unresolved.

Chief among the problems which remain a thorn in the side of Chairman Bernanke; the growing call for true transparency via a full audit of the FED’s books in dealings with other private Central Banks and foreign governments. Two bills, H.R. 1207 and its Senate companion, S. 604 currently seek to repeal the immunity granted to the FED on such transactions under Title 31 of the United States Code.

Moreover, the calm expressed by the Wall Street bankers and Keynesians in general may be short-lived depending upon what is contained within the Federal Deposit Insurance Corporation’s (FDIC) second-quarter report for 2009.

UPDATE No. 1 – Official White House video of President nominating Ben Bernanke for a second term.

Allison Bricker

WASHINGTON D.C. – Representative Ron Paul questions FEDERAL RESERVE Chairman Ben Bernake over his remarks in the Wall Street Journal regarding HR 1207 and his push back in allowing the Congress to audit the books of the private central bank. Dr. Paul also pushes the FED chairman on the growing threat of inflation due to the excess debt continuing to be accumulated by the U.S. government regardless of President Obama’s stimulus efforts.

Source(s):

Joseph Marohl

I could go on screaming.

Timothy Geithner said Sunday that, while the economy is showing signs of recovery, unemployment will probably continue to rise.

Is this news?

Correct me if I’m wrong, but it has been my understanding that the interests of workers and investors have almost always been opposed—that is, stocks become more valuable as public companies make greater profits, and a fairly typical way to raise profits is to downsize, that is, fire current employees … in some cases, these are employees deemed “redundant”; in others, these are employees replaceable by vendors, often overseas.

About a week ago, I heard someone on the radio saying that consumer spending has been high now for the past two months, which is to say that, except for big ticket items that require big-ticket loans—hard to get for some time now—people have continued to shop, just as we’ve been so well conditioned to do.  (Wal-Mart, for instance, has been virtually recession-proof.)

What people had stopped buying were stocks, favoring instead actual goods and services, and who can blame us? Besides, now that most employers have replaced pensions and in-house retirement plans with 401(k)s and the like, and with big-end employers dropping redundant employees and viewing more and more of their employees as expendable, is it no wonder then that the rank-and-file workers (or former workers) have been stuffing their 401(k)s less and less?

Banks and auto companies and others, for all I know, have long been propping up the illusion of profits in large part by trimming expenditures—typically in the form of workers’ paychecks. Remaining employees were often urged, with a certain level of snide bathos, to “do more with less.”

So, isn’t it to be expected that a good share of America’s “economic recovery” means a recovery for investors—not so much for workers? and won’t attendant crackdowns on bad loans, foreclosures, and stricter conditions for credit mainly benefit the well off, while the working middle class and poor are … well … having to do even more with even less?

Then, later, this afternoon, while channel-surfing, I caught a bit of the 2006 documentary Maxed Out: Hard Times, Easy Credit, and the Era of Predatory Lenders, which, given my persistent state of being chin deep in debt, I owe myself to watch through someday. The bit I saw convincingly depicted the ways, nefarious but entirely legal, the better off are able to relieve the worse off of their money by exploiting the poor’s ignorance, trust, basic decency, and fear—and, having done so, to view the poor with contempt, anger, and smug self-justification for their supposed stupidity and laziness.

The part of the film I saw emphasized that it has been the high-risk borrowers—those for whom repayment at a (usually high) rate of interest is both hard and, increasingly, as fees and interest accumulate, improbable—who have provided lenders with a good 50 percent of the lenders’ profits. Mostly, these profits occur in the ways lenders are able to sell bad debt to collection agencies, but I also imagine that these borrowers, naïve in the ways of money and credit, are also less likely to be diligent in keeping an eye on their accounts, while also being less likely to seek legal escapes such as bankruptcy, either out of ignorance or out of a high sense of duty to repay a debt—even to the point of personal catastrophe.

Hasn’t a big bone of contention about those drafting recovery plans been how much (if at all) to help poor workers and to either protect their jobs or provide needed services in the absence of gainful employment—or, now anyway, savings? The recovery money—and forget for a second the fatuous ways that this money is being generated … out of thin air—is mainly aimed at CEOs and the big investors, isn’t it? And it is in these people’s interests to cut employment even further, to restore some appearance of profit, right?

After slavery, poor workers—mostly migrant or otherwise short-term employees—were encouraged to owe—and owe big—to the company store and/or to accept scrip, instead of legal tender, for payment. As time progresses, especially for the better paid workers, this system has been elaborate to the point of invisibility—but it appears that it’s been quite a while since productive labor has provided anyone with a way out of poverty and debt.

I’m a reasonably intelligent man, but, sometimes distressingly, I’ve never been money wise, partly because I have not educated myself in this area and partly because the pursuit of money has never been my particular talent or my idea of living well. I’m unlikely to change now, much to my loss, perhaps. Still, I’ve wised up enough to recognize that the cards are stacked against me and others like me, and to recognize that the media and economic savants largely sway me to identify needs antithetical to my own as requiring my preeminent consideration and self-sacrifice.

The more I come to understand the current crisis, the more it seems to me that the rot is widespread and old, old, old, going back over a hundred years, and, more often than not, masquerading as cleverness, diligence, equal opportunity, and free choice.

Kelly

Free market economist and president of Euro Pacific Capital, Peter Schiff, not only predicted the current economic crisis, but has also been insistent about the growing economic power and rise of China.  The following video from CBS Evening News is very telling as it depicts the changing tide of the world’s top banks over the course of the last three years.

Russell Means

This week’s update discuses why “small is beautiful” and the impossibility of the global banker’s math. Their drive to maintain infinite expansionism violates natural law.Yet, there is an answer, a silver lining which we can all celebrate.