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by Steven Waechter | Oct 31, 2011
In the medieval era there was a rather odd ceremony; when a member of the lower social castes found themselves in dire straights, they turned to the landowning nobility. In exchange for land to work, the noble demanded a portion of the produce, availability for certain laborious tasks, and service in the event of war. The agreement was sealed when the peasant laid his head into the hands of the noble lord.
This ceremony was called a Bondage, as it sealed the bond of the peasant to the noble, as his serf (in contrast with an Homage, where one noble became a vassal of another noble). In our advanced and progressive times, we are – of course – much more evolved and civilized. Far from relying on archaic displays of subservience, we rely instead upon the innovation called the promissory note.
Every fall, hundreds of thousands of 18-year old kids, with absolutely no concept of money, credit or finance, sit down to sign promissory notes to obtain government-backed loans so that they might attend an overpriced four – to – six year long summer camp, often mislabeled as a college or university, hoping to obtain academic degrees that are often not worth the paper on which they are printed.
The only way a teenager with no job and no assets can obtain credit in the staggering amounts necessary for today’s college tuition is for the government to issue the loans. Just as the home buyers taking adjustable rate mortgages for houses they couldn’t afford would have never been able to get a mortgage without Fannie Mae purchasing mortgage-backed securities, these kids would never be able to get student loans without massive manipulation of the credit markets. The only way America’s youth could have collectively borrowed one trillion dollars in uncollateralized debt is the government’s own policies; a free and natural capital market never would have allowed it. Government guarantees the loans, issues the loans, and sets the rules. They even made sure student loans were not dischargeable in bankruptcy, thus closing those pesky avenues to freedom and second chances for all those who got burned by a bad investment – college. They give with one hand and strangle with the other.
With legions of young people submitting without question to the propaganda preaching the absolute necessity of a college degree, and a government standing at the ready with easily available credit, tuition costs have soared. Colleges would never be able to rip off their students to this staggering magnitude if it wasn’t for government-guaranteed student loans. In 1910, the University of Pennsylvania charged $150 a year for tuition – which, incidentally, could have been earned by working 30 days on the Ford assembly line. The current charge is $36,208, more than the average teacher makes in an entire year. The century in between, where easy credit and government meddling became synonyms for “compassion,†really did make a difference, didn’t it?
To address this situation, our current noble lord has proposed a series of measures to reduce interest on student loans, forgive them if you work for the government (presumably this is to be extended to everyone now) or have them limited to a certain level of your income. The unfortunate part is, this will only add to the intensity of the growing moral hazard. While some prospective students may have begun to notice the rising price and diminishing returns of college education, now there will be new inducements, which, although they do not address the problem look as though they will help. Although, a cursory glance at the proposal has led me to believe that my particular tranche of student loans will be utterly unaffected. So much for riding the gravy train.
So, colleges can continue ripping off their students, government will continue to provide guarantees with taxpayer money to cover tuition, and the students will continue to sign those promissory notes for ever higher amounts, secure in the knowledge that their payments will be capped at a percentage of their net income, assuming they actually find a job.
By slightly reducing the harshness of bondage for today’s serfs, Barack Obama is trying to curry favor without actually having to take action, make tough decisions, or engage in mature, statesmanlike conduct. There are just too many people riding the gravy train – tenured professors who don‘t actually teach, athletics programs that compete over who has the best Brazilian jujitsu instructors, and boards of regents or trustees – and Obama can hope to bask in the admiration and gratitude of college students and the parents who are still convinced that college is the new guarantee of future security for their kids.
Barack Obama, when you stop to think about him, is really nothing more than a grown-up college student isn’t he? He has never had a proper job, he has absolutely no concept of the world outside of his own head, and yet he is absolutely convinced that he knows better than everybody else. I suppose the same could be said about most college professors and members of Congress, come to think of it.
As for student loans, I say we should just get rid of them – forgive a portion of all outstanding loans and then stop giving new ones out. Loan forgiveness will only work if the government stops giving them, or else we will be stuck in an endless cycle of debt, bailouts, and then more debt. Colleges would have to trim the fat in order to bring costs down to reasonable levels, and more classes would be big lecture hall affairs, but the prices would be unbeatable and the young could enjoy them secure in the knowledge that they are not flushing away their future for what is ultimately just a scrap of paper.
As for Lord Barry, Duke of Chicagoland, he has summoned his bannermen to the causes of central planning, government-controlled capital markets, and collective salvation – along with unsustainable, toxic debts both public and private. I hope and pray the next crop of college graduates can see past the veneer of nobility presented by an increasingly desperate professional politician, and resist the trumpets calling them to his standard.
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by John Bloom | Oct 19, 2011
The purpose of this post is to provide a high level summary and personal opinion about the Republican Presidential debate held last night, October 18th, in Las Vegas. The moderator was CNN’s Anderson Cooper. The debate included: Speaker Gingrich; Governors: Perry and Romney; Senator Santorum, Representatives Bachmann and Paul: and businessman Herman Cain.
I prefer to not label people as “winners†or “losers†so I will define my analysis in terms of how candidates met my personal expectations.
Exceeded Expectations:Â
Speaker Gingrich – As usual, Newt had the wittiest and most concise observations. More importantly, he chose to stay out of the mudslinging featured by the lower tier candidates.
Best Moment – After virtually every other candidate attacked Herman Cain’s 9-9-9 tax proposal, Newt was asked about the difficulty of selling that proposal to the people. Newt responded “You just watched it.â€Â Later in the debate, he also deftly addressed the serious problem that Republicans have with Latino voters.
Worst Moment – His answer on Yucca Mountain (as a nuclear waste storage site) was void of sensitivity to state’s rights.
Met Expectations:
Representative Bachmann – Michelle Bachmann had an overall good night. She regained an image of confidence and thoughtfulness that had been missing in recent debates.
Best Moments – When discussing tax policy “Every American should pay something.†Also, she made an effective passionate appeal to mothers facing economic hardship and home foreclosures.   I believe she was also the only candidate who had the courage to answer the question about the 14th amendment. She said something needed to be done about “anchor babiesâ€. Whether you agree or disagree, she shows courage and honesty.
Worst Moment – Regarding helping mothers facing foreclosures, she really did not have anything specific to offer. It’s not wise to raise a big issue without a big solution.
Senator Santorum – Rick Santorum has consistently had his facts right on a broad set of issues, policies and background facts about his opponents.
Best Moment – He was very powerful in attacking Governor Romney as having “no credibility†on the healthcare issue (as a consequence of signing “Romneycareâ€).
Worst Moment – He lost control of himself several times as he interrupted Governor Romney and others trying to respond to his charges. As a two term Senator, he should be more respectful of the debate rules.
Failed to Meet Expectations:
Herman Cain – Herman Cain was under attack from the opening bell. It appeared Anderson Cooper was targeting Mr. Cain from the outset. The other candidates were prepared to enthusiastically pounce on the 9-9-9 plan.  Mr. Cain should have anticipated this attack after his surge in the polls. He maintained a cool demeanor, but his answers were not compelling. It may be true that 9-9-9 will compel more middle class Americans to pay taxes. If so, he should have Representative Bachmann’s courage to acknowledge it and defend it.
Representative Paul – I thought I was a Libertarian, but after listening to Ron Paul, I have accepted that I’m just not fully in that camp. Regarding 9-9-9, he says it was “dangerous and regressive†and that his solution would be to repeal the XVI amendment (Federal Income Tax), but that implies a reduction in the government of 80%-90%, which is not realistic.
I have written an earlier post agreeing with Ron Paul that it is time to withdraw from Afghanistan. I agree with his views about rolling back the number of military bases around the world and focusing on defense.
Governor Perry – Boy, what a disappointment as a candidate. He starts out by twice referring to Herman Cain as “brotherâ€. Did you hear that term applied to any other candidate? He gets a question about the 14th amendment and provides an answer about energy policy. He digs up an old debunked rumor about Governor Romney employing illegals and then interrupts Governor Romney as he explains the facts, which simply don’t support the charge.
Governor Romney – I thought he did a good job early in the debate about 9-9-9 of engaging Herman Cain with respect as he expressed his concerns about the tax proposal. I’m not exactly sure why he decided to participate in the back and forth snide commentary with Rick Santorum and Rick Perry, both of whom gain valuable exposure when they extend an argument with a front runner.
Governor Huntsman – The Governor did not participate in the debate, but he wrote one heck of a good article featured today in the Wall Street Journal Opinion page: “Too Big to Fail is Simply Too Bigâ€.  I almost moved him up to “exceeded expectations†for skipping the event.
Overall Summary – My short term reaction was to conclude that President Obama won the debate because the tone of the discussion was too harsh and negative. On further reflection, I think it is more important to have a full out airing of candidate backgrounds, principles and beliefs right now, before the primary voting starts. The worst case scenario is to have a nominee unprepared for the all-out assault that they will face from the Obama political machine.
Photo Courtesy of Prezography.com.
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by | Sep 30, 2011
If ever there is going to be a moment for former Speaker of the House Newt Gingrich to create momentum and change the flat trajectory of his presidential run—now is the time. One day after the release of a Fox News poll, which surprisingly showed him gaining substantial ground in the race, Gingrich took to the stage at the Principal building in Des Moines to unveil his newly minted “21st Century Contract with Americaâ€.
Updated from the 1994 version, this new contract will serve as the backbone of his campaign and its acceptance or rejection will determine his fate one way or the other.
In the world of presidential politics such fate is largely decided by three things—the style, the substance, and the politics. Here is a brief analysis of all three.
The Style
By any objective measure this event was a success for the former speaker. It displayed a candidate and a campaign that, at a minimum, is hitting its stride and indeed may be ready to become a major player in the race going forward.
Standing on a small stage at the bottom of a room that can be best described as a large movie theatre, Newt showcased many of the positive characteristics that have marked his long political career. He spoke for an hour without a teleprompter or notes and smoothly communicated his message to the audience while appearing very comfortable in his own skin.
The setting was remarkably similar to a college lecture hall and his experience as a professor no doubt factored into his comfort level. Much like his strong debate performances of late, this setting played to his strengths and the result was a candidate able to speak to a variety of issues in a succinct, relaxed, and presidential fashion.
The Substance
After being presented the outline for his new “contractâ€, one thing is certainly clear—this is a campaign that will not lack grandeur.
Quickly letting the audience know how high he thinks the stakes are, he explained the reasoning behind the large scale of his vision by saying “countries can die without adequate leadershipâ€.
By and large the 21st Century Contract with America is a sweeping document of declared intent. In most cases the solutions he outlines are intentionally vague as his plan is to slowly codify specifics as the campaign progresses. Following a “national conversionâ€, the aim is to have the contract fully fleshed out by September 27th of next year.
His solutions are largely modern day Conservative Republican fare (not a bad thing), whose main thrusts are to inject simplicity and choice into the dealings that we as citizens have with government. Any American serious about vetting the Republican candidates needs to read through the document on their own (availiable here), but here is an overview on a few major issues.
His first order of business would be to repeal Obamacare and replace it with a free market set of solutions to bring the cost of insurance down. The overall structure of our health care system would basically remain in place while insurance policies would be made portable, able to be purchased across state lines, and able to be optionally blended with personal health savings accounts (even in Medicare and Medicaid). These things along with tort reform and digitalizing medical records would attempt to radically decrease premiums without the use of mandates.
He would work to strengthen Social Security while keeping it at the Federal level and push for a voluntary option for young people to put a portion of their contributions into a Social Security savings account. The owner of this account could then choose to take this money and retire (or not retire) at any age they wished.
Perhaps the most interesting areas of this document come under the headings of taxes and immigration.
His business tax proposals are to reduce the corporate tax to 12.5%, abolish all capital gains and estate taxes, and allow 100% write offs in one year for all new equipment purchases. Personal income taxes would be handled by offering a choice to each citizen to either pay under the current system or file with a newly offered one page option. The one page would consist of taking your income, subtracting a standard deduction, taking a deduction for charitable giving and home ownership (if applicable), and multiplying that number by a single set percentage (which is left unspecified).
The headline on his immigration initiative is that there would be a deadline date for securing the border by January 1st, 2014 (“secure†is left undefined). Though it is not stated the inclusion of a firm date strongly suggests that following “securing†the border would be some form of amnesty. While a few years ago this idea would have been a non-starter for a large block of Republicans, currently the reality seems to have set in that this type of a trade-off is the only way to deal with this problem and finally move forward.
The Politics
Skeptics of the recent Gingrich campaign surge could doubt that he has the fiery sizzle to overcome his slow start and existing baggage— and be justified. Meanwhile critics of his 21st Century Contract with America could attack the plan for being a little light on specifics (especially since Newt is not prone to lack of minutia)—and attack they may. That being said, going forward this campaign has many more advantages to exploit than disadvantages to fear.
Here are six factors that point to his candidacy not only continuing to build on its current momentum, but that also have the potential to thrust him into the top three in a short amount of time.
#1) His mastery of the debate format, the reason that he has recently gained ground, will be an ever-growing advantage moving forward. As the number of candidates on stage dwindles he will be allotted more and more time and will be more easily compared to the less capable candidates.
#2) Republicans are likely to recognize that a supremely informed, smooth, and skilled debater will neutralize Obama’s biggest advantage (smooth flowery rhetoric).
#3) Now that he has a specific doctrine to anchor his campaign the focus will shift there and drift away from the personal issues that previously have been sucking up oxygen and damaging his campaign.
#4) A close examination of his policy proposals reveals that he has a large number of Tea Party friendly stances and would garner their support, while not being too linked to them to hurt him in a general election. In 2012 Republican politics this is what you call “the sweet spotâ€.
#5) The concepts of personal choice, competition, deadlines, fresh ideas, and lower taxes that are found throughout his platform will all appeal to true political independents—namely those that voted for Obama last time thinking that’s what they would be getting.
#6) As the race gets closer and more real, Republicans have a track record of deciding on the grounds of experience and perceived wherewithal to win…McCain anyone? Consider this— it’s easy to make the argument that he is as capable, if not more so, than Mitt Romney, while it’s hard to argue that he is not more Conservative.
The bottom line politically is that Newt stacks up well to the rest of the field in many categories while largely lapping them in depth and substance. As the race wears on he, oddly enough, finds himself with many advantages to gain from and plenty of time to do it…and he certainly doesn’t have to worry about peaking too soon!
In terms of the release of the new contract and the impact it will have on his campaign the analysis is fairly simple. The concept of a contract with the American people was a great idea and a brilliant political vehicle in 1994…and it still is in 2011.
Photo Courtesy of Prezography.com
by Brian Nygaard | Sep 13, 2011
“We’re going to work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4 percent,†Obama said in his speech last week to announce the $450 billion jobs package. The plan would put “more than $2,000 a year in a family’s pocket and give a lift to an economy still burdened by the drop in housing prices.†Mark Zandi, the chief economist at Moody’s (and a self described liberal), immediately announced that the new jobs program would add two percent to GDP and 1.9 million jobs to the economy next year. Kevin Ungar of Mother Jones piled on with: “Currently, the federal government can borrow at an astonishingly low 2 percent interest rate. If we can make investments that will produce a predictable return of at least 3 percent in increased revenue, why would we not want to take advantage of these low rates to make those investments?â€
With that kind of logic, maybe we should just give all our money to the Federal Government. They seem to have the capacity to simultaneously meet the challenges attached to pesky house payments, large-scale job creation, and the magic of predictable rates of return on investments. In the minds of people like Obama, Zandi and Ungar, the answers are always simple.
Of all the immense challenges coming out of liberal politics these days, the most pernicious are the half-truths. Whether they are knowingly providing these obvious half-truths is a question for another day. The real problem is that when the first half of the story is the part that sounds good, the omission of the more troublesome last half amounts to a lie. It is pure and simple deception.
Let’s look at the comments coming out of the three individuals above. Inserted here is the last part…the part that was left out:
1) Obama – Home Refinancing at 4%: “Someone is currently earning 6% on the mortgage contract (like the Wisconsin Teachers Pension Fund or your retired neighbor next door), and for the government to force the refinancing of that loan is to take money out of the hands of someone who contractually deserves it, and put it in the hands of someone who does not.â€
It is truly unfortunate that so many people are in trouble with their mortgages. And it is just as unfortunate that someone who owns an asset that entitles them to a six percent return is forced by the government into an “adjustment†down to four percent. The money is just being moved between pockets. Or, was the Federal Government (you and me) going to pick up the tab for this one too?
2) Zandi – GDP Growth and Job Creation: “In 2013, the nation’s GDP will go right back down by two percent. And this is because we will have then quit borrowing that large pile of money to artificially jack-up GDP during an election year. Because the jobs that we “created†have little effect on ongoing productivity, and have little real investment value, they will all go away in 2013 too. We will be left with another couple thousand dollars in debt for every man, woman and child in America, with next to nothing to show for it.â€
Temporary tax credits and a few improved roads and bridges do nothing more for the economy than handing out bundles of government-borrowed hundred dollar bills at the local grocery store. In truth, the bundles of money would be a more efficient and better option from a long-run economic standpoint.
3) Ungar – Predictable Returns on Government Investments: “Governments are really not in the investment business. Only a tiny fraction of the current $3.5 trillion dollar Federal Government budget would represent anything that might be defined as an investment. And the track record for the investment of capital by governments is stunningly bad. Let’s point at the $535 million blown up in the bankruptcy of green energy provider Solyndra as the best current example.â€
I have no idea who Mr. Ungar is. He sounds like someone who just graduated with a degree in Economics from Harvard. The only thing that can be said for his argument is that the math works. If you can earn more return on your investments than your costs of funds, you are creating a positive return. With this logic, maybe we should make the Federal Government into a hedge fund.
The point in this is not to direct attention at the failed thinking. The point is rather to point at the failed willingness to communicate anything resembling the complete story. These people are again trying to sell the old “something-for-nothing†fallacy. Ah, the bliss of a life without real-world trade-offs. It is no wonder that confidence in the system is so low. When politicians, economists, and journalists paint such incomplete, and consequently, biased and misleading pictures of reality, it is no wonder that our confidence in them has shrunk to nearly nothing.
It is one thing to point out that we disagree on matters of political importance. That has and always will be the case. It is a completely different thing when we fail to agree on the issue of basic honesty and routine transparency. The complexity of the world we now inhabit demands our best attempts at the whole truth. But, then again, that core whole-truth imperative has never really been different over recorded time.
The hoary Yiddish axiom that “a half-truth is a whole lie,†is once again proven accurate, timeless, and universally applicable.
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by Steven Waechter | Aug 29, 2011
The economic relationship between the United States and China is often described as being “co-dependent.†The Chinese lend America money, and the Americans buy Chinese goods. If the Americans stopped buying Chinese goods, then people in China would lose their jobs, and if the Chinese stopped lending to America, then Americans couldn’t consume Chinese goods, and around and around as the story goes.
It is a complete mirage. Right now, the Chinese are dedicating a large portion of their economy (land, labor and capital) to produce cheap, depreciating consumer goods to sell to the United States. We pay for these goods with American dollars, and China’s domestic exporters have so far been happy to accept these dollars in exchange for their products.
These dollars flow back to China through those exporters, but the Chinese companies that end up with these dollars have a bit of a problem: They are paid in dollars, but their outflows (wages, supplies, taxes and dividends to their owners) are largely priced in the Chinese yuan, so they need to exchange their dollars for the locally accepted currency. Rather than force their exporters to sell their dollars on the international currency exchanges, the Chinese central bank has been content to buy dollars from their own exporters.
This has led to two problems from the Chinese perspective: It causes massive inflation in China (floating between 6 and 8 percent lately) as the Chinese central bank prints yuan to buy all these dollars (when you hear politicians talk about the Chinese “suppressing their currency,“ this is what they are talking about); and, it has left the Chinese with a reserve of American dollars totaling something like $3 trillion in cash, accounts, and US Treasuries. They have thus far been happy to acquire this massive stockpile because the American dollar has enjoyed the status of the world reserve currency, leading it to be considered a trustworthy store of value.
This situation is about to change. The Chinese are about to figure out that they have acquired a stockpile of money that they will not be able to easily spend. Right now, about the only things the Chinese can easily buy with their dollars is oil and US Treasuries, and some in the United States actually think that this is a sustainable economic model (the Chinese work hard, sell things to us for money, and then lend it to us so we can spend it).
The only reason we were able to run the trade deficits which facilitated the assembly of these massive dollar reserves around the world was because the dollar was considered a reserve currency. China, Russia and Japan have had to export goods in order to import other goods, because other countries were largely unwilling to hold massive reserves of these currencies. Germany, with the largest trade surplus in the world and not enough arable land to feed its own populace, has had to export things of high value in order to purchase what it couldn’t produce at home.
In response to this, we have been told that the ongoing devaluation of the dollar will begin the long process of reversing our trade deficit, as it will make our exports more affordable and more attractive to other countries. It hasn’t worked – our trade deficit is growing as of August 2011, not shrinking. Devaluing the dollar has, rather than make our goods cheaper for foreigners, actually raised the prices foreigners already holding dollars need to pay for American goods. If India devalued the rupee, then the Japanese yen will buy more rupees and Indian goods will be more attractive to holders of yen because of the exchange rate. Since the dollar is held in reserves around the world , foreign customers end up paying the same higher prices as we do when our currency loses value, because they hold our currency already.
Eventually this will all come to an end. The financial authorities in China are going to stop printing yuan to buy all these dollars, and China’s exporters will have to sell their dollars on the international exchanges. When that happens, the decline in the dollar’s value will accelerate, and the value of the yuan will begin to rise. Many Americans will be priced out of Chinese goods, and because the United States has little to offer China in trade except agricultural commodities, prices for food will rise even farther in the United States, as the Chinese try to divest themselves of the dollar by purchasing something of value to them – food – not more US Treasuries that pay interest in the form of more American dollars that China can‘t spend.
But, without the American consumer, won’t there be massive unemployment in China? I don’t believe so. There might be a brief recession in China, as their economy re-balances from producing cheap goods for America to producing things for China’s domestic markets, as well as for countries like Germany – with the world’s largest trade surplus and a trade surplus with China individually. China’s economy will recover and grow, assuming the Chinese government doesn’t screw it all up by continuing to rob their own people with inflation, as they try to suppress their own currency further.
It isn’t clear if anybody can actually win this currency conflict; the American people will have a massive recession as our bubble economy based on spending borrowed money continues its collapse, and the Chinese populace will have spent the last 20 years working hard, saving money and enduring inflation so their government could amass a pile of foreign money and bonds that are being rendered worthless.
Although, if the dollar collapses the Chinese government will be at the reigns of the new global superpower; and in return American politicians got to spend money on social programs, wars and bike trails without raising taxes. So, if you happen to be either a Chinese foreign ministry official or a 15-term member of Congress, then it really is a win-win situation. If you are a Chinese factory worker or an American looking for work, then the arrangement looks rather less appealing.
Image © ktsdesign – Fotolia.com
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