Beyond the Cusp

December 20, 2013

The Looming Economic Time Bomb

There is a theory that has been the backbone of President Obama and his economic administers that the government can stimulate and generally manage the economy. This is known as Keynesian Stimulus Theory. The basis of Keynesian economics is that government stimulus will give greater returns in tax revenues over time as the local multiplier effect produces many times the velocity of money in a local economy where government funding has been injected thus raising the general economic activity which will presumably return more tax revenue to government covering the cost of the stimulus and everybody gains. This interventionist economic theory was proposed during the Great Depression by economist John Maynard Keynes and was implemented in various forms and schemes by the Roosevelt administration. Many history studies on economics credit the use of the theories and principles from John Maynard Keynes for the recovery that pulled the United States out of the Great Depression. These studies were mostly written by economists and others who supported and believed that the Keynesian theories were the greatest thing since the invention of coinage which ended the barter system and made modern economic theory possible. The one small fact overlooked by most of these erudite studies was the difference of the effects of the Great Depressions in the United States where Keynesian theories were widely applied and Europe where they were not. Where in the United States it is remembered as the Great Depression, in Europe it was a hard but brief recession simply due to the fact that their governments could not agree on what should be done so their governments ended up doing nothing and the economic cycle continued normally and the bust was followed by the inevitable boom.

 

The argument often put forward to those who prefer the Laissez-faire Economic Principles has been to point out that even though most of Europe did recover more readily from the 1930s recessions there was still Germany which remained in economic collapse which led to World War II. That argument is not entirely honest as the main problems faced by Germany were not due to their economic practices as they were endemic results from the punitive strangling economic restrictions place upon Germany in the Versailles Treaty at the end of World War I. Some others attempt to deride those who prefer that the economy be permitted to naturally go through the peaks and valleys alternately which is the natural procession of any economic system by claiming that this system is the property solely of the Republican Party and that it favors the rich and big business as that is what the Republicans are known to do. Whether the Republicans are any more favorable to big business and the wealthy than the Democrats is a debatable subject and totally outside this discussion other than the attempt to paint those who disagree with government stimulated economic growth as troglodytic Republicans attempting to return everybody to the days of the Robber Baron Industrialists. This is a powerful argument due to one quote from President Ronald Reagan where he said “Government is not a solution to our problem, government is the problem.” As long as we are quoting President Reagan I will throw in an additional just because I like this one myself and it does pertain to government’s treatment of the economy which goes, “Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

 

Another economic truth which has been lost in all the noise was that there was no Federal Reserve and there were economic ups and downs all without government meddling and without a great depression. There must have been something added to the air and water in 1913 in the United States as this was the year that the Federal Reserve was established and also Amendment XVI and XVII which established the income tax and made the Senators directly elected taking away the representation of the individual States in the Federal Government. Maybe if we were to simply undo everything that American History Professors teach as the most enlightened year in all of America’s history, 1913, then many of the problems America faces today would begin to resolve themselves. Meanwhile, the administration of President Obama is completely committed to Keynesian Economic Theory and have been pumping stimulus monies into the economy mostly through having the Federal Reserve but Treasury Bonds using the cash made electronically which results in basically doing the same as if they simply printed up thousands of hundred dollar bills and made a present of them to the Federal Reserve assisting them to buy the Treasury Notes. This can be simply described by calling it what it is, America is buying its own debt as they are no longer able to find another nation willing to buy Treasury Notes to finance the growing national debt. What makes this even more suspect is that the Treasury Notes are kept in some of the leading banks and used to qualify for loans which is how they buy the next release of Treasury Notes by the Federal Reserve which is a private agency and not actually part of the government. The Federal Reserve is, at best, a quasi-government agency made up of the Presidents and major holders of interest in some of the largest banks in the United States and the World. That is the makeup of the group which has been assisting President Obama and advising the bailouts for the banks, insurance and mortgage industries, the very same industries from which the Federal Reserve gets their membership.

 

So, what is the result of this scheme where the Federal Reserve uses its holdings of Treasury Notes as the collateral for their next purchase of Treasury Notes each and every month? This operation has greatly increased the amount of dollars theoretically in circulation by a multiple of anywhere from estimates of quadruple to as high as ten-fold. As long as these cash reserves remain stagnant in the banks then all will be well. Should the economy pick up and the banks find they can make larger profits by loaning these reserves they will give the money what economists call velocity and thus pump all the reserve extra dollars into the economy. Such an influx of money into the economy can only have one result, inflation. When the economy realizes that instead of one to two trillion dollars in circulation it has six or twelve trillion dollars in circulation prices will begin to rise to balance with the larger cash flowing through the economy. Once inflation sets in there will be pressure to slow the inflation by raising the interest rates. Once the interests start to rise a problem which will need to be faced will rear up and threaten to destroy the entirety of the American economy. As it stands now the interest payment on the debt is relatively affordable with interest rates remaining steady for the past decade under four percent. For the last few years the interest rate on the national debt has remained comfortably below three percent. What will happen once the interest rates rise to six or eight percent and higher? The Congressional Budget Office projects that once interest rates go up, the combination of rising debt and rising interest rates is projected to cause net interest payments to balloon to nearly $800 billion, or 3.4 percent of GDP, by 2020 and approach one fourth to one third of the Federal budget. The real question becomes what if interest rates rise higher which they very likely might? There will come a point where the interest payments on servicing the debt will impinge on all other spending. What will happen should the interest rates cause the servicing payment on the debt squeeze government allocations to everything else and the government can no longer finance the nation’s military and it is forced to downsize to an extent similar to the Europeans. What if the government is forced to end payments on Social Security, Medicare, and Medicaid and threatens the national healthcare system in whatever form the Affordable Care Act resembles in another decade. The increased national debt and the resultant service payment on the interest supersedes any reasonably affordable portion of the budget. Where will the government find the necessary funds, raise taxes to over fifty percent and even approaching ninety percent on higher income levels? Will services be cut to the point that many programs no longer serve sufficiently the peoples they are intended to help and government has cut every program to the point of being next to useless? And what will be the effect on the economy, will it likely crush economic growth and even cause a downturn that will only make the situation more dire? The rising of interest rates is the time-bomb sitting waiting to ambush the American economy and people sometime in the near future. Perhaps somebody will present a vision that will rescue though what such a vision might be escapes this mere mortal. May the future find a kinder path than what some have predicted.

 

Beyond the Cusp

 

December 8, 2013

Congress Should be Congratulated and Lauded for Inactivity

There have been a plethora of articles of late criticizing and belaboring the fact that the present Congressional session had passed the least pieces of legislation and considered far less bills than any in recent history. What is confusing me is why exactly that is a bad thing. It strikes me that the less Congress passes in legislation making new laws which spawn hundreds if not tens-of-thousands of new regulations for each piece of legislation passed the more freedom and liberty will remain with the American people, and that is a really beneficial and decent thing to laud. If you have any doubts about such, just take a look at the results from one piece of legislation, the Patient Protection and Affordable Care Act, also called Obamacare. That one piece of legislation was over a thousand pages of legalese and delegating responsibilities to different positions and staffs to fill out the needed and necessary regulations to fulfill every vaguely defined goal and any implied desirable results which could be divined from the endless text of the legislation. This led to over twenty-thousand pages of regulations at last count if some watchdog sources are to be believed. What makes things even more dire are the results we have already witnessed that have befallen many Americans who thought they were within the dictates of the law believing President Obama’s promises that they could keep their insurance if they liked it and they could keep their doctor if they liked him or her; but now we know those were lies and the worst kind of lies, intentional and misleading lies made to an unsuspecting and trusting people, after all it was the President who made the promises. So, when it was announced a few weeks back that this Congress had passed and considered the least amount of legislation and took less actions, votes, and other sundry decisions I was overjoyed and pray that this is simply the beginning of a favorable trend.

 

Imagine if this becomes a continuing trend where each successive Congress considers less legislation, passes less new laws, approve less new regulations and perchance spending less funds, what a boon that would be for the American people. If such a trend went on long enough the point might even be passed where the Congress would need to rescind legislation undoing some of the damage previously accrued through Congressional actions. Imagine less regulations and fewer laws and a government actually shrinking as it released itself from some of the most unnecessary or redundant workload which currently is the cause of wasted millions of dollars if not billions. Imagine if the Congress actually rediscovered one of the better and more innovative ideas from the Founding Fathers which was to leave all of the day-to-day regulating and laws to the individual states to address and the Congress and Federal Government simply attended to matters between the United States and other nations and was available to settle disagreements between states which were expected to be concerning fairness in trade more than anything else. That would give the American people the advantage of fifty separate states each attempting to address the day-to-day laws and regulations in as efficient and orderly a manner as they could imagine. Some states would excel at one thing while others would excel at their specialty and even if some states simply never got a great idea of their own you know what? The states could learn from each other’s actions and adopt the systems that functioned closest and were the best at attaining the goals of each state. Over time some states which adopted the methods of another state as they proved more efficient but they found something they could tweak to make it function even better in their case, well that improvement might be adopted by the originating state to test if it worked better there as well. There would be more minds with greater variety at addressing the needs of the people, the citizenry, that things would improve and better ways of getting items taken care of would be found more readily making everyone’s lives better off. Now if the United States Congress would just agree, but a slowdown is a step in the right direction.

 

As long as we are on the subject of improving governance and the government that is responsible for such perhaps a few pipe-dream suggestions could be offered. The first would be that when Congress passes any legislation they then must approve every single regulation which is written to flesh out the bill and make it functioning. The Congress need not necessarily write every single regulation, though that would be preferable as that at least is performed under the scrutiny of concerned citizens, they should have to vote every one of them up or down such that the regulations are at least reviewed by the people elected by the citizenry to represent their interests. The laws passed by the Congress should necessarily be applied to the members of Congress and their staffs with absolutely no exceptions. The use of Congressional exception that allows the Congress not to be subjected to the very laws they impose on the people is the height of governmental hypocrisy. This should include all laws pertaining to illegal insider trading and other illicit financial dealings as the members of Congress should not be allowed to invest their monies into companies they know they are about to grant multi-billion dollar contracts and thus become wealthy beyond measure as a result. The members of Congress and their staff should be required to place their investment monies in a blind trust where a manager controls their investments and it should be illegal and punishable by impeachment and imprisonment for any member of Congress to dictate or even contact the person handling their investments by direct or indirect means. All laws and regulations should be given a sunset clause of no more than a decade such that if the law or regulation is not reviewed and voted to remain active at least once every ten years, then that law or regulation should be made null and void. Then there is the final pipe-dream; make the entire Federal Government, every department, sub-department, agency, cabinet position, committee and any other functioning part of government justify their continued existence by stating before a review board appointed by the states what exactly under the Constitution allows their continued existence and if they are unsuccessful in doing so, then they would be disbanded and cease to exist. A similar procedure with laws and regulations might not be a bad idea as well. My bet is that virtually every unfunded mandate which places the financial responsibility for a Federal Government imposed requirement or program be placed on the individual states would disappear in a rapid manner. The unfunded mandate is an edict from the Federal Government which denies the states their right to have a vote in determining what they will be required to finance. That is just one more reason to return the selection process for Senators to the individual states by repealing the Amendment XVII. States could decide to continue to allow for the direct election of their Senators by their voters, but they should be granted their choice as having the states choose the manner or even the person who will become their Senator was another of the major checks and balances built into the Constitution and the balance has been destroyed and is very much responsible for the Federal Government expanding its powers unchecked and running roughshod over the states in the process. It is time to give the individual states back their voice in the Federal government, way past time.

 

Beyond the Cusp

 

November 23, 2013

The Debate is Cloture and Not the Filibuster

The main reason that the mainstream media is talking about the Senate changing the rules on the practice of filibuster is due to their being too lazy to explain what the Senate really did and actually educate the people who might not be as up on their United States Constitution as used to be the norm earlier in American history. The Senate changed the rules on cloture which is the means by which a filibuster is ended, not prevented or even stopped dead but ended with a possibility of allowing limited debate time to each Senator if the rules so permit. So, let us take a short trip back through history, and I promise to try to be brief. When the Constitution was ratified and became the founding document for the governance of the United States in 1789 there were no rules limiting debate in any manner. Senators could talk on any legislation pending before that august body until the cows came home and beyond. That was the beauty of the Constitution and the original interpretation of the idea that the House of Representatives was a rough and tumble and coarser body while the Senate was proper and deliberative with cordial rules and mutual respect, a far cry from what we have today and even originally. Do not for one second believe that American politicking has become raucous and vile only in the recent past as it actually has become more sensitive and polite. Nobody is referring to the other candidate for President of being a hermaphrodite or of being the son of a half-breed Indian squaw. To quote the two gentlemen in question behind those remarks, and they are to this day considered gentlemen though I doubt the shorter of the two would have agreed with such a description when he was alive; the Jefferson campaign described President Adams as a “hideous hermaphroditical character, which has neither the force and firmness of a man, nor the gentleness and sensibility of a woman,” and Adams in return defined Vice President Jefferson as “a mean-spirited, low-lived fellow, the son of a half-breed Indian squaw, sired by a Virginia mulatto father.” Yes, believe it or not these were the President and Vice President of the United States at that time as originally the candidate with the most votes became President and the candidate who came in second became the Vice President but we obviously changed that as it became a tad unworkable and obviously so. The Twelfth Amendment in 1804 put this problem to rest allowing for separate ballots for President and Vice President but did not dictate that the two office holders be from the same party, it is still possible though unlikely that the President and Vice President could come from different parties.

Back to the “nuclear option” voted on by the Senate this past week. The Senate rules call for a simple majority vote with limited debate for any motion to alter, add or deduct from the rules under which the Senate operates thus making any chance for a filibuster basically mute. Because of that the Democrats with their four seat advantage won the passage of the new rules by a 52-48 vote. President Obama took the opportunity to continue his war against the minority Republicans in the Senate in a short speech after which he delegated a person to answer any questions in what has become a normal routine of never allowing the President to be questioned by the press directly or be allowed to ever go off of the carefully scripted words on his teleprompter. Sometimes I think that it would be both revealing and educational allowing for the truthful revelation of the character and inner feelings of a President if it were required that he take a session answering press questions at least once each month and could be required when asked to appear before either branch of Congress to answer questions on any legislation brought to the floor by request of the White House or any member of the President’ own party. Any additional information that is revealed concerning a President’s inner feelings, ability to think quickly and respond to unexpected queries and situations as well as anything that fills the people with additional truths about the person supposedly running the nation and being the face of the American people and the nation on the world’s stage should be encouraged, even mandated. The Senate changing the rules such that a cloture vote which restricts virtually ending debate on appointment for judgeships and other posts to a simple majority has basically changed the process into simply the Senate being a rubber stamp for all but the absolute worst nominations, and even then it might be questionable if the Democrats would not simply bow before the President’s will. This may prove to be catastrophic or it may simply end up as a tempest in a teapot, it all depends on which appointments now gain affirmation who might have been prevented by a Republican or a single Democrat deciding to filibuster the nomination. This I just one more time will tell and I have found that time usually tells long after anybody is paying attention. A perfect example, except that people are paying attention, is Kathleen Sebelius and the catastrophic rollout of Obamacare. Had that gone relatively smoothly with only minor glitches we would have never known how vacuous that woman is and how Health and Human Services is being directed by an incompetent who appears incapable of managing a major project any better than a junior project manager in training.

 

There will be some commentators and political talking heads who will go off the deep end and erroneously relate that this move by Senate Majority Leader Harry Reid was unconstitutional and that the Constitution enumerates the right and procedures known as the filibuster and cloture vote. They are mistaken at best and intentionally misleading at worst. The truth is that the Constitution says absolutely nothing about either process by name. Under the Constitution the original Senate had absolutely no limit on the length of the debate thus allowing every Senator and thus every State to have ample time to discuss and debate the merits of legislation and even return home to get their marching orders from the State Legislatures which chose the Senators. The Senate under Article I, Section 5, Clause 3 was empowered to write its own rules concerning debate and the procedures which govern the same. The Senate adopted its first anti-filibuster rule in 1917 calling such a procedure cloture. Traditionally the cloture vote has taken some form of supermajority in order to shut down debate. The rules of the Senate, according to the writings of the Founders, was to be a more deliberative body which fully debated legislation thus allowing the Senate to reject any legislations which was passed under emotional or other reaction to momentary events and to represent the individual States within the Federal Government such that the States would be protected from the rapacious appetite for power and dominion by any Congress or President. It is interesting that the initial limitation to debate came in 1917, four years after the ratification of one of the most destructive laws to ever make its way onto the books, let alone the Constitution, the Amendment XVII which forever changed the Congress and permitted the unrestrained expansion of the powers, reach, and oppressive abilities of the Federal Government. Under this amendment the States no longer appointed their own Senators in any manner they saw fit, be it appointed by the Governor, appointed by the Governor and ratified by some branch of the State Legislature, appointed directly by the State Legislature or even directly elected by the people which any State could have enacted as their method had they so chosen. This was a direct assault on the rights of the States and took place under a wave of humanist excitement where it was believed that the people, if allowed to voice their combined will, would reach a more reasoned and duly proper decision than any that could be reached by the corrupt and despicable State Governances. The members of the Federal Government even back then looked upon the State Governments, from which many of them had originally served, with contempt and disdain. They saw them as incapable of reasoned thought or honest debate. Looking at the Congress of today one might come to the conclusion that a monarchy might be preferable, but surely I jest. It is likely certain that had the Senate remained as intended a product of the individual State Governments deciding their selection process that the vast majority of States would have decided to allow for the direct election of their Senators in the Federal Government anyways, so there is probably little difference today that if the Amendment XVII were never passed or ratified. One note on history, both the Amendment XVII and the Amendment XVI, which enacted the income tax, have both had claims made that they were not truly ratified by the necessary States within the time limited by the Constitution and are therefore not enforceable. Thus far nobody has won a court case challenging either Amendment. Given my personal choice, I would prefer ridding the United States of the Amendment XVII as returning a greater amount of limiting force by the individual States would do more to limit and turn back the growth of the Federal Government than anything else I have ever heard promoted. The one item that would cease to exist immediately would be the imposition of unfunded mandates on the individual States by Federal legislation as that has become a nasty and not all that uncommon way that the Federal Government passes legislation while forcing the States to finance the implementation and continue maintenance of the legislation and not burdening the Federal budget with such costs. Imagine a Federal Government which was forced to pay for every consequence of their legislative agendas. They would soon go on a legislative diet which the press would label gridlock and the Representatives and Senators would label sticker shock from seeing the financial consequences of all of their actions and being unable to pass the costs off on the States. That was an imagine that Mr. John Lennon missed in his song, but being British I guess he should be forgiven.

 

Beyond the Cusp

 

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