The Invisible Hand vs. The Heavy Hand

The field of political economy interested me at an early age and I have been immersed in for almost 50 years, studying economic regulation (L.L.M.) and practicing law in Washington before a number of the alphabet soup of administrative agencies there.   From the outset I was opposed to the notion of a political economy. --  i.e., a politically controlled economy -- similar to the lawyer who enjoys practicing criminal law but doesn't think crime is good idea.  Law school gave me an enriched opportunity to evaluate the the theory and practice of U.S. economic regulation and compare it to my carefully studied political and economic philosophy.   That evaluation confirmed my worst fears.

Now that the financial crisis has publicly exposed corruption,  crony capitalism and government overreaching, to the greatest extent in history, many people are outraged .  Some are even beginning to understand that giving politicians the power to control and influence the economy, is not a good idea. They are mad and are blaming the politicians and bureaucrats for running the country into the ground.  And they are protesting, loudly.  The mass media brush off the Tea Party movement and Oppose Wall Street as insignificant.  But they are symptomatic of a national disgust with the corrupt deficiencies and ineptitude of the Federal government and politicians' arrogant assumption of powers over people that the Constitution forbids.

Attempts by government to control an economy cannot happen if it is opposed by the people (who are, in fact, the economy).  And control is much easier if the people know of no reason to oppose it.  Even if that control is misguided and destructive, if no one knows about it or its negative effects, there ought to be little opposition -- or at least so the thinking goes.  So part and parcel of running a political economy (be it the USSR or the USA) is maintaining a firm grip on the information received by the people, and suppressing bad news and the people who spread it.  Thus the connection between political and economic freedom. Political freedom and economic freedom are interdependent.  Erosion of one is accompanied by erosion of the other.

For the above reason, while I mostly report about economic matters, I occasionally identify and report threats to our civil liberties,  especially those threats that can apply to people who want to speak out about against the government's actions in the realm of political economy.  Those threats have been around almost since the founding of the Republic (e.g., Google the Alien and Sedition Acts).  While many of them have been neutralized (primarily by the Supreme Court), some laws nevertheless have been placed on the books over the past two centuries that can be used and have been used to suppress and punish mere vocal opposition to government policies and actions.

Congress periodically proposes more such laws when a pretext arises that causes popular support for them.  Typically,  the argument for such laws is that a sufficiently sizable emergency exists that requires that people sacrifice personal liberty for more security.  Domestic crises and all wars provide such a pretext.  Examples of such crises are the recent financial crisis, Cold War, the War on Poverty, the War on Drugs and the War on Terror (Note that the term "war" is now being used as an action against a concept as distinguished from action against another nation.  A war against a concept is less specific and can cover a wider range of government activity. It also gives the President broad executive powers over domestic matters, powers that are more appropriate to a hot war.)  The passage of laws that threaten civil liberties has mushroomed in recent years as the powers that be ("TPTB)") have learned how to create a continuing crisis to frighten people into acquiescing to more government control and intrusion.  We are now experiencing a "forever war" and a continuing "national emergency."

I have been collecting articles about recent laws and government activity that threaten our civil liberties and economic freedom.  But because many of the articles are burdened with speculation, I have refrained from posting links to them, preferring to extract the facts and produce an objective study.  But the continuous stream of relevant articles has slowed the process. Here is the most recent, from USA Today: "Government Smears Journalists Who Investigate Government Corruption" The details in the article are more ominous than the title implies.   The alleged activities fly in the face of the Federal Government's own published information regarding the First Amendment, which makes worthwhile reading.

 

Too Long Without a Post?

The past 15 years have seen a good number of blogs develop from small beginnings into influential media powerhouses that took their creators from their "real jobs" to become professional bloggers. Sites like Breitbart.com, The Drudge Report, Pajamas Media, ZeroHedge and Global Economic Trend Analysis are now established sources of news and opinion visited daily by vast numbers of people.  Mike Shedlock discussed what it takes for commercial blogging success in New Economic Model for Bloggers, where he listed the why some blogs do not generate enough traffic for commercial success:

• Inconsistency in posting quality
• Inconsistency in posting frequency
• Content too similar to what the top few blogs post
• Site too new to attract a large following
• Blog author gives up

You will note that it has been over a year since my last post.  Clearly I have paid no attention to posting frequency and apparently am not interested in building traffic for commercial success.

This blog has limited objectives.  The first is to to provide the reader with a perspective that he might not find elsewhere by synthesizing a number of disparate opinions and news reports and making observations that might educate and enlighten readers, or to point out reports on the internet that the reader might overlook.

The other objective is to serve as a handy launching point for daily reading of the blogs and news sources which provide a useful understanding of economic events and social trends -- events and trends the understanding of which is important to your economic well-being.  If this site is used as a launching point, the reader will occasionally find my own contribution.  Many bloggers, even some of my favorites, post news and opinion that appear elsewhere and contribute little more of substance to their post.  I hope not to do that and remain content to defer to others who can devote their full time and attention to blogging.  As a retiree, I do not have a real job, but I have a real life.

The reports you can find in the links shown here in the right-hand column have, over the past year, quite adequately followed important events, trends and opinions, which include the unraveling of the European Monetary Union, the tragic potential of a global fiat monetary system, the rampant corruption in high places, the folly of unsustainable debt, and the continued slow conversion of the United States from a government that protects and respects liberty and achievement to one controlled by an elite political class and their cronies and which promotes government dependency and a servile population.

The Century-Old Secretive Banking Elite

A must-read article appeared in today's New York Times: "A Secretive Banking Elite Rules Trading in Derivatives" The NYT, despite numerous examples of leftward media bias and abandonment of objective journalism, is no grocery store tabloid. This story will confirm the worst fears of some conspiracy theorists. Jim Sinclair comments: "What has become of Western Financial Society that it needs to be run by secret cabals? What has become of the people that this can be discussed in the light of day and nobody really cares." I must add that, as an antitrust lawyer, I agree with the legal experts cited in the article that what is described is an illegal conspiracy under the Sherman Act. But bankers are uniquely insensitive to the legality of their actions. After all, the Fed is a cartel and was openly chartered as such. I digress with a little history lesson:

Legal tender greenbacks printed to support the Union war effort established a national currency after 1862; but that did not change the fact that some bankers occasionally underestimated depositors’ demand for money, causing bank panics and runs on the bank. And as commerce grew, the seasonal demand for credit became a larger and larger problem. Prudent bankers simply didn’t have enough money to lend out to businessmen for growth and to farmers at planting time. That was either a lost business opportunity for banks or it encouraged imprudent bankers to lend out more than they should, placing the bank’s stability at risk. It also created a liquidity problem in an economy that was growing increasingly sophisticated and an environment in which business could grow faster with outside financing. The bankers were in a straight jacket imposed by the market which required the banks to have a solid reputation and adequate reserves 100% of the time. And bankers felt a need to safely escape those strictures, which limited the banks’ ability to lend out more money and thus their ability to make more money on banking.

The Federal Reserve System

By 1910 the situation had begun to wear on the banks. And so, some influential people in banking and finance conceived of a central bank where they could pool their resources, to be drawn upon in emergencies. Key influential banking magnates met secretly in Jekyll Island, Georgia, to agree to and create a banking cartel. The cartel was modeled after the European banking cartels that existed at the time. Nelson Aldrich, the Senate Republican Whip and father-in-law of John D. Rockefeller, Jr., was the sole non-banker at the meeting. He described the idea as “not a bank, but a cooperative union of all banks of the country for definite purposes.” It went beyond the notion of private cartels such as we know today, like the DeBeers diamond cartel or OPEC. The notion was to make it a government imposed cartel like the Interstate Commerce Commission and later government agencies such as the Civil Aeronautics Board and Federal Communications Commission, all of which were chartered to give government and its proxies the exclusive right to set prices and allocate markets and resources for private corporations. A. Barton Hepburn of Chase National Bank speaking in support of the legislation said, “The measure recognizes and adopts the principles of a central bank. Indeed, if it works out as the sponsors of the law hope, it will make all incorporated banks together joint owners of a central dominating power.” Thus, in 1913 the Federal Reserve System was born. Unlike the CAB and FCC, however, the Fed is a private central bank owned by its members but imposed on them by law

"Dominating." Hmmm. To be sure.  And that is how the key players understand their role. They justify in their own minds that what they do is patriotism: they preserve the Republic. (Their bonuses are only incidental to a greater good.) But that is clearly a rationalization.

Please remain alert to Congressman Paul's expose in the coming months of the Fed and its minions.

There is no nefarious intent here.  The banks have not set as their goal to own you or your assets, or to run the economy.  They only want to make money and conserve their capital, like any other good business.  But they need to make money honestly, without the application of  "force" (meaning ultimately the guns of the government) to coerce people into transactions (or to avoid them).

Dr. Paul advocates the gold standard, which applied to our money less than a century ago.  That ideal cannot practicably be implemented in today's world economy although it can be approximated.  The point is that we, indeed every nation, need a currency that adheres to an objective standard that is beyond the control of politicians and banking interests that use their inside influence to profit from advantages they gain from a special relationship with the government and its proxies.

A Perspective on the Mortgage Mess

Here is a succinct perspective on the mortgage mess.

1. Ultimately, the people who didn't pay their mortgages will lose their homes.

2. Ultimately, the losses resulting from mortgage defaults will have to show up on someone's books; but they will not show up all at once. Reports of the losses will be bled out quarter by quarter on the "frog in a pot theory" * so that the market is not shocked at the magnitude of the problem.

3. People who bought foreclosed properties and thought they had clear title will find, in significant numbers of cases, that they do not in fact have clear title to their homes -- because it is not clear who had a right to foreclose in the first place or the party who foreclosed and sold the property actually had no right to do so. Either could give rise to the uncomfortable situation in which two (or more) people claim title to the same property.

4. Ultimately, who owns any particular mortgage and note will be sorted out. That process will be tedious, lengthy and contentious as the falsifications, mistakes and systemic flaws surface and reveal that more than just homeowners will lose.

5. Many investors, including not only private parties but also public and private pension funds and corporate treasurers, who thought they bought mortgage-backed securities will find that, as a consequence of the systemic flaws in the MBS creation process, their securities were not in fact mortgage-backed, reducing their investment to an unsecured note of substantially lower value than they thought they had.

6. The parties in every step of the MBS transactions who insured their bonds with Credit Default Swaps -- will call upon their CDS counterparties to cover their losses arising from the mess. Unlike regular insurance, however, CDS counterparties do not ordinarily set aside reserves to cover their CDS obligations. (This ignores the additional problem that because CDS obligations are traded many times over, it is difficult to identify the real counterparty.) The likely tidal wave of CDS demands cannot be met from the capital of the counterparties (usually large banks, investment banks and hedge funds).  And the ensuing chaos from the uncertainty of who owns what will delay and defy resolution.

7. The investors will sue the CDS counterparties, MBS creators, sellers and brokers, the rating agencies, the accountants and the lawyers involved in creating the flawed instruments. Lawyers on all sides will get rich; everyone else will lose. The magnitude of the problem is measured in the $Trillions.

8. The Fed -- which has shown no reluctance to bail out banks, investment banks, hedge funds and commercial businesses by loaning printed money or by buying garbage at par -- will continue to backstop the system. Ultimately, while it could forestall another crash, the money printing and additional credit facilities could cause general price inflation or another bubble somewhere it is not wanted (the law of unintended consequences), either of which will end very badly for the economy. The public is becoming aware of the Fed's actions and is increasingly unhappy that the perpetrators of fraud are escaping prosecution and, instead, are receiving bonuses with public money while the consequences of their acts cause unemployment and decimation of the value of the one asset in which most citizens have invested their meager savings. With Ron Paul as the head of the Monetary Policy Subcommittee, the fireworks are likely to be significant. The efforts of the banks and the Fed to suppress any and all information in this regard will be huge. Fortunately, there is an internet -- where actual events (not just the opinions of bloggers) can be aired and facts checked -- that is, until the internet itself is constrained as a "security risk." (Shut those bloggers up for goodness sake! The truth will kill us all -- Joe Sixpack cannot possibly handle the truth: witness what he did in the last election!)

9. The stock and bond markets are anticipating all of the above. Real interest rates are starting to rise despite the efforts of the Fed to suppress them. And the stock market has recovered, more or less, from its 2008 lows, anticipating (somewhat scizophrenically) that the Fed's efforts to keep the economy afloat will restore consumer confidence.

10. The States, which collect transfer taxes on each real estate transaction (and which are in dire financial straits), are very, very unhappy that the banks created a system in which they tried to evade paying those taxes, even though title to local real estate changed multiple times.

11. Efforts to achieve a global settlement that would validate the flawed system, pardon the frauds, and compensate the States, investors, CDS counterparties and banks for their losses, will be very difficult if not impossible to achieve.

12. Because the underlying failures of the system have not been rectified and the health of our financial institutions restored, the economy and the stock market's hope for a substantive recovery remain fragile. You need to carefully (daily) monitor your investments and the financial news.


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*The frog in a pot theory holds that if you put a live frog in a pot of cold water and gradually increase the heat, the frog will stay in the pot until it is cooked. But if you drop a frog in a pot of boiling water, it will jump out immediately.

Election Day 2010

Thu, November 4, 2010 7:05:30 PM

Between Tuesday's elections and Wednesday's announcement by the Federal Reserve that it will print more than half a trillion dollars, the Fed announcement is by far the most important. 

The new Congress will be able to do little to reverse the damage done to our way of life by the social democrats and progressives to destroy the middle class -- although if the Republicans play their cards right, they might be able to shine the light of day on corruption at the highest levels and Democrat attempts to unravel the American Revolution.  If successful, they could set the stage for regime change in 2012.  It remains to be seen.  The establishment in both parties see the Republican victory as a reflection of the state of the economy.  Neither see it, really, as a demand from the people for less government, lower taxes and more personal responsibility -- the message of the Tea Party.  Fundamental alteration of the trend in the other direction will not happen.

The Fed announced Wednesday that it will print $600 Billion (ephemistically termed "Quantitative Easing" -- "QE-2")  in new money on top of the $300 billion+ ("QE-1") the central bank printed last year in a vain attempt to boost the economy.  While that will make the dollar worth less and might suppress interest rates for a while, the actions will simply postpone the day of reckoning and impose a stealth tax on the little old ladies on fixed incomes and transfer hard-earned savings to the big banks so they can pay obscene bonuses to their thieves for thievery.  As you consider the actions of the Fed, remember that the Federal Reserve is a creature chartered by the banks, for the banks. Those with a thirst for detail should read The Creature from Jekyll Island. 

The Fed's attempt to print us out of a recession and inflate the value of housing back to bubble levels is extraordinarily risky.  Debasing the currency to fund the government has been tried repeatedly for thousands of years and, without exception, has been unsuccessful -- repeat: without exception it has been unsuccessful throughout history.  The result always is either hyperinflation as more money is printed to chase the elusive goal, or a depression resulting from a contraction in the money supply when the monetary authorities realize that the money supply needs to be reigned-in.  In either event, it will not end well although a depression is preferable because hyperinflation is much more destructive.  See Inflation, Deflation and Chaos.  Many sound thinkers are aghast at the Fed's continued money-printing in an effort to inflate assets and the stock market.  Consider the following:

Must Watch: David Stockman Says The Fed Is Injecting High Grade Monetary Heroin Into The Financial System

Inflationary Thursday - Benny Drops the Big One!

QE2 - The Day After: Entire World Blasts Deranged Madman's Uncheckable Insanity

A Minskian Explanation of the Causes of the Current Crisis

Hyperinflation is not a monetary phenomenon.  It is a political phenomenon that occurs when a population loses faith in its currency -- and flees the currency. The change happens suddenly and in a panic as those who had been in denial realize that the game is over. When inflation occurs, one experiences a rise in prices and sees a deterioration in business performance as companies struggle to make a profit in that environment.  In an inflationary environment, commodities provide the most opportunity for gain -- stocks and bonds, less so.  But when hyperinflation begins, there is a rush to the exits, the so-called "fire in the disco" phenomenon, as everyone immediately tries to exchange the currency for something intrinsically valuable such as ounces of gold, real estate, diamonds or shares in a viable company. Stocks do well but the economic chaos makes most of them risky and regular folks have nowhere to turn but the historically proven assets: one's own home (pay off the mortgage with debased dollars) or precious metals -- silver, gold and platinum.  In the short term, survival strategies (water, food shelter, energy and personal protection)  become important.  In the longer term, how to survive and benefit from the chaos is the most important issue that should preoccupy cool heads.

Be prepared enough not to be subject to or panicked by huge market downdrafts or currency events.  But be alert for them and understand why and how they happen.  If you see them happening, quickly implement the plan you have devised to respond to these events -- for they surely will occur -- two years hence, three years, five or ten.  They will happen as surely as night follows the day.

I would be remiss if I did not discuss the injustice of the official theft that inflation represents.

In the Second Legal Tender cases Justice Bradley explained in salutary terms how printing money works as an "imperceptible tax" to finance war by invisibly spreading the financial pain:

In this country, the habit had prevailed from the commencement of the eighteenth century, of issuing bills of credit [paper money]; and the revolution of independence had just been achieved, in great degree, by the means of similar bills issued by the Continental Congress. These bills were generally made a legal tender for the payment of all debts public and private, until, by the influence of English merchants at home, Parliament prohibited the issue of bills with that quality. This prohibition was first exercised in 1751, against the New England colonies; and subsequently, in 1763, against all the colonies. It was one of the causes of discontent which finally culminated in the Revolution. Dr. Franklin endeavored to obtain a repeal of the prohibitory acts, but only succeeded in obtaining from Parliament, in 1773, an act authorizing the colonies to make their bills receivable for taxes and debts due to the colony that issued them. At the breaking out of the war, the Continental Congress commenced the issue of bills of credit, and the war was carried on without other resources for three or four years. It may be said with truth, that we owe our national independence to the use of this fiscal agency. Dr. Franklin, in a letter to a friend, dated from Paris, in April, 1779, after deploring the depreciation which the Continental currency had undergone, said: 'The only consolation under the evil is, that the public debt is proportionately diminished by the depreciation; and this by a kind of imperceptible tax, every one having paid a part of it in the fall of value that took place between the receiving and paying such sums as passed through his hands.' He adds: 'This effect of paper currency is not understood this side the water [i.e., Europe]. And indeed the whole is a mystery even to the politicians, how we have been able to continue a war four years without money, and how we could pay with paper, that had no previously fixed fund appropriated specially to redeem it. This currency, as we manage it, is a wonderful machine. It performs its office when we issue it; it pays and clothes troops, and provides victuals and ammunition.' In a subsequent letter, of 9th October, 1780, he says: 'They [the Congress] issued an immense quantity of paper bills, to pay, clothe, arm, and feed their troops, and fit out ships; and with this paper, without taxes for the first three years, they fought and battled one of the most powerful nations of Europe.' The Continental bills were not made legal tenders at first, but in January, 1777, the Congress passed resolutions declaring that they ought to pass current in all payments, and be deemed in value equal to the same nominal sums in Spanish dollars, and that any one refusing so to receive them ought to be deemed an enemy to the liberties of the United States; and recommending to the legislatures of the several States to pass laws to that effect." 79 U.S. 457, 558. [Footnotes omitted.]

Justice Clifford, acknowledging the above in his dissent, pointed out that the "wonderful machine" described by Dr. Franklin had a dark side:

. . . these measures of violence and terror [i.e., making those refusing to take the Continental dollar enemies to the liberty of the United States], so far from aiding the circulation of the paper, led on to still further depreciation. New emissions followed and new measures were adopted to give the paper credit by pledging the public faith for its redemption. Effort followed effort in that direction until the idea of redemption at par was abandoned. Forty for one was offered and the States were required to report the bills under that regulation, but few of the old bills were ever reported, and of course few only of the contemplated new notes were issued, and the bills in a brief period ceased to circulate, and in the course of that year quietly died in the hands of their possessors. [Footnotes omitted.]

James Madison, the chief architect of our Constitution, understood what inflation means to ordinary people.  He discussed it in The Federalist, No. 44 in discussing the Constitutional provision denying the states the power to emit bills of credit (paper money):

The extension of the prohibition to bills of credit [to the States] must give pleasure to every citizen in proportion to his love of justice, and his knowledge of the true springs of public prosperity. The loss which America has sustained since the peace, from the pestilent effects of paper money, on the necessary confidence between man and man; on the necessary confidence in the public councils; on the industry and morals of the people, and on the character of Republican Government, constitutes an enormous debt against the States chargeable with this unadvised measure, which must long remain unsatisfied; or rather an accumulation of guilt, which can be expiated no otherwise than by a voluntary sacrifice on the altar of justice, of the power which has been the instrument of it. In addition to these persuasive considerations, it may be observed that the same reasons which shew the necessity of denying to the States the power of regulating coin, prove with equal force that they ought not to be at liberty to substitute a paper medium in the place of coin.  . . . The power to make any thing but gold and silver a tender in payment of debts, is withdrawn from the States, on the same principle with that of striking of paper currency.

The mainstream media does not spend enough time exposing the inflation that impacts most of us.  It is a cruel hoax on retired people who contributed for decades to Social Security to be told that the cost of living on which their retirement payments are indexed exclude food and energy.  The pretext is that these two items are too volatile.  But the facts are that inflation overall, especially in these two areas, is  increasing. See http://www.zerohedge.com/article/quick-glance-real-world-inflation.

Understand what is going on, folks.  Protect yourselves and your own.  Be alert, be nimble and be quick.  You are amongst predators from every imaginable direction.

The Military Ethic

Douglas MacArthur was arguably one of the greatest Generals in history.  Even though his wars were not wars of aggression, he ranks strategically with Napoleon, Julius Caesar, Alexander and Genghis Khan.  And, he was a master of public relations. His successes in the face of great odds, his personal charisma and his way with the press corps made him a popular figure back home.  And he was a wise leader, even in government assignments:  As governor of Japan after the War, he demonstrated a model for nation-building that the U.S. administrators in Iraq have ignored at their peril.

In a speech at West Point in 1962, he lectured the Cadets about their role as military officers, cautioning them to stick to their knitting and avoid participating in controversies that were the province of the civilian leaders:

. . . your mission remains fixed, determined, inviolable—it is to win our wars. Everything else in your professional career is but a corollary to this vital dedication. All other public purposes, all other public projects, all other public needs, great or small, will find others for their accomplishment; but you are the ones who are trained to fight; yours is the profession of arms—the will to win, the sure knowledge that in war there is no substitute for victory; that if you lose, the nation will be destroyed; that the very obsession of your public service must be Duty—Honor—Country. Others will debate the controversial issues, national and international, which divide man’s minds; but serene, calm, aloof, you stand as the nation’s war guardian, as its lifeguard from the raging tides of international conflict; as its gladiator in the arena of battle. For a century and a half, you have defended, guarded, and protected its hallowed traditions of liberty and freedom, of right and justice. Let civilian voices argue the merits or demerits of our processes of government; whether our strength is being sapped by deficit financing, indulged in too long; by federal paternalism grown too mighty; by power groups grown too arrogant; by politics grown too corrupt; by crime grown too rampant; by morals grown too low; by taxes grown too high; by extremists grown too violent; whether our personal liberties are as thorough and complete as they should be. These great national problems are not for your professional participation or military solution. Your guidepost stands out like a tenfold beacon in the night—Duty—Honor—Country.

A decade before, after more than half a century of active duty, the very popular five-star General was fired from his final military post and retired by the President of the United States because MacArthur publicly challenged the President's decision on the strategy for the Korean War.  What was he thinking!? History will likely conclude that he took a risk on the chance that his strategy was correct and that it ultimately would be adopted.  (The strategy was to create a nuclear hot zone by exploding nuclear bombs across the northern border of Korea to block a Chinese invasion.)

A very important ethic exists in the United States military -- that the military is subject to absolute civilian control by virtue of the President's position of Commander in Chief of the armed forces, a circumstance implicitly recognized by MacArthur's comments in 1962.  While the President's role can be abused by inexpert micromanagement, such as Lyndon Johnson's making tactical decisions during the Vietnam War, that is the President's prerogative -- and he will be held accountable by the people, as was President Johnson.

Which brings us to the current indiscretion of General McChrystal.  The military academies teach moral lessons using many techniques --  the case method, strategic studies, essays and counsel of iconic leaders, poems, and quotations such as "Where principle is involved, be deaf to expediency" and "Discretion is the better part of valor."  General McChrystal seems to have failed to balance the latter two with the notion that he is subordinate to the Commander in Chief.  As a junior officer, he would not have dared to publicly challenge his military superiors as he did with his Commander in Chief.  It is no different now that he has four stars on his shoulders.  What was he thinking!?

While as a citizen I might disagree with the U.S. government's decisions to send our troops into Iraq and Afghanistan, I strongly support the important principle that the elected representatives of the people, within their Constitutional limitations, should control the federal military, who should salute smartly and say, "Yes sir!"

As I write, General McChrystal is on his way to Washington to face his Commander in Chief. If he is worthy of his four stars, he will retire forthwith.  And then he can criticize the President's decisions, as I do, but not before.

[Update July 9, 2010]  Paul Hollrah, Senior Fellow at the Lincoln Heritage Institute provides an answer to the question, "What was he thinking!?"  See The General and the Community Organizer.

AIG Bailout Avoided 25% Unemployment?

Henry Paulson in testimony before a House Committee today asserted that the bailout of AIG avoided 25% unemployment.  While that remains to be seen, as unemployment is still rising, Paulson's statement reminds me of the ridiculous "jobs saved and created" scam that the Administration tried but subsequently withdrew.

Democratic Congressman Stephen Lynch was more credible when he chewed out Treasury Secretary Geithner for the AIG bailout because Geithner failed to represent the American people.  He compared the Bear Sterns bailout, in which the shareholders of Bear Sterns received only 2% on the dollar, while Goldman Sachs, AIG's counterparty in credit default swaps, received 100% on the dollar.  The implication is that Geithner was trying to secretly funnel as much cash as possible to big Wall Street firms, an implication that finds further support in the Fed's election not to guarantee AIG's credit default swaps.  See Why Did the Fed Board of Governors Nix Guaranteeing AIG's CDS?

But Rep. Lynch is comparing apples to oranges.  The Bear Sterns "bailout" was a shotgun marriage arranged with J.P. Morgan.  It was J.P. Morgan that was bailed out because J.P. Morgan was counterparty to much of Bear Sterns debt.  So the two bailouts are in fact comparable.  Rather than chewing out Geithner for not negotiating a good deal, Rep. Lynch should have chewed him out for failure to be forthcoming about where the money was really going in both cases.

Rep. Lynch's ire is a smokescreen designed to identify a scapegoat.  In their desperation to win public favor, the Dems are throwing Geithner to the wolves.

More Propaganda

As part of the government's continuing efforts to shape public perspectives on the economy, the SEC has proposed to limit short sales.

As Reggie Middleton notes (free registration required), this renewed effort to constrain the free actions of the stock market not only will inhibit the discovery of true equilibrium prices, but will mask activities, such as fraud, that deserve scrutiny.  The SEC is once again demonstrating, as it has done in its continuing conscious failure to prosecute Paulson, Bernanke, and Geithner, that it is just another tool of the Obama Administration's propaganda machine, rather than the independent entity that it purports to be.

Simple, Straightforward, Succinct

The Cato Institute just posted on Facebook a 10-point Libertarian suggestion for the State of the Union Address:

1. Abandon Obamacare
2. Forget Cap and Trade
3. Reject Card Check Bill
4. Withdraw from Iraq and Afghanistan
5. Legalize Drugs
6. Scrap tax code and replace with flat tax.
7. Expand free trade and immigration.
8. Stop bailouts
9. Cut spending
10. Cut spending
BONUS - Cut spending

 For those who prefer bullet points instead of lengthy dialog, there you have it.

The Gods of the Copybook Headings

There was an op-ed by Bret Stephens in the Wall Street Journal today entitled "A God of the Copybook Headings" in which the Author discussed Wall Street Journal editor George Melloan:

[A]s George Melloan reminds us in "The Great Money Binge: Spending Our Way to Socialism," just as bad ideas never quite go out of fashion, neither do good ones. Readers looking for an antidote to this season's political gloom will find more than the full dose in this splendid book.

Mr. Melloan was, of course, the writer of this column for many years, one of the labors in a career at the Journal that spanned 54 years as a reporter, editor and commentator. Among the benefits of a long career is a long memory and an imperviousness to intellectual fads. In Kipling's terms, he is one of the Gods of the Copybook Headings—the unfashionable keepers of hard truths about which we must occasionally be reminded.

In Kipling's day, a copybook was a book which students used to practice penmanship.  The book comprised a series of blank, usually lined pages each of which was headed by a maxim or proverb that the student was expected to copy.  The maxims and proverbs preached common sense and reality.

The current unreal behavior of the politicians in Washington has sparked a number of commentaries referring to and quoting the poem.

This from Lisa Shifferin, writing for the National Review Online:

Alas, I seem to have dour temperament of a liberal to go with conservative convictions. So from me you get Rudyard Kipling, explaining here why, even if we lose today, even if our worst fears of impending socialism and apocalyptic doom descend upon the land of the free, the eternal realities of life will bring us back to basics.

 And from NRO's John Derbyshire, "Reality doesn't go away just because you stop believing in it."

Please enjoy the poem, linked here, and take comfort in the inevitable truth that if you ignore reality, the truth will come back to bite you.

State of the Union: Not Good

Nathan's Economic Edge in a post called "The State of the Union - in charts" has compiled a series of charts from the Federal Reserve and the Bureau of Labor Statistics that is quite revealing. See http://economicedge.blogspot.com/2009/12/state-of-union-in-charts.html Read Nathan's post. His comments are instructive. You can scroll through the charts more easily on these pages:  (Banking and Labor).

The state of the Union is not so good.

The stock market apparently believes that we have started a recovery and that the future will be better. But history reveals a pattern that might predict a another downturn in the economy. See the Morgan Stanley article linked by Nathan: "Here comes a brutal 2010" (http://www.businessinsider.com/morgan-stanley-here-comes-a-brutal-2010-2009-11#when-will-tightening-occur-when-jobless-claims-hit-the-350k-400k-level-5) Morgan Stanley's prediction is based on the notion that the Fed, after goosing the economy with low interest rates and easy money to move things out of a recession, always tightens money and credit and raises interest rates once the economy starts to pull out. And that is exactly what Ben Bernanke has signaled that the Fed would do. See, e.g., http://www.forbes.com/2009/08/10/federal-reserve-policy-business-oxford.html

However, this is not a typical recession and recovery and there are some good reasons why the Fed might not tighten any time soon.

The economy is in a very fragile condition. Banks, especially, are in bad shape and it could take years for them to get healthy. (Their balance sheets do not show how bad because the Financial Accounting Standards Board has recanted their proposal to make banks mark their bad loans and securities to market value -- so many banks are hiding insolvency.) The banks consequently are conserving their reserves and are not yet lending, impeding the Fed's plans to print their way out of a deflation. And another wave of defaults in home commercial real estate loans is fast approaching. Consumers have adopted, perhaps permanently, a new, prudent approach to personal finance, reducing their use of credit. Easy money from home equity loans, taken out on constantly rising real estate values, is gone forever. Deflation remains a serious problem for an economy that was based on easy credit. And it will take time for businesses to adjust to a new paradigm in which they will have to fund much of their growth from earnings and what credit they do receive will be based on a higher standard of financial wherewithal.

Businesses will suffer whose sales depend on consumer discretionary spending and spending that can be postponed, which includes almost all businesses. Those businesses which provide essential goods and services will suffer less, but they also will suffer as consumers turn down the heat and shop more carefully for food bargains and otherwise seek ways to economize.

There is also the problem of the politicization of the Federal Reserve System. Ben Bernanke seems to have been more responsive than his predecessors to the political winds that blow and he does not appear to have the will to oppose them. And the passage of a bill that would explicitly make the Fed more politically responsive means that the Fed will not be able to independently act to tighten money and threaten a recovery when the time to make hard decisions comes. Even if the bill does not become law, the mere threat that the Congress can reduce the Fed's independence, is sufficient to make the Fed more politically responsive. And while some predict a robust recovery, that does not mean the Fed will raise interest rates any time soon. See http://www.bloomberg.com/apps/news?pid=20601087&sid=a7yHrrr_Vklo&pos=4 And that is why the stock market has not yet dropped in anticipation of another downturn in the economy. The market believes that the recovery will continue but others do not. See http://globaleconomicanalysis.blogspot.com/2009/12/yield-curve-steepest-since-1980-hard.html.

And all of this ignores the international scene. See http://globaleconomicanalysis.blogspot.com/2009/12/eu-ready-to-bailout-greece-debt.html.

Is there any way out of this mess? Maybe. This fellow thinks that there is no alternative than resurrecting the gold standard: http://www.washingtonexaminer.com/opinion/columns/OpEd-Contributor/Interest-increases-central-to-looming-debt-crisis-8648650-79004147.html

Many say that there is not a practical way to return to the gold standard. But others have plotted a course to do so. The biggest problem is persuading the population that there really isn't a way to have your cake and eat it too. Some day, somehow, everything has to be paid for from real wealth, not printed paper.

Climategate

For years we have known that some members of the scientific community who receive government funds have pursued a political agenda and suppressed an objective appraisal of the influence of man's activities on the climate.  But clear, hard evidence of their bias did not achieve widespread public notice until this month when a hacker penetrated the computers of the Climate Research Unit and published the dirty details.  The CRU e-mails, which have been verified as authentic, confirm a scandal of science that rivals the suppression of Galileo.  Despite much of the main stream media's attempt to ignore the issue, the fallout thus far has been significant.  Here are a few of the comments and reports identified by Robert Bidinotto, Breitbart and the Drudge Report:

• Climate change: this is the worst scientific scandal of our generation
• Climate Emails: Science and Candor - WSJ.com
• Cooking the Books on Climate
• Rigging a Climate 'Consensus'
• Environmentalists in Denial Over CRU E-Mails
• The Deleted Data from the "Hide the Decline" Trick
• CRU's Source Code:  Climategate Uncovered
• Uh, oh – raw data in New Zealand tells a different story than the “official” one.
  
• Climategate e-mails sweep America, may scuttle Barack Obama’s Cap and Trade laws
• Climategate: five Aussie MPs lead the way by resigning in disgust over the carbon tax

Even those who believe that objective evidence supports the notion that mankind's commercial activities are altering the climate deplore the suppression of opposing views.  See Pretending the climate email leak isn't a crisis won't make it go away.

But President Obama, Al Gore and others continue pretend that the e-mails and evidence of doctored statistics have not surfaced. And they continue their efforts to create expensive systems of government constraints on commercial activity using global warming climate change as a pretext.  Gore is explicit in his anti-capitalist objectives: " . . . we have placed too great an emphasis on outdated modes of distilling economic value," citing Joseph Stiglitz's work in the Report by the Commission on the Measurement of Economic Performance and Social Progress.  (As I revealed earlier, Stiglitz confuses "capitalism" with a corporatist/fascist economy, which he believes needs more regulation.)  Gore's motives are more nefarious.  He is out to both line his own pockets and facilitate global governance, the ultimate consequence of which would be to supplant the form of government bequeathed to us by our forefathers with an omnipotent superstate. 

The cast of characters supporting the increasingly shrill cries of alarm about global warming climate change, alone, is sufficient to raise questions about the motivations of those who assert that "science" justifies relinquishing the beneficence that free enterprise bestows on us.  The biggest question is why, when climate change is a phenomenon that occurs over centuries, millennia and eons, is there is such an all-fired rush to diminish and dismantle mankind's progress?

Going Rogue

No, this is not about Sarah Palin's Book.  It's about the United States Congress.

As if cap and trade, perpertual bailouts and nationalization of everything from health care to General Motors were not enough, the usual suspects, Barney Frank and Christopher Dodd, are proposing to give a new regulatory agency sweeping powers to regulate non-bank financial activity in the name of avoiding "systemic risk."  Please read Peter J. Wallison's  The Permanent TARP in the Wall Street Journal.   [Update 11/23/09: Also see No Bondholder Left Behind.] 

Clearly, the Congress is out of control.

We are staring straight down the barrel of a paradigm shift -- from the age of caveat emptor, due diligence, prudence and personal responsibility to the age of government paternalism, bailouts, and shifting the cost of an individual's misfortune, stupidity and vice to his neighbors.  Despite the many voices objecting to their creation, the Congress and its willing accomplices in the Administration proceed deliberately to institutionalize moral hazards at a pace that would have been unthinkable a decade ago. 

This is not what the people who pay the bills and vote want.  Consider the following letter, which was apparently sent to Glen Beck, now circulating around the internet:

GLENN BECK: I got a letter from a woman in Arizona . She writes an open letter to our nation's leadership:


"I am a home grown American citizen, 53, registered Democrat all my life. Before the last presidential election I registered as a Republican because I no longer felt the Democratic Party represents my views or works to pursue issues important to me. Now I no longer feel the Republican Party represents my views or works to pursue issues important to me. The fact is I no longer feel any political party or representative in Washington represents my views or works to pursue the issues important to me. Instead, we are burdened with Congressional Dukes and Duchesses who think they know better than the citizens they are supposed to represent.

There must be someone. Please tell me who you are. Please stand up and tell me that you are there and that you're willing to fight for our Constitution as it was written. Please stand up now.

You might ask yourself what my views and issues are that I would feel so horribly disenfranchised by both major political parties. What kind of nut-job am I? Well, these briefly are the views and issues for which I seek representation:

One, illegal immigration. I want you to stop coddling illegal immigrants and secure our borders. Close the underground tunnels. Stop the violence and the trafficking in drugs and people. No amnesty, not again. Been there, done that, no resolution. P.S., I'm not a racist. This is not to be confused with legal immigration.

Two, the STIMULUS bill. I want it repealed and I want no further funding supplied to it. We told you No, but you did it anyway. I want the remaining unfunded 95% repealed. Freeze, repeal.

Three: Czars. I want the circumvention of our constitutional checks and balances stopped immediately.. Fire the czars. No more czars. Government officials answer to the process, not to the president. Stop trampling on our Constitution, and honor it.

Four, cap and trade. The debate on global warming is not over. There are many conflicting opinions and it is too soon for this radical legislation. Quit throwing our nation into politically-correct quicksand.

Five, universal healthcare. I will not be rushed into another expensive decision that will burden me, my children, and grandchildren. Don't you dare try to pass this in the middle of the night without even reading it. Slow down! Fix only what is broken -- we have the best health care system in the world -- and test any new program in one or two states first.

Six, growing government control. I want states rights and sovereignty fully restored. I want less government in my life, not more. More is not better! Shrink it down. Mind your own business. You have enough to take care of with your real [Constitutional] obligations. Why don't you start there.

Seven, ACORN. I do not want ACORN and its affiliates in charge of our 2010 census. I want them investigated. I also do not want mandatory escrow fees contributed to them every time on every real estate deal that closes -- how did they pull that one off? Stop the funding to ACORN and its affiliates pending impartial audits and investigations.. I do not trust them with taking the census with our taxpayer money. I don't trust them with any of our taxpayer money. Face up to the allegations against them and get it resolved before taxpayers get any more involved with them. If it walks like a duck and talks like a duck, hello. Stop protecting your political buddies. You work for us, the people. Investigate.

Eight, redistribution of wealth. No, no, no. I work for my money. It is mine. I have always worked for people with more money than I have because they gave me jobs -- and that is the only redistribution of wealth that I will support. I never got a job from a poor person! Why do you want me to hate my employers? And what do you have against shareholders making a profit?

Nine, charitable contributions. Although I never got a job from a poor person, I have helped many in need. Charity belongs in our local communities, where we know our needs best and can use our local talent and our local resources. Butt out, please. We want to do it ourselves.

Ten, corporate bailouts. Knock it off. Every company must sink or swim like the rest of us. If there are hard times ahead, we'll be better off just getting into it and letting the strong survive. Quick and painful. (Have you ever ripped off a Band-Aid?) We will pull together. Great things happen in America under great hardship. Give us the chance to innovate. We cannot disappoint you more than you have disappointed us.

Eleven, transparency and accountability. How about it? No, really, how about it? Let's have it. Let's say we give the buzzwords a rest and have some straight honest talk. Please stop trying to manipulate and appease me with clever wording.. I am not the idiot you obviously take me for. Stop sneaking around and meeting in back rooms making deals with your friends. It will only be a prelude to your criminal investigation. Stop hiding things from me.

Twelve, unprecedented quick spending. Stop it now.

Take a breath. Listen to the people. Slow down and get some input from nonpoliticians and experts on the subject. Stop making everything an emergency. Stop speed-reading our bills into law. I am not an activist. I am not a community organizer. Nor am I a terrorist, a militant or a violent person. I am a parent and a grandparent. I work. I'm busy. I am busy, and I am tired. I thought we elected competent people to take care of the business of government so that we could work, raise our families, pay our bills, have a little recreation, complain about taxes, endure our hardships, pursue our personal goals, cut our lawn, wash our cars on the weekends and be responsible contributing members of society and teach our children to be the same all while living in the home of the free and land of the brave.

I entrusted you with upholding the Constitution. I believed in the checks and balances to keep from getting far off course. What happened? You are very far off course. Do you really think I find humor in the hiring of a speed reader to unintelligently ramble all through a bill that you signed into law without knowing what it contained? I do not.

It is a mockery of the responsibility I have entrusted to you. It is a slap in the face. I am not laughing at your arrogance. Why is it that I feel as if you would not trust me to make a single decision about my own life and how I would live it but you should expect that I should trust you with the debt that you have laid on all of us and our children. We did not want the TARP bill. We said no. We would repeal it if we could. I am sure that we still cannot. There is needless urgency and recklessness in all of your recent spending of our tax dollars.

From my perspective, it seems that all of you have gone insane. I also know that I am far from alone in these feelings. Do you honestly feel that your current pursuits have merit to patriotic Americans? We want it to stop. We want to put the brakes on everything that is being rushed by us and forced upon us. We want our voice back. You have forced us to put our lives on hold to straighten out the mess that you are making. We will have to give up our vacations, our time spent with our children, any relaxation time we may have had and money we cannot afford to spend on bringing our concerns to Washington . Our president often knows all the right buzzwords like unsustainable. Well, no kidding. How many tens of thousands of dollars did the focus group cost to come up with that word? We don't want your overpriced words. Stop treating us like we're morons.

We want all of you to stop focusing on your reelection and do the job we want done, not the job you want done or the job your party wants done. You work for us and at this rate I guarantee you not for long because we are coming. We will be heard and we will be represented.. You think we're so busy with our lives that we will never come for you? We are the formerly silent majority, all of us who quietly work, pay taxes, obey the law, vote, save money, keep our noses to the grindstone... and we are now looking at you.

You have awakened us, the patriotic freedom spirit so strong and so powerful that it had been sleeping too long. You have pushed us too far. Our numbers are great.. They may surprise you. For every one of us who will be there, there will be hundreds more that could not come. Unlike you, we have their trust. We will represent them honestly, rest assured. They will be at the polls on voting day to usher you out of office.

We have cancelled vacations. We will use our last few dollars saved. We will find the representation among us and a grassroots campaign will flourish. We didn't ask for this fight. But the gloves are coming off. We do not come in violence, but we are angry. You will represent us or you will be replaced with someone who will. There are candidates among us who will rise like a Phoenix from the ashes that you have made of our constitution.

Democrat, Republican, independent, libertarian. Understand this. We don't care.. Political parties are meaningless to us Patriotic Americans are willing to do right by us and our Constitution, and that is all that matters to us now. We are going to fire all of you who abuse power and seek more. It is not your power. It is ours and we want it back. We entrusted you with it and you abused it. You are dishonorable. You are dishonest. As Americans we are ashamed of you. You have brought shame to us. If you are not representing the wants and needs of your constituency loudly and consistently, in spite of the objections of your party, you will be fired. Did you hear? We no longer care about your political parties. You need to be loyal to us, not to them.. Because we will get you fired and they will not save you.

If you do or can represent me, my issues, my views, please stand up. Make your identity known. You need to make some noise about it. Speak up. I need to know who you are. If you do not speak up, you will be herded out with the rest of the sheep and we will replace the whole damn congress if need be one by one. We are coming. Are we coming for you? Who do you represent? What do you represent? Listen. Because we are coming.

We the people are coming."

Time to Shrug?

Peggy Noonan, who writes on the opinion page of the Wall Street Journal online, today posted a thoughtful article entitled "We're Governed by Callous Children."  The article is well-worth reading.  The following portion of her article was especially interesting:

And so the disheartenedness of the leadership class, of those in business, of those who have something. This week the New York Post carried a report that 1.5 million people had left high-tax New York state between 2000 and 2008, more than a million of them from even higher-tax New York City. They took their tax dollars with them—in 2006 alone more than $4 billion.

You know what New York, both state and city, will do to make up for the lost money. They'll raise taxes.

I talked with an executive this week with what we still call "the insurance companies" and will no doubt soon be calling Big Insura. (Take it away, Democratic National Committee.) He was thoughtful, reflective about the big picture. He talked about all the new proposed regulations on the industry. Rep. Barney Frank had just said on some cable show that the Democrats of the White House and Congress "are trying on every front to increase the role of government in the regulatory area." The executive said of Washington: "They don't understand that people can just stop, get out. I have friends and colleagues who've said to me 'I'm done.'" He spoke of his own increasing tax burden and said, "They don't understand that if they start to tax me so that I'm paying 60%, 55%, I'll stop."

He felt government doesn't understand that business in America is run by people, by human beings. Mr. Frank must believe America is populated by high-achieving robots who will obey whatever command he and his friends issue. But of course they're human, and they can become disheartened. They can pack it in, go elsewhere, quit what used to be called the rat race and might as well be called that again since the government seems to think they're all rats. (That would be you, Chamber of Commerce.) 

The sales of Atlas Shrugged remain high after more than 50 years.  Ayn Rand intended the book as a warning, so that the conditions compelling the producers, carrying the world on their shoulders, to shrug would not happen.  The import of the book now is that those who have read it understand and recognize that it is already happening.  Whether they can be energized by Ayn Rand's message to turn the tide remains to be seen.

Soon, very soon, those of us who have struggled for decades to fight off tyranny and exploitation will simply vanish (poof! -- like that!), flip hamburgers like Hugh Akston, or retire to our fishing boats and no longer build our wealth that incidentally supports "society."

So I have a question for Barack Obama, Harry Reid and Nancy Pelosi:  I am a rich guy who produces, who generates beau coups jobs and creates wealth for myself and others.  What are you going to do when I and my kind decide that it isn't worth it any more to suffer your crap, to give you any kind of sanction to steal from me?

Corruption of Rights

Welfare rights, animal rights, health care rights, and, now, a "right to housing." If we are not careful to call people out when they misuse the term "rights," the term will cease to be useful for its original meaning and our real rights will become fair game for demagogues and tyrants.

Even this self-styled progressive emergency room physician recognizes the dangerous trend to corrupt the language:

Fellow bleeding heart (and shyster) JimII said it well in the comments the other day: rights are limitations on government power. Exactly. When we use the language of "rights," we are generally discussing very fundamental liberties, which are conferred on us at birth, and which no government is permitted to take away: free speech; religion and conscience; property; assembly and petition; bodily self-determination; self-defense, and the like. Freedoms. Nowhere in that list is there anything which must be given to you by others. These are freedoms which are yours, not obligations which you are due from somebody else. There is no right to an education, nor to a comfortable retirement, nor to otherwise profit by the sweat of someone else's labor.

Even though I disagree with the fellow's politics and some of his opinion, especially his comment about Objectivists' being hopelessly muddled (follow the link he provides and decide for yourselves), the entire post is worth reading.  Also see David Kelley's work on this subject, A Life of One's Own and "Is There a Right to Health Care?"

Where is the Inflation?

With so much money-printing at the Federal Reserve, one wonders.    Professor Alan H. Meltzer has some explanations in his Wall Street Journal op-ed, "Preventing the Next Financial Crisis :"

Many market participants reassure themselves that inflation won't come by noting the decline in yields on longer-term Treasury bonds and the spread between nominal Treasury yields and index-linked TIPS that protect against inflation. They measure expectations of higher inflation by the difference between these two rates, and imply long-term investors aren't demanding higher interest rates to protect themselves against it. But those traditional inflation-warning indicators are distorted because the Fed lends money at about a zero rate and the banks buy Treasury securities, reducing their yield and thus the size of the inflation premium.

Further, the Fed is buying massive amounts of mortgages to depress and distort the mortgage rate. This way of subsidizing bank profits and increasing their capital bails out these institutions but avoids going to Congress for more money to do so. It follows the Fed's usual practice of protecting big banks instead of the public.

He states what many economists know:  Public perceptions are being manipulated by government intervention in and influence over a variety of markets.  The results (suppressed prices in this case) are not substantive and fundamental.  Rather, they postpone the day of reckoning.

Still No Outrage

Mike ("Mish") Shedlock, whose site, "Mish's Global Economic Analysis," is linked below in the left column, has been discussing the origins of the financial crisis for years in strong terms.  He now asks, "Where the Hell is the Outrage?" in which he identifies the principal culprits and summarizes the cases against them.

Please revisit my July 2008 post, "How Can They Do This??!!" in which I submitted James Grant's answer to Shedlock's question and suggested that they can do this because you let them.

I agree with Mish that these people are criminals and wonder where are the indictments.

Crisis, Emergency and Devastation

"It is no exaggeration to say that unless we act, [health care] costs will devastate the U.S. economy," President Obama asserted yesterday in his weekly address.  When the government leaders apply such rhetoric, either there is an actual and obviously immediate emergency, or there is not.  If the alleged problem is not imediate, you should be almost as worried as you would be if there were a real emergency.  Why?  Because the government is preparing to move immediately on an issue that requires deliberation and debate and they wish to avoid any studious evaluation of what they are up to.

Emergency power is something we identify with the two-bit banana republic dictators who regularly "suspend the Constitution" when faced with dissent.  There everything becomes an emergency with the fate of the nation at stake -- like when when the Hilton will not let the Presidente use the premises for a conference (just nationalize the hotel).

In the U.S.  it is not so easy to suspend the Constitution.  More subtle measures are necessary to circumvent the charter developed by the founders.  Yet it its done.  The time proven measure to avoid Constitutional constraints is to argue that the Congress can do anything that is not expressly forbidden in the Constitution -- despite the fact that the 10th Amendment reserves to the states and the People all of the powers that are not expressly granted in the Constitution.  The power granted the Federal government "to regulate commerce among the several states," originally intended to assure free movement of trade between the states, has morphed into the power to control all commerce, and commerce touches almost everything.  And the Constitutional power to enact any laws "necessary and proper" to support the other powers granted by the Constitution has been used as the back door to justification for all sorts of legislation that has only an arguably tenuous connection to any power enumerated by the Constitution.  Thus, rather than suspend the Constitution, Presidents and legislators alike simply argue that the Constitution authorizes their action.  That is how they rationalize an omnipotent United States government.

Those in power realize that if they can enact legislation, it is especially difficult to repeal.  And in the case of entitlements programs, it is well-nigh impossible to undo.  Moreover, under today's Constitutional jurisprudence, it is even more difficult to get the legislation struck down in its entirety by the courts.  The only real threat to the designs of omnipotent government here is opposition by the voters before legislation is enacted.  And the way to avoid that threat is to treat the voters like mushrooms (keep them in the dark and feed them cow manure), and to move fast before the voters realize what is happening.  So, it is an emergency.  Earth altering consequences will occur.  Populations will be wiped out.  The economy will be destroyed.  The government is all-powerful; they should dooo something -- quick!

Here are some examples:


The Health Care Crisis:

One wonders why, after more than 200 years as a republic built on individual rights, we are just now realizing that government mandated health care is an "right"?  Why, now, is it such an emergency that 15% of the economy needs to be set on the inevitable road to nationalization? Why is it such an emergency that Congressional leaders oppose giving Congressmen and the public 72 hours to read legislation before calling for a vote?  Why was it such an emergency that the leaders of Congress strove mightily to ram through an unread 1000 page bill only a few days after its introduction?

The real emergency was that the Congress and the Administration all knew that if the American people had time to understand what was really being done to them, a majority of the voters (those whose wealth was being redistributed) would oppose what the lawmakers were doing.   Fortunately, the tactics attempted by the Congressional leaders to eliminate due deliberation about health care legislation failed.  And we now are beginning, after careful and public analysis, to understand the logical consequences of the legislation being proposed.

And who caused the so-called problems with the health care system in the first place?  Who placed an army of bureaucrats and clerks between doctor and patient and caused the individual to become disconnected from the cost of his own care?  Who is forcing hospitals to take people into their emergency rooms who will not pay?  Who has allowed a legal system that encourages medical malpractice suits and causes doctors to take extreme and costly measures to protect their reputations?

The proponents of change do not appear to have studied the reality of the "high cost of health care" in the U.S.   Some of the costs reflect beneficial contributions to the quality of health care (See "Health Care Mythology").  Perhaps as advocates for a certain result, they conveniently overlook these separate elements in the overall health care costs.


Global Warming

The proponents of global governance and those who see an opportunity to line their own pockets with a new government tax and bureaucratic system, have attempted to create a panic about global warming (now called climate change because no one could see any warming), rushing to draw conclusions from pseudoscience and theories about data that support a variety of conflicting conclusions, none of which seem to establish scientifically that reduction of industrially-created carbon dioxide will have any significant influence to cause the climate to remain the way it is now.  The viciousness with which scientists who disagree with the proposed government control are attacked smacks of postmodernist tactics, which are used when a proponent knows he cannot prove his case by civil discussion and debate.


The Credit Crisis

You have read enough on this blog and its links to the commentaries of others to know that the so-called credit crisis is a circumstance that was caused by The Creature from Jekyll Island and other monsters and policies created and imposed by the Federal government, described in detail here.  The debacle which the Bush Administration predicted would happen unless they were given a blank check to bail out anyone without oversight was one that should have been allowed as a catharsis to purge the financial system of toxic assets and practices.  Instead, we have zombie banks and a central bank that now has toxic assets on its own books, circumstances that guarantees low real economic growth for a decade or more.  The "crisis," which was an economic event that should have been left alone to cure itself quickly, has instead been used to justify the nationalization of all sorts of private businesses. 


The Next Crisis:  The Swine Flu Pandemic?

To defend the right of individual citizens not to be subjected to outside exposure to disease, governments legitimately have a public health function.  Part of the proper implementation of that function is to be a competent gatekeeper at the nation's borders.  The U.S. government in the enforcement of its immigration laws has not been adequate.  As in earlier cases like the bird flu, U.S. public health officials have taken the usual precautions thus far, even though U.S. Homeland Security has declared an emergency.  A serious epidemic is always a possibility, and stringent public health measures, such as quarantine and government school closings might be necessary.  But look out:  the people populating the Obama administration are well schooled in the technique of capitalizing on real emergencies to expand government powers far beyond what is absolutely necessary to deal with the emergency and to integrate the new-found powers permanently into the fabric of government.  [UPDATE 12/5/09:  See Swine Flu Hoax Exposed:

The majority of the world's population refuses to take the swine flu vaccine. The climategate scandal and hacked emails proving that climate change is a hoax and the realization that those in power are totally corrupt and tyrannical has led to the massive awakening throughout the planet that has the scumbag elite shaking in their boots. People all over the world are shattering the left/right paradigm and realizing that both parties are controlled by the same corporate interests and the same global elite who have the objective for a totalitarian one world government. The people are waking up and reclaiming their individual sovereignty, freedom and taking back their own personal power refusing to sit idly by while their liberties are being stripped away day by day by those who consider us their slaves.

Examples from Earlier Times

From almost the beginning of the Republic a titanic struggle has been waged between those who wanted limited government and those who felt that government could make decisions for citizens better than the individuals could make for themselves.  The people thought that the words in the Constitution would protect them; but history shows that eternal vigilance, not words on paper, is the price of liberty.  Here are just two historical examples of significant power grabs in an emergency.

The Tonkin Gulf Resolution

The Congressional Resolution that effectively enabled Lyndon Johnson to undertake a war in Vietnam, was justified by the attack by 4 North Vietnamese patrol boats on a U.S. destroyer, which was damaged  by "a single 14.5-millimeter machine gun bullet."  No Declaration of War, as required by the Constitution, was ever passed by the Congress.  Ultimately, over 58,000 American troops died in the conflict, which ended with the total withdrawal of American troops from Vietnam.


FDR's Confiscation of Gold from All U.S. Citizens

From Confiscation and The Gold Clause:

"Even knowing that it actually happened, it still is almost unthinkable that the United States government would nationalize the personal assets of its citizens, give paper in exchange at 60% of the value of the assets - and book a profit. The public begrudgingly recognizes that the government can take private property as long as the taking is accomplished by due process (such as an eminent domain proceeding) and the owner receives just compensation. However, we expect those cases to be relatively isolated and infrequent. In 1933, the U.S. government devalued the dollar by 40% in less than eight months, but not before it ordered a docile population to exchange their gold for paper and banned gold ownership and transactions in gold to keep citizens from escaping the devaluation. The combined actions operated as a confiscation of the property of every citizen, all at once, with no compensation."

 ***

Apparently working behind the scenes with the Fed, knowing that he could very quickly secure the legal support from the Democrat Congress, he declared a bank holiday on March 6, 1933, two days after his inauguration. (Proclamation No. 2039). Three days later, without seeing the bill and with only 38 minutes of debate, Congress ratified the new President's Proclamation in the Emergency Banking Act, 48 Stat. 1, and amended section 5(b) of the Trading with the Enemy Act to read as follows:

(b) During time of war or during any other period of national emergency declared by the President, the President may, through any agency that he may designate, or otherwise investigate, regulate, or prohibit, under such rules and regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange, transfers of credit between or payments by banking institutions as defined by the President, and export, hoarding, melting, or earmarking of gold, or silver coin or bullion or currency, by any person within the United States or any place subject to the jurisdiction thereof; and the President may require any person engaged in any transaction referred to in this subdivision to furnish under oath, complete information relative thereto, including the production of any books of account, contracts, letters or other papers, in connection therewith in the custody of or control of such person, either before or after such transaction is completed. Whoever willfully violates any of the provisions of this subdivision or of any license, order, rule or regulation thereunder, shall, upon conviction, be fined not more than $10,000, or, if a natural person, may be imprisoned for not more than ten years, or both; and any officer, director, or agent of any corporation who knowingly participates in such violation may be punished by a like fine, imprisonment, or both. As used in this subdivision the term 'person' means an individual, partnership, association, or corporation. [Emphasis added.]

Thus, what was solely a wartime measure that many believed had expired was converted into a statute granting war time powers to the President in times of "national emergency," a term which was not defined in the law (and which, if such an emergency existed in 1933, itself had been precipitated by government mismanagement). This law identified a new "enemy" - domestic "hoarders" who would be subject to imprisonment for violating any rule laid down by the President at any future time during a period of national emergency declared by him based on undefined criteria. Professor Henry Mark Holzer's monograph "How Americans Lost Their Right To Own Gold And Became Criminals in the Process" catalogues the events of 1933, and more.

Since Thomas Jefferson first lost the debate with Alexander Hamilton over the use of the Necessary and Proper clause, it seems that, to a greater or lesser degree, there has been an unrelenting trend toward more government.  It did not start with Bush or Obama.  And it will not end without changing the prevailing attitudes of the voters who accept the role that the government has taken in our lives and the futility of changing that role.   To do nothing is to join them.