Congress Has Reached New Depths of Stupidity

November 28, 2008

November 28, 2008

This week the government reported several statistics that indicate that the $7 trillion Uncle Sam has committed to economic stabilization is having little real effect.  On Wednesday, the Labor Department reported that the four-week average of initial requests for unemployment benefits was at its highest level since January 1983.  The Commerce Department reported that consumer spending plunged by 1 percent in October.  Commerce also reported that orders for big ticket manufactured goods plunged in October by the largest amount in two years.  Orders for durable goods dropped by 6.2 percent which was more than double the decline economists expected.  Lastly, the unemployment rate hit a 14 year high of 6.5 percent.

So, with all of this grave news and the seemingly ineffectiveness of the government to spend our way out of depression, unbelievably Washington with an increased Democratic majority in Congress and a Democratic president-elect is planning a bevy of new pro-union measures when they take office in January.  It is unbelievable because the last thing we need right now, other than a tax increase, is for Washington to increase costs on business.  After all, it is business that is being relied upon to supply the jobs that will eventually lead us to recovery.

What are the measures the new administration is considering imposing on business?  They are essentially the same old left-wing schemes that have been pushed for years.  They include:  mandatory paid sick leave, ergonomics regulations, and expansion of the Family and Medical Leave Act.

These measures that the president-elect and his socialist buddies in the Congress are considering are of course unconstitutional.  This blogger is going to sound like a broken record, but Congress has no authority under Article 1 Section 8 of the U.S. Constitution to legislate benefit packages for workers of private business.  There is a good reason for this.  The founders realized the only way for a people to be truly free was by guaranteeing their economic freedom.  It works both ways – freedom of individuals to use private property as they see fit and freedom of workers to use their labor as they see fit.  Forced regulation puts business at a competitive disadvantage because it usurps the power of the market to make the most efficient decisions possible.  These measures seem just, but how does Congress know what the ramifications will be for the health of American business?  They don’t and remember again that we are relying on business to reinvigorate the economy with jobs.

One thing is certain each of the measures will increase the costs of doing business.  Cost estimates for the ergonomics regulations alone total about $100 billion a year to implement.  The proposal to expand the Family and Medical Leave Act includes small firms and applies to events such as parents attending school conferences with their child’s teacher.  It is naïve to think that businesses can or will simply absorb the increased costs of production due to government regulations.  These costs will be passed on to workers through less job growth and higher prices for products and services.  If Washington truly believes that consumer spending will get us out of our current economic mess then policies that increase business costs will be counterproductive to that effort.

The cornerstone of the pro-union, anti-business measures is the card-check legislation.  Card-check is Obama’s reward to his union supporters like the Department of Education was Jimmy Carter’s reward to the National Education Association’s for their support in 1976.   It would force companies to recognize a union if a majority of its workers signed cards.  This is different from today’s law which requires a month-long campaign ending in a secret vote and would make unionization of a business much easier to attain.  Government meddling in this matter is ridiculously unconstitutional.  Beyond that obvious fact, why is government still supporting a dinosaur whose historical record is filled with hooliganism, and putting whole industries out of business in the U.S. (see steel and automobiles)?  Has Congress learned nothing from its recent study of how the UAW has contributed to the collapse of the Big Three?

It is illegal for Congress to enact the above measures anytime, but is particularly irresponsible for them to do it now while we are headed for a depression.  Having already committed close to $7 trillion of money we do not have to fix our economic problems, now they want to compound our difficulties by placing unreasonable regulations on the sector that is charged with reviving our economy.  Congress has reached new depths of stupidity.


Bankruptcy over Bailout

November 21, 2008

November 21, 2008

Congress is getting so much pressure and hearing so many tall tales these days that it’s akin to unscrupulous telemarketers battering the simple minded to buy their product.  It is getting to the point where Congress will need to pass legislation to protect itself from money grubbing shysters.  First, it was the Paulson/Bernanke Crime Syndicate (their specialty is counterfeiting) that told Congress they needed a cool $700 billion or the sky would collapse on the United States.  Now, it is the poor automobile industry (that just got $25 billion from Congress in October) that needs another $25 billion lest the unemployment rolls in this country will swell by 13 million or 4 million (they haven’t decided on a number yet).  Next month, Congress will probably hear from the airline industry and how it needs billions.  After that, look for the agriculture sector to weigh in and then who knows, cigarette companies?

The fact is, soon there will be no end in sight to the steady stream of industries and groups that will lobby Congress for federal largess unless they put an immediate halt to the giveaways.  Congress has a golden opportunity to do just that right now by saying no to the automobile industry.  No matter what the costs, Congress must say in the words of Roberto Duran “no mas” to billions in bailouts for Detroit. 

For one thing, all of these bailouts are unconstitutional and thus illegal.  Article 1 Section 8 of the U.S. Constitution clearly specifies the powers delegated to Congress.  Nowhere in those roughly 17 powers is Congress given the authority to transfer money from one constituency to another.  Nowhere in there does it say Congress can use the federal Treasury to prevent corporate bankruptcies.  Critics of this position will say, “but what about the general welfare clause in the same section?”   The answer is, if the general welfare clause gives the Congress the power to bailout corporations with taxpayer funds then why did the authors of the Constitution not delineate that power among the 17 powers in that section of the Constitution?  Why did they delineate any powers at all if the general welfare clause includes any power?  According to the general welfare clause logic of the statists, the Congress can do whatever it wants under that one clause.  That is why we are in the mess we are in.

Another reason Congress must put an end to its handouts is because it is investing in losing propositions.  The Big Three automakers are a perfect example.  Their stock has plummeted by 75 percent since the beginning of the year and all three are on the brink of bankruptcy.  If investors are bailing on the Big Three in droves and each has one foot in bankruptcy court and the other on a banana peel, why in the world would our elected representatives even consider putting billions of dollars in them.  Would you?

Of course there is a good reason why the carmakers are collapsing.  Like other industries that have disappeared from the American landscape, the automobile companies have been the victims of collective bargaining laws passed by Washington and the State of Michigan.  It has been estimated that the average GM worker makes $81.80 an hour in wages and benefits.  In comparison, non-union Toyota pays $48 per hour in wages and benefits. The legalized extortion that the UAW is allowed to hold over GM puts the company at a competitive disadvantage costs wise by about $1000 per vehicle produced.

So, if Congress should not bail out these broke companies, then what should be done?  The same fate should befall the automakers that should have befallen the failing banks.  They should be allowed to go bankrupt.  “But they are too big to fail.”  “Many people will lose their jobs, their homes, and their healthcare.”  The bottom line is that the Congress cannot solve our economic problems by throwing good money into unsustainable enterprises.  The more than $2 trillion the government has already injected into the economy has proven that.  Besides, at the right price, entrepreneurs will buy the assets of the bankrupt firms and start a new American auto industry.  There is a market for cars in the U.S. and it is only a matter of time before some American(s) fills that market need.  Then the millions of workers who lost their jobs with the Big Three bankruptcies will have an opportunity to work for a competitive company.

Paulson: Liar or Misfit?

November 14, 2008

November 14, 2008

Hank Paulson is a dirty rotten liar.  In July, along with Fed chairman Bernanke, he assured Congress that Fannie Mae and Freddie Mac were not in danger of failing.  His testimony before Congress was instrumental in getting Congress to approve Treasury Department and Federal Reserve proposals to make sweeping changes to the relationship between the two institutions and the government.  Within 7 weeks, Uncle Sam took over the mortgage giants preventing their inevitable collapse.  Then at the beginning of October, the dynamic duo was swindling Congress again.  This time Paulson and his banker buddy Bernanke told Congress that it had to act quickly and approve a $700 billion package to buy the bad assets (mortgages) of failing Wall Street firms otherwise  America faced calamity – civil unrest, economic collapse, and extinction of our blessed (debt ridden) lifestyle.  This past week Paulson announced that he would use the taxpayer assets not to buy troubled assets as he told Congress in October, but to inject capital into struggling banks by acquiring equity stakes in them.    

Now, perhaps calling Paulson a liar is harsh.  Maybe he just doesn’t know what he is doing.  For instance, in a recent interview on National Public Radio, Paulson said, “I believe the banking system has been stabilized.”  Oh really.  Just this week, Citi Group, one of the biggest financial services companies in the country, indicated that it would cut at least 10,000 jobs.  In October, foreclosures grew 25 percent nationally over the same month in 2007.   Yet to come is the impending auto loan, student loan, and credit card crisis.  Given his track record and the current circumstances it is amazing that anyone even listens to Paulson anymore.

But, there is more.  In his “I changed my mind about how to use the taxpayers $700 billion” speech this week, Paulson indicated that the economy was in better shape than it was two weeks ago.  Again, the facts tell a different story.  The Labor Department reported this week that the number of newly laid-off workers seeking unemployment benefits increased to a seven-year high.  The big three automakers are on the verge of bankruptcy and the mayors of 3 American cities petitioned the federal government to use a portion of the $700 billion Wall Street bailout plan to assist cities with pension costs and cash flow problems.  This news indicates that we are headed in the opposite direction of Paulson’s analysis.

Naturally, through his comments, Paulson is trying to justify his actions in handling the economic crisis to this point.  Here is a summary of Treasury actions since March:

·         $29 billion for Bear Stearns

·         $143.8 billion for AIG (and growing)

·         $100 billion for Fannie Mae

·         $100 billion for Freddie Mac

·         $700 billion for Wall Street, including: Bank of America (Merrill Lynch), Citi Group, JP Morgan (WaMu), Wells Fargo (Wachovia), Morgan Stanley, Goldman Sachs, and others

·         $25 billion for the Big Three in Detroit

·         $8 billion for Indy Mac

·         $150 billion for stimulus package (from January)

·         $50 billion for money market funds

·         $138 billion for Lehman Bros. (post bankruptcy, through JP Morgan)

·         $620 billion for general currency swaps from the Fed

Rough total: $2,063,800,000,000—Two trillion and still spending!


When will the madness end?  The federal government ran a deficit of $237 billion just in the month of October.  It is well on its way to the unthinkable $1 trillion budget deficit by the end of the fiscal year.  All of this money, created out of thin air by the Treasury Department and Federal Reserve with the blessings of Congress, is not stabilizing the markets as Paulson suggests.  It is simply throwing good money at companies that deserve to go bankrupt.  The current economic crisis is proof that debt does matter.  At some point, it has to be paid back.  The U.S. government is bankrupt, but it continues to spend money like a gambling addict in a casino.  Months from now, when the economy is in even more of a mess and we are laden with even more debt, think back to the comments of Hank Paulson.  At that point, it still might be hard to decide if he was lying or simply just didn’t know what he was doing.      

Will Obama “Change” U.S. Foreign Policy?

November 8, 2008

November 8, 2008

The national sham, better known as the 2008 U.S. Presidential Election, is behind us.  24 months and more than $2 billion later, Barack Obama is our new leader.  He ran on a platform of “change”.  To be precise his campaign theme was “Change We Can Believe In”.  Clearly, after eight years of the Bush Administration this mantra appealed to many Americans and with good reason.  But before we get too excited, like many Americans have, about the “change” he will bring to America, let’s look at his first two presidential appointments.  They should certainly put a damper on the idea that things will be different in terms of foreign policy from the new administration.

In his first presidential act, over the summer, Obama chose Senator Joe Biden to be his vice-presidential running mate.  This is the same Joe Biden who had to withdraw from the 1988 presidential race after it was revealed he plagiarized a speech from British Labor party leader Neil Kinnock.  That was a long time ago and everyone is entitled to redemption for past sins.  However, Biden’s most recent positions on foreign policy issues are what is really concerning and perhaps an indication that Obama did not mean change in terms of current U.S. foreign policy.

A quick review of Biden’s foreign policy record in the last ten years reveals that he is as hawkish as some well known Republicans.  In 1999, he joined forces with one such Republican, John McCain (funny how politics does make for strange bedfellows), in the Senate to sponsor the resolution authorizing NATO aggression against Yugoslavia.  This aggression included an 11 week bombardment against Serbia and Montenegro.

Then in 2003, Biden not only voted to give the president authorization to invade Iraq, but he vigorously supported the president’s false claims about WMDs and Saddam’s ties to Osama bin Laden.  As Senate Foreign Relations Committee chairman, he suppressed antiwar testimony to the committee leading up to the attack.

Last year, Biden was a cosponsor (with Senators McCain and Lieberman) of a Senate resolution that called for U.S. support for the independence of the autonomous Serbian region of Kosovo.  He showed his hypocrisy a short time later by lambasting Russia for its liberation of South Ossetia after Georgian troops invaded the autonomous region of Georgia and attacked Russian peacekeepers.  His sharp rebuke of Russia was reminiscent of Cold War days.  In terms of foreign policy, it is ironic that Biden found himself on Obama’s ticket and not McCain’s.  Or perhaps it is a sign that Obama will continue with the failed foreign policy of the Bush Administration.

Obama’s second presidential appointment came just a day after his election victory, with his appointment of Rahm Emanuel as chief of staff.  Rahmbo, as he is known, is also a hawk when it comes to war issues.  Out of nine Democratic members of Congress from Illinois, he was the only one to vote to give the president authorization to invade Iraq.  He has voted for unconditional funding of the war and voted against efforts to set a timetable for U.S. withdraw from Iraq.  His record on the Iraq War is comparable to John McCain’s.

Beyond Iraq, Rahmbo would also like to see action taken against Iran.  He has voted against measures to prevent Bush from attacking that country and even joined the administration in launching inflammatory remarks about Iran’s nuclear threat.

His strong positions toward attacking Arab countries clearly come from his love of Israel.  After all, his father, Benjamin, was a member of the terrorist/freedom fighter (depending on your perspective) group Irgun which launched attacks against Palestinian and British civilians in Palestine in the 1940s.  Rahm himself has been critical of the Bush Administration for criticizing Israel’s assassination policies and human rights abuses.  He was a leading proponent of Israel’s invasion of Lebanon in 2006 and questioned Amnesty International’s motives in reporting Israeli violations of international humanitarian law.

Now, many will say that these appointments by President-elect Obama are political and do not necessarily indicate a direction that his administration will take in foreign affairs.  But, the old axiom is true, “you judge a man by the company he keeps”.  Modern vice presidents do play a large role as confidants and advisors to the president.  As Dick Cheney has proven, they are very influential partners to presidents who lack the foreign policy experience they possess.  And let’s not forget that vice presidents are one heartbeat away from the top job.

As the chief of staff, Rahm Emanuel will be President Obama’s gatekeeper.  He will in large part determine who has the president’s ear.  He will also have more influence on the president than others in the administration by virtue of his position and close friendship with Obama. 

There is no question that president-elect Obama’s first two appointments call into question his commitment to change as far as U.S. foreign policy is concerned.  By choosing two Democratic neo-cons as vice president and chief of staff, he not only validated the belief that there was not a quarter’s (adjusted for inflation) worth of difference between him and McCain, he has alarmed many of his progressive supporters on the left.  At some point in the near future, perhaps with his selection of defense secretary, it will be clearer whether Obama will change U.S. foreign policy or continue the failed policies of the Bush Administration.  My hunch is that those Americans, who are paying attention, will have their excitement zapped from them as they realize that they have replaced one belligerent administration with another.

Potholes Ahead for Main Street

November 1, 2008

November 1, 2008

Congress, the Administration, and Federal Reserve Chairman have repeatedly told us that they are working hard to fix the economy for the American people.  They claim that every action they have taken has been done with the best interests of Main Street not Wall Street in mind.  Whether their intentions can be believed is questionable.  After all they are politicians.  One thing is certain; the ramifications of their actions at least in the short term have not benefited Main Street.

As we all know by now, the goal of Washington’s gross intervention in the economy is to unfreeze the credit markets with injections of massive amounts of liquidity.  This unfreezing will allow financial institutions to resume regular lending thereby putting us on the road to recovery.  In other words, the same device (debt) that got us into this mess will get us out of it.  That argument aside, as was reported in this column a couple of weeks ago, the best laid plans of Washington are once again going astray.  In that column, I reported that instead of unfreezing the credit markets allowing for a freer flow of capital and lower lending rates, the government’s actions so far have actually resulted in higher mortgage rates and consequently less borrowing.  This is a result of more government debt pushing up the yields on Treasury notes which in turn raises mortgage rates.  Additionally, because Uncle Sam is guaranteeing bank debt, it is becoming more attractive for investors and creating more competition for his own firms – Fannie and Freddie, when they seek to sell their securities.  To compete for investors, the nationalized companies must raise their own yields and then charge borrowers higher rates for mortgages.  As a matter of fact, mortgage rates are higher now than they were before the Fannie/Freddie bailout was launched. 

Higher mortgage rates are an old problem, as this week two other concerns were voiced from Washington over the effectiveness of government measures to fix the economy.  It seems that nine Wall Street banks have been asked by Congress to justify billions of dollars in pay and bonuses after they accepted nearly $125 billion of taxpayer funded bailout money.  The nine banks include the usual suspects:   Bank of America, Bank of New York, Mellon, JPMorgan, Chase & Co., Merrill Lynch & Co., Morgan Stanley, Goldman Sachs Group, and Wells Fargo & Co.

Then there was the revelation from the White House this week that banks receiving taxpayer money were “hoarding” the funds and not making new loans.  Apparently, the London Interbank Offered Rate (LIBOR), a key indicator of international lending, remains at elevated levels.  Not good.  But in all fairness to the banks, at least one of them will not be hoarding their federal largess.  It has been reported that the government has approved PNC Financial Services Group Inc. to receive $7.7 billion of taxpayer funds and to use $5.58 billion of it to purchase National City Corp – so much for the funds being used to unclog the markets.  The problem ultimately is that the government should not be doing what it is doing in the first place.  But beyond that, the capital infusion program has very few strings attached to it.  It was felt that too many strings would discourage bank participation.  Undoubtedly, too few strings are allowing the banks to take full advantage of the taxpayer.  The bottom line is that we are giving hundreds of billions if not trillions of dollars of our money to banks that got us into this mess in the first place with virtually no restrictions with the hope that they won’t do it to us again?  How stupid or corrupt is that?  Here’s hoping that the banks continue to hoard our money.

Beyond the reported ill effects on Main Street of the government’s actions to fix the economy, there are other hidden bad consequences as well.  Because the Federal Reserve has decreased interest rates to artificially low levels over the last nine months to stimulate lending (by the way this hasn’t worked either) the earnings of many small community banks have been adversely affected.  Many of these banks were responsible and took no part in subprime lending.  These institutions are important to millions of Americans on Main Street who rely on them for loans and savings accounts.  One of the last things we need is a crisis in the community banking industry.  Current government policy is already making it hard for these institutions to succeed.

Lastly, another hidden bad consequence of the government’s actions is a lowering of the yields on money market and savings accounts.  Again, as the Fed lowers interest rates artificially, savings and money market rates also decline.  Go online or check your next bank statement to notice that your savings rate has gone done.  With more people on Main Street hurting, especially pensioners and those on fixed incomes, the last thing they need is for their last safe haven to be upended by government policy.  But that is what is happening.

We could take Washington at its word that it is doing its best to help Main Street through this crisis.  The consequences of its actions speak otherwise.  Then again, maybe Washington is doing its best; because when it does its best, we are at our worst.