The Clueless Federal Reserve in 2008

A meeting of the Federal Open Market Committee of the Federal Reserve on 29 - 30 January 2008 two months after the Great Socialist Recession began in early December 2007 was pretty sure that

• The USA would avoid recession.
• Export growth in 2008 and 2009 would be at a rate of 7.25% both years.
• Reductions in the Federal Reserve interest rates would return full employment by 2010.

This group that included Bernanke, Geithner, Yellen, and many other top Federal Reserve leaders was perfectly clueless.  As we all know, the USA not only did not avoid recession, that recession was two months old at that time and would continue even by the government's self-aggrandizing determination through June 2009.

US exports decreased sharply in 2008 and at the end of 2009 they were still below 2007 levels.  Finally, despite drastic cuts to essentially zero in the Federal Reserve interest rate, we have not come close to a recovery to full employment as of January 2014, let alone by 2010.

Federal regulatory agencies and commissions rarely do know what they are doing.  This clueless state is the general state of the Government bureaucracy and of the independent organizations it sets up.

Broader Lawsuit Filed Against ObamaCare

In addition to the lawsuits filed by Virginia and by Florida with another 19 states including Arizona, the Goldwater Institute has filed a private lawsuit against ObamaCare on a much broader basis than that of the state lawsuits which are mostly concerned about the traditional authority of the states to regulate health care.  The private lawsuit, Coons v. Geithner, makes the arguments that ObamaCare:

• exceeds the powers of Congress
• violates individual rights
• interferes with the authority of the states
• violates the separation of powers with a bureaucracy lacking sufficient Congressional direction and judicial review

The plaintiffs are Nick Coons, who owns a small business in Tempe, Arizona; U.S. Representatives from Arizona, Jeff Flake, Trent Franks, and John Shadegg; and by the Speaker of the Arizona House Kirk Adams and 28 other Arizona state legislators.  Obama, Treasury Sec.Tim Geithner, Health and Human Resources Sec. Kathleen Sibelius, and Attorney General Eric Holder are being sued.

Nick Coons will be forced to buy government approved health insurance by 2014 or face IRS fines.  He wants to continue to make his own health care decisions.  He also objects to the legislated violations of his medical privacy to an insurance company, the federal government, and others without his permission.

The three U.S. Representatives object to the lack of Congressional oversight of the Independent Payment Advisory Board, which will make assure that costs are controlled and will therefore ration care and care quality.  This board will also not be subject to judicial review.  Unfathomably, the law also says the board cannot be repealed except for a short window of time in 2017.  I cannot understand how a present Congress can override the intentions of a future Congress with any act other than a Constitutional amendment, which requires additional approval from the states.

The Arizona legislators claim they have been forced by the federal government to restore prior cuts they made to their state's relatively generous Medicaid benefits because the federal government had threatened to take away $7 billion in federal payments to the Arizona Medicaid program.  They say this violates their First Amendment rights to vote in the best interests of Arizona citizens.

The Obama administration is expected to request that the lawsuit be dismissed since the federal law will not be fully implemented until 2014.  U.S. District Judge Henry Hudson already rejected this argument in the state of Virginia lawsuit against the federal government.

While I am delighted that 21 states have challenged the federal government on its over-reach into an area traditionally regulated by the states, I am much more pleased with this lawsuit which seeks to directly defend our individual rights.  As I have argued repeatedly, it is impossible to make the case that we have an individual right to life and to the pursuit of happiness if ObamaCare is brought into execution.  We will not even be able to say that we own our own life.  We will not be allowed to manage our own health care to maintain our own lives.  We will not be free to help those we love to maintain their lives.  We will not be free to take medical remedies to ameliorate pain, so we will not be able to pursue our happiness in a most fundamental way.  We will not have the freedom to correct medical problems without the consent of the federal government, yet these medical problems may incapacitate us to pursue the interests and values we need to provide us with happiness.  In short, ObamaCare is a prescription all by itself for that illegitimate, tyrannical government we defined in our Declaration of Independence.  ObamaCare gives us much greater reason than our colonist forefathers had to dissolve our allegiance to that illegitimate government and to seek independence from its tyrannical grasp.  The several lawsuits and/or a supermajority in Congress capable of repealing ObamaCare are the last hope of saving our Union and our much beloved Constitution.

Fannie Mae and Freddie Mac and the Full Faith and Credit of the USA

Robert Romano posted an interesting article on the debt of Fannie Mae and Freddie Mac and the U.S. debt on 7 April 2010.  Romano is the Senior Editor of the ALG News Bureau.  ALG is Americans for Limited Government, which is an organization doing good work for the cause of American liberty.  I will summarize the most interesting points in his article below.

Congress placed the government secured entities (GSEs) Fannie Mae and Freddie Mac under federal government conservatorship in 2008 because they were effectively bankrupt.  Congress formed the Federal Housing Finance Agency to manage their sorry financial mess, which Congress had long worked hard to foster.  In June 2008, their combined debt was $6.6 trillion, of which $4.7 trillion was mortgage-backed securities.  Congressman Scott Garrett asked Treasury Secretary Timothy Geithner why this debt taken on by the federal government had not been added to the national debt.  The U.S. debt of $12.6 trillion should really be $19.2 trillion and this would result in the downgrading of U.S. debt due to excessive risk.  There is quite a song and dance going on here while trying to avoid this.

Geithner says this corporate debt is not the same as U.S. Treasuries and should not be considered sovereign debt.  He says, "By statute, all obligations and securities issued by GSEs must include a statement that makes clear that such obligations and securities are not guaranteed by the United States and do not constitute a debt or obligation of the United States."  But, he also says the "Treasury is committed to supporting the GSEs while in conservatorship and to ensuring that the GSEs have sufficient capital to meet their debt obligations and honor their guarantees."  When Fannie Mae and Freddy Mac were nationalized, the FHFA director James Lockhart told Congress that "the conservatorship and the access to credit from the U. S. Treasury provide an explicit guarantee to existing and future debt holders of Fanny Mae and Freddy Mac."  It seems clear that when Congress nationalized the GSEs, the earlier statute that their obligations were not guaranteed by the federal government, had to be superseded or inherently contradicted.

Foreign investors held $1.5 trillion of the $4.7 trillion in mortgage-backed securities.  In June 2007, the last an accounting by nation was performed, China held $376 billion, Japan $228 billion, Russia $75 billion, Luxembourg held $39 billion, Belgium $33 billion, Britain $28 billion, and Middle Eastern national funds are also big holders.  Many of these nations apparently said they would not buy Treasury bonds to support the U.S. national debt if the government did not rescue them from the bankrupt mortgage-backed securities they held.  The federal government has since bought up $1.25 trillion of mortgage-backed toxic security debt.  The Treasury will not say whose toxic securities they bought, but they only dealt with primary dealers who could directly deal with the Federal Reserve Bank of New York.  When the TARP program was put together, the Treasury was forbidden to purchase the mortgage-backed securities of foreign central banks.  But, it appears likely that Geithner has done just that with paper which is indeed backed by the explicit backing of the United States.  What else could he have paid the primary dealers for the toxic securities with?

This is just me again:  Our real national debt is clearly much greater than the $12.6 trillion figure we are told in a huge lie that it is.  There is still much more hidden debt than just that of Fanny Mae and Freddy Mac also.

Massive Socialist Government Gang Extortion

The gang of brutal socialists who have taken over control of the Presidency and Congress have escalated their extortion racket to much the worst levels ever. Have you ever wondered why many very wealthy businessmen and companies have for years donated more money to the Democrats who dislike business from an ideological perspective than they give to Republicans who are commonly thought to be the champions of the fat cats? Heck, have you ever wondered by the delegates to the Democratic National Convention are always wealthier than those to the Republican National Convention?

The answer is in two parts. First, many of these businessmen give more to the Democrats because they are trying to buy them off to keep them from doing as much harm to the businessmen. This is like Chamberlain buying Hitler off by giving him Czechoslovakia. Appeasement is always a popular strategy when the cowardly are faced with an especially vicious bully. The second part of the answer is that by allying themselves with the socialists they actually get a payment from those in power with legislation favoring them in a variety of ways. For instance, complex and intrusive laws will always create great opportunities for trial lawyers, who are massive donors to the major socialist party, the Democrats. Regulations such as the bureaucratically massive requirements of Sarbanes-Oxley bookkeeping procedures will hold back small and smaller mid-sized companies more than really big companies, so the big companies are protected from competition.

Cumbersome Federal contracting laws make it hard for small companies to go after Federal contracts, with their 10 pages of fine print references to many laws imposing obligations and mandates on the company taking the Federal contract or simply bidding for it. Generally regulations putting insurance, pollution, recycling, safety, family leave time, anti-discrimination, the display of tens of posters to employees, and many other mandates fall more heavily upon small and the smaller mid-sized companies than the large companies. The result is that it is common for the largest companies and the wealthiest investors to ally themselves with the Democrat mob than with the Republicans who pretend to stand up for small business interests. Yes, this is more pretense than substance on the part of the Republicans, but they really are a bit less active in doing harm to small businesses.

So, what is our small-time community rabble-rouser up to now that he has his hands on the big-time power of the Presidency? Well, he is unabashedly putting the extortion techniques the socialist Democrat Party has spent a long time perfecting to work. Let us examine how he is doing this.

According to a 9 April report by Eric Dash in the New York Times called "Banks Holding Up in Tests, but May Still Need Help," the 19 largest American banks are being given stress tests led by the Federal Reserve. Testers say there is a wide range of results on the tested banks. Those that fall short will have six months to raise capital from private investors, but if they cannot do this, the Treasury Dept. will make them take taxpayer money. Timothy Geithner says he will take a tough stance. He claims that many banks believe the value of investments and loans on their books is higher than the government does. He says the government will make some banks sell off the assets the government thinks are overvalued on their books at whatever private investors are willing to pay. What an extortion tool? If the bank does not give enough to socialist politicians campaign funds, the government in control of the socialists, declares that some of the banks assets are worth less than the bank thinks they are worth and forces the bank to sell them in a fire sale. Meanwhile, we can be sure that generous Democrat campaign contributors are likely standing in the wings willing to buy up assets at bargain prices offered at the coming fire sales.

On another front, the socialists are launching still another attack on start-up companies in Silicon Valley. They want to regulate venture capital firms to prevent systemic risks. Geithner wants to force these VCs to register with SEC and file reports with them on their investors and their investments, so that investors will be protected from schemes such as Bernie Madoff's Ponzi scheme. This is odd. The SEC did not save anyone from Madoff though his firm was long registered with the SEC as an investment advisor and for decades as a broker-dealer. Very odd, indeed, it is. The Wall Street Journal Opinion piece by James Freeman linked to explains:

The entire venture capital industry is smaller than the Madoff fraud. VCs invest a total of $30 billion each year, far less than one-tenth of 1% of U.S. financial transactions. Venture investors -- affluent individuals and institutions -- are putting up equity and know that they can lose it all. SEC regulation could have the same negative impact on them that it had on Madoff's investors: creating an illusion of safety in what is an inherently risky endeavor. Or the regulation could become so severe that it actually does eliminate risk from venture investing, killing the innovative ideas that can only be funded by risk-takers.

The VCs use very little debt. The banks dealing with them are well-secured by the assets of the companies for the small amounts they loan to them. There is no reason for Washington to poke its nosey nose into the VC business. There is a strong downside.

Attempts to limit risk pose a systemic threat to American technology. Venture capitalists, mainly veterans of the tech industry, are deeply involved in the companies they back, often helping to recruit each of the key employees at a start-up. This hands-on feature of venture investing means that innovative companies and their backers tend to cluster in areas like Silicon Valley. If the VCs move offshore, that's probably where the next generation of companies will be born.

Cypress Semiconductor CEO T. J. Rodgers points out that the Democrats have already heavily burdened America's technology industry. Sarbanes-Oxley has imposed multimillion-dollar compliance costs since 2002. The SEC then forced companies to count stock options twice, once as dilution of stock and then as an expense. The result is already a disaster. Only one Silicon Valley company had an initial public offering of stock in all of 2008! Are the socialists purposely destroying the growth of Silicon Valley firms because Silicon Valley has had something of a reputation for being somewhat libertarian? I believe that this is a big factor in this attack on these rather independent-minded and innovative businessmen. The socialists hate business and they hate independence, rationality, and innovation even more.

Of course, we have already observed the socialists taking control of the banking and financial industries and not wanting to let go. We have seen them dictate who will manage GM and seen them micromanage which vehicles will be produced by American automakers, while dictating minimal changes for the United Auto Workers Union. They continue to encourage high risk home and auto loans for new purchases, while using the risk of defaults on prior risky loans as a club to gain control of banks and other financial institutions.

The Waxman-Markey American Clean Energy and Security Act of 2009, sets grounds for anyone "who has suffered, or reasonably expects to suffer, a harm attributable, in whole or in part," to government inaction to file a "citizen suit." The term "harm" is broadly defined as "any effect of air pollution (including climate change), currently occurring or at risk of occurring." [See the Washington Times, 10-11 April 2009 edition.] Thus, any environmentalist person, imagining that he may one day suffer harm from global warming, will be able to sue the U.S. government to take drastic action to prevent global warming. If they find a sympathetic court, the U.S. may be held responsible for the harm of what may well be results caused by natural forces, and forced to take drastic action against fossil fuel users whether they have in fact caused harm or not. It also rewards the massive contributors to socialism among the trial lawyers, once again.

The mandated extent of the replacement of dependable coal-fired electric power plant capacity with undependable wind and solar alternative energy sources will be certain to result in widespread electric blackouts. The governments will undoubtedly then play a role in further rationing energy, giving more to favored users and less to the politically unfavored. No doubt, unionized industries will be allowed more access to energy than will un-unionized businesses. Large companies with sufficient political pull (givers of large campaign contributions) will get energy, while small businesses will not get it.

The tax system is also to be skewed to give the socialists much more power. They tried to take the influence of wealthy people over charities away by greatly reducing the tax deduction for charitable giving by the wealthy. This was checked, for now. They use taxes as never before to put the wealthy under the feet of the mass of less wealthy voters. They are using the tax system to bind college graduates to their cause, which reinforces the tendency of young college graduates to spout the propaganda of socialism which they were infected with while in public high school and college. They will then be enrolled in government service agencies, which will complete their indoctrination. The tax system also favors selected industries such as the alternative energy industry, so that they become dependent clients of the socialists.

Rules favoring the easy unionization of small businesses will also favor the socialist-oriented unions and hurt an enemy of the socialist cause. The broadening of the Clean Air Act to cover carbon dioxide emissions will give government another tool to control our lives, which they will also use to pick winners and losers based on political pull. Tariffs, created under the guise of discriminating against polluters, low-paid workers, and non-union labor users abroad, will give the socialists still another tool to use to pick winners and losers in American industry.

Make no mistake, the Obama socialist gang wants control of every aspect of your life. It is a massive extortion ring. They are seizing power rapidly and with a breadth of attack which is mind-boggling. This assault on the rights of the individual has been long dreamed of and long planned. The worst thing is that it was very clear that Obama was the Messianic leader of just such a gang during the election process, but most Americans refused to see what was almost immediately before their eyes. He still has most Americans hypnotized even as most are now beginning to criticize his various programs.

Steyn: Regulation, globally speaking, Crisis used to put Government in the Driver's Seat

Mark Steyn has written a very powerful commentary on how Obama and the Democrat Congress have used the economic crises to shift control of the private sector into the hands of government. Obama has written in the Chicago Tribune "But I also know that we need not choose between a chaotic and unforgiving capitalism and an oppressive government-run economy. That is a false choice which will not serve our people or any people." Steyn replies to this itself is a false choice, that Obama has made oppressive government the only game in town.

He points out that federal spending is to increase to 28.5% of GDP this year. This is higher than ever before in our history, except in WWII. Obama plans to double our national debt in the next 6 years and to triple it in the next 10 years. Steyn says that the government is annexing our economy and in the process our very lives. Every business, no matter how small, will face the burden of more permits, more paperwork, and more bureaucracy.

And, he says do not think you can move out from under the jurisdiction of this overweening government. Treasury Secretary Tim Geithner, our favorite tax evader, is calling for global regulation at the G20 summit in London this week. He does not want people and companies to be able to look for new locations with fewer regulations and lower taxes. Steyn replies

Just as a matter of interest -- why not? If you don't want to be subject to punitive "oversight" of economically illiterate, demagogic legislators-for-life like Rep. Barney Frank, Massachussetts Democrat, why shouldn't you be "allowed" to move your business to some jurisdiction with a lighter regulatory touch?

Steyn points out that even Bono, the global do-gooder, has moved much of his business from low tax Ireland to the Netherlands, where taxes are even lower for him. Of course, Geithner himself does not have a history of paying his taxes.

If you listen to the principal spokesmen for U.S. economic policy -- Mr. Obama and Mr. Geithner -- they grow daily ever more explicitly hostile to the private sector and ever more comfortable with the language of micromanaged, government-approved capitalism. That, of course, isn't capitalism at all. They'll have an easier time getting away with it in a world of "global oversight" where there's nowhere to move to.

But then he adds:

Think about it: It takes extraordinary skill to create and manage a billion-dollar company; there are very few human beings on Earth who can do it. Now look at Mr. Obama and Mr. Geithner, the two men currently "managing" more money than any individuals in human history -- not billions, but trillions of dollars.

He then discusses the Bolsheviks inability to manage even the simple agricultural society in their tragic experiment of the last century. He points out how much more daunting managing the American economy with its much greater complexity, extent, and international ties and dependencies would be. Can Geithner, who cannot do his own taxes, be expected to do this? Well, no! Emphatically no!

He then describes Obama as uninterested in economics. Obama is a social engineer, a community organizer. Period. His plan to remove the tax deduction for charitable giving for the wealthy was born of nothing more than a desire to put the government and only the government in control of all charity. His plans for socialized health care, a green economy, and universal college education are likewise only about extending the control of government.

But this all costs money and the government does not have it. Last week, the similarly pressed British government, could not sell its "gilt-edged" 40-year bonds at auction. Germany has had two such bond auctions fail. The U.S. could not sell $34 billion of 5-year bonds until it increased the interest rate. There simply is no source of funding large enough to buy the bonds which must be issued to cover our projected debts. The Chinese and the Saudis cannot do it at these levels.

Steyn concludes:

In their first two months, Mr. Obama and Mr. Geithner have done nothing but vaporize your wealth and your children's future. What began as an economic crisis is now principally a political usurpation. And, to return to the president's "false choice", that "chaotic and unforgiving capitalism" is exactly what we need right now. It's the quickest, cheapest, fairest, most efficient route to economic stabilization and renewal. A regimented and eternally forgiving global command economy with no moral hazard will destroy us all.

How many times have I made this same point? But, it is good to have Steyn on the same page with me. I think that younger Americans are going to learn a very important lesson on the superiority of Capitalism, lessons their state-managed educations have withheld from them. Unfortunately, they will be paying dearly for this lesson the rest of their lives. Their idol Obama has proven, as it was clear he would to any rational observer with some knowledge of history, that he is nothing but a craven idol.

Increasing Obama Negativity in Economist

The Economist continues to suffer disappointment in Obama after putting him on the cover twice late in the Presidential campaign and endorsing him. In the 14 - 20 March issue, it notes

At market close on March 11th, despite a rally this week, the Dow Jones Industrial Average was 16% below its level on the Friday before Mr Obama took office. At this point in Roosevelt's presidency, 54 days in, it was up 35%.

In truth, he had long promised to spend more on health care and alternative energy and to raise taxes on the rich, so little in the budget should have surprised investors.

A bigger dent to confidence comes from Mr Obama's style, not his substance. His many backers on Wall Street had taken his conciliatory manner and selection of centrist economic advisers as evidence that he would govern moderately despite, as a senator, having consistently voted on the left. They have been taken aback by his combative tone.

But the Obamabears' biggest fear is that Mr Obama's remedies are not up to the task of fixing America's deepening recession.

Mr. Geithner's own efficacy has been hamstrung by the fact he remains his department's only Senate-confirmed official: 17 other top Treasury jobs requiring Senate approval remain vacant. In 2007 the Treasury website listed 120-odd officials, from Hank Paulson, the then treasury secretary, down. The current version of the same webpage lists just one: Mr Geithner.

All this has left foreign officials and domestic bankers frustrated at the lack of consultation from the Treasury.

Whatever the cause, the strain on the Treasury is encouraging the view that Mr Obama's agenda is being driven by political advisers and Congressmen, both more attuned to voter's rage than to market confidence.

Clearly The Economist's confidence in Obama continues to erode, along with that of many others who supported him while believing he was someone very different than anyone with any wisdom would have understood him to be. They close with a quote from a former Bill Clinton aide who advised Obama to focus on the financial crisis or risk the loss of confidence Jimmy Carter suffered. Meanwhile, the market is still down 40% since it became fairly clear that Obama was going to win the presidential election in September 2008.

The 90% Axis Powers Tax

The Obama - Pelosi - Reid Axis Powers combined and voted a 90% retroactive tax on the bonuses of employees earning more than $250,000 who work for firms receiving more than $5 billion in Federal bailout money. Some of these companies were basically forced by the government to take bailout money, even many which were in no danger of failing. Others were failing companies which should have been allowed to go bankrupt, which would have terminated the contracts that required the failing companies to pay out the bonuses now being paid out. Obama, Geithner, Chris Dodd, Pelosi, and many others in the Democrat administration and Congress were well aware of these bonuses, but pretended they were not. They were caught in this transparent lie. They had foolishly circumvented the system long established for dealing with failing companies whose management had proven that they did not warrent bonuses, benefits, and other remuneration they would have had by contract if they had done their jobs well. Bankruptcy properly terminates such contracts as now have to be honored, though that is clearly unfair to the taxpayers.

The government is clearly incapable of running these companies and should clearly have stayed out of their business. The more healthy companies have learned now just how critical it is to try to get out from under the smothering, oppressive weight of the government. Those that would have squeaked through the banking problems without government help are now likely to fail as they lose all of their best employees. No capable manager will tolerate working under the oppressive, mean-spirited dictatorship of this government.

Legislation applied to prior events is clearly unconstitutional, yet this is not the first time that retroactive laws have been allowed to stand despite that fact. The Supreme Court does not enforce the Constitution's limits on the power of the Federal government and neither the Congress or the President take their oaths of office to uphold the Constitution at all seriously. Our politicians are very rarely men of principle.

Richard Rahn - Feel like a chump?

Richard Rahn, a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth wrote a hard-hitting commentary in the Washington Times on 22 January 2009 about Federal taxes in this time of huge government bailouts for favored industries, local governments, and other Democrat causes. He asks if we "feel like a Chump?" We should be feeling very much like chumps as these politicians laugh at our gullibility.

He points out that when Congress wants to spend $825 billion on a so-called "stimulus program," which many economists are rightly pointing out is actually a de-stimulus program, Congress and the new administration have some very interesting views on taxation. Among these are:

• Chairman Charles Rangel of the House Ways and Means Committee, which writes tax legislation, did not pay taxes on some of his income, such as rent from Caribbean property.
• Senate Majority Leader Harry Reid has repeated said that paying taxes is "voluntary."
• Tim Geithner, the new Treasury Secretary under Obama, failed to pay income taxes for many years, when he worked for the IMF. He then served as the president of the Federal Reserve Bank of New York while still owing those taxes. [Can you imagine the tax penalties most of us would be assessed over those years if we had not paid taxes we owed?] [Wikipedia presently says he "served as the president of the Federal Reserve Bank of New York and was a small-time tax chiseler."] He now controls the IRS.
• Many Congressional and media defenders of Geithner and Rangel correctly argue that the tax law is complex and some laws are vague and unclear. Rahn notes that, like everyone else, he does not understand how to obey the 65,000 page Internal Revenue Code. So if the well-connected politically do not have to pay their taxes, shouldn't the rest of us be treated equally under the law as required in the Constitution?
• He thinks all Americans should pay the same tax rate and remembers that when Sen. John Kerry ran for president in 2004, his billionaire wife paid a lower tax rate than most Americans did.
• The typical American family of four is paying $132 to subsidize Goldman Sachs and already committed to paying $662 to Citibank, even before Treasury guaranteed $300 billion of additional debt for Citibank.
• The Obama "stimulus" program of an additional $825 billion will cost the American family another $20,000 in taxes and/or losses to inflation.

He concludes, 'Just remember, those members of Congress who vote to tax you and spend your money on "bailouts" and phony "stimulus" may be calling you a "chump" behind your back.'