Fast & Furious

Turns out the White House knew.

The next question is: why are we learning about this from Investor's Business Daily?

I do know that the more I learn about this scandal, the more furious I get.

Obama's Debt Ceiling Speech

A terrible speech that belied an inability to grasp the issues and showed that he is well aware that his poll numbers are tanking.  He went to his usual well and blamed Bush.  The only surprise there was that he seems to believe that the American people are buying any of that talk.  We know that Bush was not a fiscal conservative, but the President doesn't control the purse strings. In fact, Obama should be well aware of that given the current circumstances - Congress has told him NO to a war kinetic military operation in Libya, and told him NO when he wanted to increase the debt ceiling so he could borrow more money earlier this year.  It is beyond disingenuous to point the finger at Bush and say my predecessor racked up all this debt (especially when Obama was a Senator during part of that period) when Obama tried to go even further into debt faster.

Obama's invocation of Reagan - which is starting to become more of his modus operandi - was lame at best.  Following it with a claim to be seeking a balanced approach might have made more sense if he actually had put a plan on the table.  Telling Congress to "bring me a balanced approach" isn't going to work.  Everyone knows that in order to meaningfully address the debt problem we have to reduce spending  .  Raising revenue is only going to create the ability for the government to get into more mischief down the line - putting the government on a diet just so it can fit into its wedding dress is just for show, when we know right after the wedding it's back to business as usual.  Government has no self control.

Obama urged Americans to contact their congressmen and voice their desire to see a solution.  Well, he's just deflecting there, because looking at the polls, the American people are voicing their feelings.  Obama doesn't want to hear it right now.  He knows he's tanking, so he's in full-on campaign mode; he is saying whatever he thinks sounds good, but, as an old lawyer I tried a number of cases with used to say, "just because he's saying it doesn't make it true."

US Default Watch, Part 8 and 3/4

I almost can't keep up with all of this.

Obama is now saying that he wants Corporations to pay their fair share.  I hate this kind of talk, for so may reasons.  First, we have about the highest corporate tax rates among civilized nations, which suggests to me that they are already paying at least their fair share, if not substantially more.  High corporate tax rates are a recipe for short-term revenue and long-term disaster as these companies find greener pastures off-shore.  Second, why does he get to be the one who decides what "fair" means?  I think Orwell covered this in Animal Farm.  I think it would be "fair" to beat Tim Geithner with an oar.  Probably a good thing I'm not in charge. 

Looking at Rasmussen, Obama is nearing his worst-ever approval ratings.  What I find compelling is that since the day he took office in Jan. 2009, he has seen the percentage of respondents who disapprove go from about 30 to 55, and those who approve move, accordingly, from 69 to 44.  That means that 25% of those polled have reversed their view of Obama.  But check this out: in Jan. 2009, 44% of respondents "strongly approved" of Obama, while only 16% "strongly disapproved."  It's probably fair to infer that the 16% continues to disapprove, but that 16% has now grown to 44% strongly disapproving.  The 44% that strongly approved in '09 has now shrunk to 23%.  Obama knows that he's losing the American people, and he is going to try to govern accordingly.  Which means that he will try to get people back in his corner, or failing that, he will obstruct progress and push his own agenda before he leaves after 1 term.

US Default Watch, Part 8.5

2 years ago, President Obama made sure to point out that raising taxes in a recession is the last thing you want to do, and was very clear that he didn't do that very thing.

 In August 2009, on a visit to Elkhart, Indiana to tout his stimulus plan, Obama sat down for an interview with NBC’s Chuck Todd, and was conveyed a simple request from Elkhart resident Scott Ferguson: “Explain how raising taxes on anyone during a deep recession is going to help with the economy.”

Obama agreed with Ferguson’s premise – raising taxes in a recession is a bad idea. “First of all, he’s right. Normally, you don’t raise taxes in a recession, which is why we haven’t and why we’ve instead cut taxes. So I guess what I’d say to Scott is – his economics are right. You don’t raise taxes in a recession. We haven’t raised taxes in a recession.”

 Now, fast-forward to the present.  Unemployment figures have not improved since 2009, and arguably have gotten worse due to many Americans simply not seeking employment anymore.  These people aren't "unemployed" because they have given up on becoming employed.  The Fed is starting to pump QE3 on us, and Bernanke is pulling his levers like a crazed Keynesian fighting deflation and pushing inflation.  With all the signs of stagflation on us, it's beginning to look a lot like Carter, everywhere you go...including a potential showdown with Iran. In short, the recession is still gripping us by the underwear and lifting sharply.  Add to the scene the impending debt ceiling deadline that no one seemed to find important until about 3 weeks ago. 

Now President Obama has changed his tune.  He is grabbing this crisis for all it's worth, and is going all-in on raising taxes.  He has rejected deals that do not call for increasing taxes.  He has gone on the news and called for increased revenues in the form of higher taxes.  Is it possible that we are all out of ideas and the only thing left is the "last thing you want to do" - raise taxes during a recession?  Well...there are still a couple of plans being floated out there, so we're not out of ideas yet.  So, Obama prefers to go straight to raising taxes, and now seems perfectly willing to drive the bus off the cliff if he can't get them. Although, some of us here have long been under the impression that Obama wants to destroy our economy, and this is simply the best opportunity to do it that he's been presented with. 

Jennifer Rubin provided this insider info of House Speaker Boehner describing the discussions with Obama:

I went on “Fox News Sunday” this morning because it was the most effective way to tell everyone where things stand. It boils down to this: The president wants his $2.4 trillion debt limit increase all at once, without any guarantees that we’re going to cut more than $2.4 trillion in spending. The administration says they have to have it all upfront so we don’t have to deal with this again until after the next election. You heard the president say that himself on TV the other night.

Let's take a quick look at what Obama wants to do.  To set the stage, remember that almost 50% of households in America do not pay any federal taxes, and the top earning 10% (roughly people who earn over $100,000) pay about 70% of the money collected on personal income taxes.  When Obama says he wants to raise taxes, that top 10% is going to carry the brunt of it, and a lot of those people earn under the magic $250K number that was supposed to be the line in the sand for not raising taxes. We are in a recession; jobs are scarce, money is tight, consumer confidence continues to plunge, the majority of homeowners believe they owe more on their mortgage than their home is actually worth.  The Fed is pushing inflationary policies; that means that the money you have left over each month after taxes has less buying power than it did last month or last year.  It means you are taking a pay cut, even if your paycheck doesn't change.  That hurts your ability to save money, which then impacts your desire to spend money.  So, we start to have a downward spiral with a ripple-effect into all types of consumer goods and the jobs that they drive.  Obama's solution?  Keep on borrowing money, don't commit to any actual spending cuts, but raise taxes.  The paycheck that you get and the decreasing buying power it gives you is about to get even smaller; Obama wants you to have fewer of those weak-ass dollars to be able to spend...or save...or burn for warmth this winter.  And here's the real kicker: he wants to take your money and use it on programs for people who don't pay any taxes!!! 

Of course, no one is talking about all that unspent stimulus money that's just sitting around somewhere in Washington...well, no one in the media, anyway.

US Default Watch, Part 8

WTF is going on? 

Reports this morning are that Senators Reid and McConnell sent a proposal to the President.  Their plan isa two-part approach, in which the August deadline for default is addressed by agreeing to a short-term increase in the debt limit, coupled with a an even greater amount in budget cuts with no tax increases.  Part 2 is then a commission find more cuts that can be made before further debt-limit increases can be considered.

Well, this is certainly resembling progress; let's see - we have the Senate Majority Leader and the Minority Leader agreeing on a bipartisan plan that appears to take a serious approach to the deficit.  It even looks like the Dems have given in - for now - on their demand for increased revenues (higher taxes for those of us who pay taxes).  Remember way back, about 10 days ago, when Obama chastised Congress for "playing politics" with the debt ceiling?  Remember when he said that if he was presented with a serious plan, that he would be ready to move on it?  Remember how he changed his mind about a short-term deal - going from automatic veto to something he would consider?  Ok, good, so now we're on the same page.  Remember when he articulated his vision of addressing the debt ceiling and reducing the deficit?  Me neither...because he hasn't done that.

So, today we have a bipartisan plan that looks, on its face, to be serious, and when it's presented to the President he SAYS NO.  I know you're not scratching your head, wondering why Obama rejected this plan.  The answer, as Jennifer Rubin points out, is because this plan does not kick the can far enough down the road for Obama's comfort.

The ONLY reason to reject a short-term, two-step deal embraced by both the House and Senate is to avoid another approval-killing face-off for President Obama before the election. Next to pulling troops out of Afghanistan to fit the election calendar, this is the most irresponsible and shameful move of his presidency.

 Obama is "playing politics" with the debt ceiling.  It's that simple.  He hasn't put forward a plan or a credible budget.  Instead, he wants to act like the referee between the Republicans and Democrats and strives to appear like the adult watching over kids fighting over a toy.  He fails to realize that he's in this too, though he's incapable of providing any leadership. 

More and more it comes into focus that the solution is going to entail moving around this President.  He is an obstruction right now.

Boehner Sets It Straight

Boehner deserves credit for being one of the adults in the room.  He has tried to work a deal with the President, but with limited, if any, results.  It seems as if the President is unable or unwilling to put a coherent plan on the table, but rather prefers to speak of ideas and approaches that lack real substance.  It is as though he's ordering a meal at a restaurant, but can't tell the waiter what he wants, but instead responds to the waiter's suggestions with, "Um...no, I don't think I feel like having that..."  Of course, all we do know is that he doesn't want peas.

Boehner told the President that "Congress writes the laws and [the President] decides what he wants to sign."  Finally Boehner is moving in a way that signals that he has concluded that trying to broker a deal with the White House is futile.  Taking the issue back to the House, working out a deal with the Senate majority and then presenting a final version to the President for a yea or nay is probably the only reasonable approach.  the President has repeatedly demonstrated that he has a poor grasp of how our economy works, and has shown that he is incapable of being a leader.  If the President won't/can't lead and won't get out of the way, you have to find a way to move around him, and Boehner is doing just that.

Bring a real plan to the President - not a foundation or starting point for negotiation, but legislation - and force the President to sign or veto it.  Do not give the President room to wiggle - box him in, because it's the only way that anything is going to be accomplished.  Let him be the President of "No" if that's what he wants.  And if Boehner can't get the Senate to agree on anything, keep putting the plan out there. Let America see that it's the Dem's who have their collective boot on the throat of our economic recovery.

US Default Watch, Part 7

Peggy Noonan's piece today in the WSJ echoes some of my thoughts from yesterday.  Specifically, she recognizes some of the strengths and potential for the plan coming from the Gang of 6 - or G6. 

She also points out the lack of actual leadership from the President, and touches on his attempts to reverse-engineer leadership, that is, attempt to demonstrate that the G6 plan is really born from the approach that he has been advocating since...well...since the time he started advocating for something.  We know it's not, but since the President has never given anything remotely concrete (aside from a ridiculous budget in February that failed 97-0 in the Senate) I suppose he feels that he can twist his position into being whatever starts to look popular and promising (Harry Reid's threats to scuttle it notwithstanding).

For the longest time he wouldn't engage, and now he's engaged. For the longest time he didn't care about spending, and now he cares about spending. Good, both in terms of policy and for him. But his decision to become engaged has become a decision to dominate, to have his face in front of the television with his news conferences, pronouncements, and what his communications people are probably calling his "ownership" of any final agreement. He's trying to come across as the boss, the indispensable man, the leader. And, of course, the reasonable one.

And on his recent nose-dive in the polls:

And if you've watched him lately, you know why. When he speaks on the debt negotiations, he is not only extremely boring, with airy and bromidic language—really they are soul-killing, his talking points—but he never seems to be playing it straight. He always seems to be finagling, playing the angles in some higher game that only he gets. In 2½ years, he has reached the point that took George W. Bush five years to reach: People aren't listening anymore.

The other day he announced the Gang of Six agreement with words that enveloped the plan in his poisonous embrace: "I wanted to give folks a quick update on the progress that we're making." We're. He has "continued to urge both Democrats and Republicans to come together." What would those little devils do without Papa? "The good news is that today a group of senators . . . put forward a proposal that is broadly consistent with the approach that I've urged." I've urged. Me, me, me.

 Noonan says what we've all been thinking: the President is in the way.  He can't lead, won't follow, and is desperately trying to find a way to get a solution that gives what he wants and that can  - and here's the important part - help him out in the polls.  In the end, the reality may be that the two goals are mutually exclusive.  We have to wait to see what he decides is more important, when it would be best for him to step off the stage for a minute.

US Default Watch, Part 6

As the August deadline for default moves relentlessly closer the question is whether we are actually closer to a deal.  We have moved from Obama expounding Leadership and the House Republicans being ever so close to actually leading before getting distracted by Cut Cap & Balance and Sen. McConnell suggesting another way and Obama trying to scare the folks receiving Social Security and vowing to veto any short-term deal that doesn't kick this giant can down the road past next year's election, to Obama now being agreeable to a short-term deal and now the Gang of 6  has chimed in.  Whew!  that's a lot of stuff going on with no results to show for it.

Let's start with Obama.  First off, it was abundantly clear that he was seeking a political solution to this problem.  Put it off to early 2013 and he gets to hope that people remember his "leadership" and forget the crisis when they go to the polls next November.  Well, that didn't seem to work, as his approval ratings continue to plunge. (interesting aside: in the preceding link Rasmussen finds that 49% of homeowners believe their homes are worth more than their mortgage.  There's confidence for you!).  This probably surprises no one, because it seems that most people disapprove of the job he's doing.  Wait, let me correct that - it probably surprises Obama, who believes that 80% of Americans support his plan...which doesn't actually exist in any discernible form. 

Obama also tried the stale and lame tactic of trying to scare Social Security recipients by saying that he can't guarantee that their checks will go out in august because we will run out of money on Aug 3rd.  You may note that he has not returned to that example.  Why?  Well, one reason might be that he would then have to answer questions about the nature of the Social Security trust fund.  See, the way it's supposed to work is that when we pay FICA taxes, the money goes into a trust fund, where it stays until we are either old enough to access it, or we demonstrate to the Social Security Administration that we are disabled and qualify to access our "retirement" early.  In fact, the Administrative Law Judges who work for the SSA are sworn to protect the trust fund.  Except that the trust doesn't exist as such.  Instead of being a giant pile of money, it a giant pile of IOU's, because the government accesses it routinely to fund other programs, replacing the money with notes.  Think of it as taking money out of your kids' college fund to pay for home repairs, and counting on the odds of your kids actually deciding to attend college - maybe one of them won't go; maybe a lot of the people who pay FICA will die tragically before they can retire or die before they receive what they paid in.  Of course, if all of your kids decide to go to college, you can simply borrow money for student loans.  Our gov't simply borrows money from China.  anyway, the point is that Obama probably doesn't want to add to the already raging fire that is our runaway spending the fact that all the money we've paid into FICA to insure "retirement with dignity" has been treated like some kind of slush fund. 

What can really be said about the Cut Cap and Balance Act?  It all sounds good, but there are two problems: first is timing - do we really want to start the practice of amending the Constitution when there is a ticking time bomb?  While I feel that a Balanced Budget amendment would be great and I can only believe that the reason it wasn't part of the original document is that the Founding Fathers couldn't believe that their form of government could ever grow to be so irresponsible with money.  this is a far different animal than the Obamacare rush-job, but it still sets a poor precedent.  I think we can do without a government that establishes the practice of exploiting every crisis.  The second problem is the Senate.  This would never clear the Senate...the Senate hasn't put together a budget for two years, and now the House wants to force a balanced budget!  So, sound idea but a big waste of time.

The Gang of 6 - Original Formula!  This seems to be the most interesting development.  Cut spending, lower tax rates for personal and corporate income, eliminate tax loopholes...Mason likey.  This is the first real approach we've seen towards real tax reform.  It shows that people are getting serious about the real role of taxes in our society - funding the essential functions of government.  Having a mortgage-interest deduction might be useful in trying to incent home ownership, but what real role of government does that support?  A healthy economy?  Let's look back over the past 4 years of wreckage and see what easy and widespread home ownership did to our economy.  Lowering the corporate tax rates will do more to improve our economy than providing a means that allows people to buy more house than they can actually afford will. 

I do not expect any solution to be perfect, but a solution that does more than just kick this can down the road is essential.  What is becoming painfully clear is that we are getting zero leadership from the President - these matters are clearly beyond his comprehension and do not mesh with his vision of America.  If the Republicans are smart, they will keep this out of Obama's hands until the time that he has to either sign or veto the legislation.

Buy This Book

(h/t to Scott @ Powerline)

A new book detailing the mortgage bubble that led to the financial crisis is out.  It's called "Reckless Endangerment" and you can get it here.

Here's an excerpt from NYT book review that's sure to get your blood boiling:

The authors, Gretchen Morgenson, a Pulitzer Prize-winning business reporter and columnist at The New York Times, and Joshua Rosner, an expert on housing finance, deftly trace the beginnings of the collapse to the mid-1990s, when the Clinton administration called for a partnership between the private sector and Fannie and Freddie to encourage home buying. The mortgage agencies’ government backing was, in effect, a valuable subsidy, which was used by Fannie’s C.E.O., James A. Johnson, to increase home ownership while enriching himself and other executives. A 1996 study by the Congressional Budget Office found that Fannie pocketed about a third of the subsidy rather than passing it on to homeowners. Over his nine years heading Fannie, Johnson personally took home roughly $100 million. His successor, Franklin D. Raines, was treated no less lavishly.

Fannie paid academics to do research showing the benefits of its activities and playing down the risks, and shrewdly organized bankers, real estate brokers and housing advocacy groups to lobby on its behalf. Essentially, taxpayers were unknowingly handing Fannie billions of dollars a year to finance a campaign of self-promotion and self- protection. Morgenson and Rosner offer telling details, as when they describe how Lawrence Summers, then a deputy Treasury secretary, buried a department report recommending that Fannie and Freddie be privatized. 

All this gave Fannie’s executives free rein to underwrite far more loans, further enriching themselves and their shareholders, but at increasing risk to taxpayers as lending standards declined. A company called Countrywide Financial became Fannie’s single largest provider of home loans and the nation’s largest mortgage lender. Countrywide abandoned standards altogether, even doctoring loans to make applicants look creditworthy, while generating a fortune for its co-founder, Angelo R. Mozilo. Meanwhile, Wall Street banks received fat fees underwriting securities issued by Fannie and Freddie, and even more money providing lenders like Countrywide with lines of credit to expand their risky lending and then bundling the mortgages into securities they peddled to their clients. The Street, Morgenson and Rosner say, knew lending standards were declining but maintained the charade because it was so profitable. Goldman Sachs even used its own money to bet against the bundles — making huge profits off the losses of its clients on the very securities it had marketed to them. Eventually, of course, everything came crashing down.

As Treasury secretary, Robert Rubin, formerly the head of Goldman Sachs, pushed for repeal of the Depression-era Glass-Steagall Act that had separated commercial from investment banking — a move that Sanford Weill, the chief executive of Travelers Group had long sought so that Travelers could merge with ­Citibank. After leaving the Treasury, Rubin became Citigroup’s vice chairman, and “over the following decade pocketed more than $100,000,000 as the bank sank deeper and deeper into a risky morass of its own design.” With Rubin’s protégé Timothy F. Geithner as its head, the New York Federal Reserve Bank reduced its oversight of Wall Street.

A tight web of personal relationships connected Fannie, Goldman Sachs, Citigroup, the New York Fed, the Federal Reserve and the Treasury. In 1996, Fannie added Stephen Friedman, the former chairman of Goldman Sachs, to its board. In 1999, Johnson joined Goldman’s board. That same year Henry M. Paulson Jr. became the head of Goldman and was in charge when the firm created many of its most disastrous securities — while Geithner’s New York Fed looked the other way. As the Treasury secretary under George W. Bush, Paulson would oversee the taxpayer bailout of Fannie Mae, Freddie Mac, Goldman, Citigroup, other banks and the giant insurer American International Group (A.I.G), on which Goldman had relied. As head of the New York Fed, and then as the Treasury secretary, Geithner would also oversee the bailout.

 And, once again, no one has gone to jail over any of this.  

Bank of America Has More $$ Than the Treasury!!!

Click here for the content that should have been displayed.  Sorry for any confusion.

Senate Budget Watch, Part 2

Yesterday Sen Jeff Sessions (R. Alabama) protested a vote on the VA Appropriations bill that was on the Senate floor.  Sessions had argued that the Senate cannot take up a spending bill when there is not a budget.  As everyone knows, the Democrat-controlled Senate has not fulfilled it's Constitutional obligation to produce a budget in over 2 years.

All 56 Democrat senators voted against his protest (all 40 present Republican Senators supported Sessions), and so the Democrats in the senate moved forward a spending bill without first passing a budget.

The obvious conclusion to draw here is that the Dem's continue to view the constitution as an irritant and as a set of rules that they do not need to heed.  Allowing the Dem's to erode the Constitution starts our country off on a dangerous path - we now have lawmakers who view themselves as above the law.

US Default Watch, Part 6

Where does the President get his numbers?  Today he has claimed that 80% of Americans support the Dem's plan to raise taxes.  I took an informal poll around my office - 0% of them want to pay higher taxes for any purpose.
This is not the first time that the President has invented polls or results to show that he has the support of the American people.  The number that I feel best tells the story is this one: 47%-39%.  Obama is losing in the polls by 8 points to a generic Republican (and, as luck would have it, we seem to have a number of generic Republicans competing in the primaries!).  Obama's response: keep telling lies.
Obama claims to want to see a "serious" plan.  I doubt he'd recognize a serious plan if Paul Ryan took one to the floor of the house complete with graphs and charts.  So, Obama appears to be defining a "serious plan" as one that pleases him.  I guess this means that we have to eat our peas, but he doesn't.  Instead, he threatens - don't call his bluff, he won't send out Social Security checks, etc.
He walks out of meetings, and then scolds Congress for not addressing this sooner, because we are on the verge of an economic Armageddon.  Obama's previous plan and speech were jokes that made no sense and caused no laughter.  He says he is more patient than Reagan was - I have no idea what this comparison is supposed to mean; Reagan was a LEADER.
I think Krauthammer gets it right today when he suggests that we need to call Obama's bluff.  If he won't lead, make him fall in line.

US Default Watch, Part 5

More news from today's meetings: Obama walk out of meeting with Cantor.  Let's just say, for the sake of argument, that Eric Cantor displayed poor manners two weeks ago when he walked out of Debt Ceiling talks out of frustration with the Deomcrats' insistence on tax increases.  This prompted some Democrats to criticize the Republicans and claim that it was time for an adult moment.  Obama then gave his infamous press conference where he was perceived to be a dick. Part of that presser included Obama proclaiming himself to be a leader and provider-in-chief of...er...leadership.  A few days ago Obama said we have to eat our peas.  This week has seen Little Timmy Geithner telling everyone that the sky is falling and that it is imperative that a deal that will increase the debt ceiling be finished by next week.  Bernanke is starting new QE and hinting that we might need more stimulus (Remember that definition of insanity: doing the same thing over and over and expecting a different result?).  Yesterday Obama started in on the scare tactics of the threat of not being able to send out Social Security checks on Aug 3rd due to not having any money.  And today Obama walks out of the Debt Ceiling negotiations.  Man, you just can't buy that kind of leadership.  Also, it turns out that Obama's skin has not thickened, as he can't handle unscripted questions from the press. These are the guys who have been carrying his water for 3 years, and now he can't take their questions?! Has he ordered the removal of all the mirrors in the White House, too?

The part I found particularly interesting was the staffer who claimed that Obama lit Cantor up, and that if the nation could have only seen it, Obama would win in a landslide.  Aside from the tacit acknowledgment that Obama comes across as slightly more human than Al Gore did, this seems to be a recognition that all is not well on the re-election front, and that there is at least an admission that Obama is going to have a serious fight on his hands...and this is from an aide!

Don't Take Your Eyes Off The Chairman

Charles Hugh Smith, who writes at oftwominds.com, posted a brilliant piece on the economy and the debt crisis today.  It is called "Poverty In America, Pt 1."   I recommend reading the whole thing, but here are a few tidbits from it:

As of August 2011, it will be three years since the global financial meltdown. In three years, the Savior State has borrowed and blown $6 trillion maintaining the Status Quo, and the Federal Reserve has printed almost $3 trillion and shoveled that vast sum into "risk assets" to keep housing on life support and the stock market rising. The Fed has also devalued and debased the dollar, stealing wealth from the citizenry and holders of U.S.-denominated debt in the process, to serve two goals: 1) spark inflation and thus avoid deflationary deleveraging of the nation's fast-growing mountain of debt, and 2) to enable servicing that debt with cheaper dollars.

The crumbling of the credit-bubble economy has mortally wounded the middle class, and this has created a serious problem for the Power Elites. In extending the credit-bubble economy--that is, "wealth" is created via exponential expansion of debt--to housing, the Power Elites undermined the multigenerational bedrock of middle class wealth.
With housing equity stripped away, the erosion of middle class income and non-housing wealth has now been exposed.
The Power Elites' other wealth technique, globalization, has also gutted the middle class below the top 10% level of technocrats, and decimated the working class that had aspirations of joining the middle class, i.e. the lower middle class. 

The Power Elites' response--borrow and blow trillions to prop up the engine of their own wealth, the banks, borrow trillions from future taxpayers to maintain the current Status Quo, and devalue the U.S. dollar--have all failed to reflate housing or middle class incomes. Rather, these actions only succeeded in enriching the top 10% who own the majority of stocks. The prop-job in stocks has yielded a propaganda coup, as the Status Quo has successfully identified a rising stock market as "proof the recovery is here," but this propaganda is starting to wear thin as 90% of the populace are realizing they are still poorer than they were three years ago.

The Power Elites cannot understand why making credit cheap isn't creating jobs. Like decrepit generals fighting the last war, they keep sending waves of credit into the system to overpower deflation and reignite "animal spirits," but the waves of credit are being mowed down by deleveraging and the exhaustion of credit as a stimulus.
In other words, they are clueless to the reality that conventional economics has failed. They have no Plan B. Their only plan, such as it is, is to borrow more money and spend it propping up the current Status Quo. Unfortunately for them, the middle class is unraveling at the edges, and the surest evidence of that is the loss of middle class jobs.
Without good-paying jobs with benefits and rising housing equity, then the citizens have no stake left in the Status Quo.

The problem is that the Status Quo has overshot systemic equilibrium. To keep the game going, the debt load is rising at almost $2 trillion a year at the Federal Level, and the Fed's manipulations are requiring a cool trillion a year in printed money shoveled into risk assets.
The interest on that skyrocketing debt will eventually crimp the borrowing binge, and the Fed's games are igniting not job growth but inflation, which further saps what's left of middle class purchasing power.
The Fed's manic manipulations are losing their effectiveness. Like insulin in a pre-diabetic patient, the Fed's massive injections of money are not stimulating jobs or productive investment; each new announcement of "easing" generates a smaller jolt of ever-shorter duration. At some point the economy will respond to the Fed's "easing" injection by going straight into diabetic shock.

As the debate or battle over the debt ceiling is waged on one front, we have to keep an eye on what Bernanke and Geithner are doing, and not be distracted.   Because it would be easy to miss that more QE is occurring as we speak.

Post Of The Day

Ben Bernanke uttered the dreaded words QE3 today, suggesting that more stimulus could be right around the corner if this economy doesn't start to improve.  So we finally reached the point where the Chairman of the Federal Reserve has resorted to making threats against the economy.  First Obama tells us we have to eat our peas, and now this.  I expect tomorrow that unemployment will be sent to bed without dessert.

My favorite post on the blogowebosphereonet come from our friend Tyler Durden who runs Zero Hedge.  his post is called: 

Gold Goes Parabolic As Chairsatan Resumes Vendetta With US Dollar, Middle Class 

It's an interesting post, and it might scare your lunch out of one end of you or the other.  It reminds us that the people in charge have either no idea what they are doing, or they know exactly what they are doing, and they are up to no good.

 

US Default Watch, Part 5

Looks like we're playing a game of chicken, folks. 

From The Oval:

        Just hours before another White House meeting, the top two Republicans in Congress blasted President Obama today for a debt reduction proposal they say is more specific about taxes than actual budget cuts.       "In my view the president has presented us with three choices," said Senate Minority Leader Mitch McConnell, R-Ky., referring to efforts to raise the $14.3 trillion debt ceiling. "Smoke and mirrors, tax hikes, or default."
"Republicans choose none of the above," McConnell said. "I had hoped to do good; but I refuse to do harm."
        Meanwhile, House Speaker John Boehner, R-Ohio, demanded more specifics from Obama, saying, "Where's the president's plan? When's he going to lay his cards on the table?"
"This debt limit increase is his problem," Boehner said. "I think it's time for him to lead by putting his plan on the table, something that the Congress can pass."

Have We Bitten The Hand That Feeds?

Over at Zero Hedge, Charles Hugh Smith has submitted an interesting post entitled: Here's Why Small business Isn't Hiring, and Won't Be Hiring.  It's not terribly long, especially given the subject matter, but well worth the read...if you are at all interested in the current state of the engine that drives our economy.  Here are some highlights:

1. The high costs of cartel healthcare, a.k.a. Sickcare in the U.S. Corporate America and small business share one millstone: the absurdly high costs of healthcare in the U.S., which have been pushed onto the employers more as a historical accident than out of rational policy.

Here is a report worth studying: UNDERSTANDING U.S. HEALTH CARE SPENDING: 5 percent of the population is responsible for almost 50 percent of all healthcare spending. At the other end, half of the population accounts for just 3 percent of spending.

That 8% of "extra" money our nation squanders on paperwork, fraud, profiteering, needless procedures, useless drugs, $250,000 spent on the last few months of very ill patients' lives and all the rest of the insane sickcare system comes to $1.25 trillion. That is a "tax" on the economy which is paid mostly by employers, the self-employed and taxpayers via the monumental waste in Medicare and Medicaid.

2. Politicos and employees don't understand small business. How many politicos started a business from scratch and are still running a small business of 25 or fewer employees? Basically none. How many employees understand what it feels like to be skating close to the edge of emotional and financial collapse, month after month?

Employees wonder why their pay isn't rising, but the employer's compensation costs have been steadily climbing for decades thanks to sickcare and other systemic costs. As I have often said here: you'd have to be literally insane to hire anyone in this economy unless that employee will pull in so much new business that the costs are justified. Unfortunately, that is a rare circumstance.

Out-of-touch politicos think that trimming the employer's share of FICA (Social Security) 2% is going to make a measurable difference in a 100% labor overhead (i.e. you hire a worker at $2,000 per month and the overhead costs $2,000 per month)--what a joke. Great, my overhead per employee dropped to 98% from 100% while my sickcare insurance leaps by 10% a year.

5. The "flexible, free-lance/ independent contractor" model of employment which has been lauded for the past decade as the key to America's rising productivity has some serious downsides--and I should know, as I've been a free-lancer for 20 years.

The basic "innovation" here is to offload that 100% overhead expense onto the employee via paying them more as an independent contractor or free-lancer. But that model has numerous structural weaknesses.

-- I.C.s (independent contractor) don't qualify for unemployment, so when they lose steady work there is no backup income. There is no 6 or 9 months' grace period where the free-lancer can work on Plan B--they're relying on savings the moment they cash their last paycheck.

-- We free-lancers pay our own taxes quarterly. Once your income drops then it's dangerously tempting to short-change that next quarterly payment or skip it entirely. Yes, you will owe less because you're making less money, but those with formal jobs don't realize we all pay 15% FICA (self-employed Social Security) on every dollar earned. Toss in state and Federal income taxes and even supposedly low rates (15% Federal, etc.) quickly add up to 35% or more. That means big tax payments, and big tax problems if you fall behind.

-- Free-lancers' income can drop sharply but that won't be reflected in any employment statistic; it will only show up in declining tax revenues.

-- Laying off I.C.s and free-lancers is the low-hanging fruit for enterprises cutting back. Based on what I've read and heard, most of these initial "easy" cuts to head count have already been made. So the next wave of lay-offs will be formal employees.

The Sky Is Falling

Tim "Chicken Little" Geithner made the rounds today to proclaim that there must be an agreement on the debt ceiling by next week.  Lately, Timmy has been the "bad cop" to Obama's "conciliatory and compromise-seeking good cop."  Timmy Little insists we are doomed...DOOMED...unless we do something quickly.

Timmy says that "failure is not an option."  Presumably, upon uttering those words, Timmy's pants got a little tighter.  Other than that, I fail to see any effect.  Failure may not be an "option" (though it is) but it certainly becoming a well-recognized result of the Obama administration's economic plans.  Perhaps we are getting a little too accustomed to failure.

In a surprise turn, Timmy suggests that next week is the deadline, because Congress will need time to draft the legislation.  Amazing.  Is it possible that the Democrats have learned from prior mistakes and actually see the wisdom in not crafting hurried legislation out the door?  Or have they switched and believe that it's better to hasten the decision-making process so they have more time to alter a deal made under duress?  Here's an idea: stop following leaders who politicize everything and can't look far enough down the road before it's too late.  Suddenly this issue is all about eating peas, sticking it to fat-cat jet plane owners and best-selling authors instead of asking Harry Reid where the damn budget has been for the past 2 years.

Finally, Timbo adds this:

Geithner also said that any deal to cut deficits would have to be good for U.S. economic growth and would have to include some increased tax burden for the wealthy.

"The president has proposed some very sensible tax reforms that would eliminate loopholes and ask the wealthiest Americans to pay a modest additional share of the burden,"

 First - why exactly?  Oh, right, because this is a crisis that can be turned into a political opportunity to redistribute wealth.  To be clear, Obama wants the people who already pay the most in taxes to pay more so that the people who pay nothing can continue to receive the same amount of entitlements that they currently do.  I am interested in which economists not named Paul Krugman believe that increasing taxes during a recession and economic growth are not mutually exclusive.  At one point in time, even Obama claimed that raising taxes during a recession was a bad idea and would not help the economy. 

Once again, when can we get some adults in there? 

US Default Watch, Part 4

Last week Charles Krauthammer provided this take on Obama's approach to deficit reduction.  It seems to reflect a high level of anger, which is understandable  - what is not understandable is that more Americans do not share this view!  Krauthammer points out Obama's attempts thus far at debt reduction:

• Ignored the debt problem for two years by kicking the can to a commission.
• Promptly ignored the commission’s December 2010 report.
• Delivered a State of the Union address in January that didn’t even mention the word “debt” until 35 minutes in.
• Delivered in February a budget so embarrassing — it actually increased the deficit — that the Democratic-controlled Senate rejected it 97 to 0.
• Took a budget mulligan with his April 13 debt-plan speech. Asked in Congress how this new “budget framework” would affect the actual federal budget, Congressional Budget Office Director Doug Elmendorf replied with a devastating “We don’t estimate speeches.” You can’t assign numbers to air.

 Krauthammer surmises the rationale behindit all:

         Obama has run disastrous annual deficits of around $1.5 trillion while insisting for months on a “clean” debt-ceiling increase, i.e., with no budget cuts at all. Yet suddenly he now rises to champion major long-term debt reduction, scorning any suggestions of a short-term debt-limit deal as can-kicking.
         The flip-flop is transparently political. A short-term deal means another debt-ceiling fight before Election Day, a debate that would put Obama on the defensive and distract from the Mediscare campaign to which the Democrats are clinging to save them in 2012.
A clever strategy it is: Do nothing (see above); invite the Republicans to propose real debt reduction first; and when they do — voting for the Ryan budget and its now infamous and courageous Medicare reform — demagogue them to death.
         And then up the ante by demanding Republican agreement to tax increases. So: First you get the GOP to seize the left’s third rail by daring to lay a finger on entitlements. Then you demand the GOP seize the right’s third rail by violating its no-tax pledge. A full-spectrum electrocution. Brilliant.

Obama has continued to rail against the Corporate Jet Owners as his personal whipping boys of greed.  He conveniently fails to remember that he supported the tax-break, the reason being that the private jet industry employs a lot of people.  But today it serves his purpose to trot them out as the example of everything that is wrong with our society.  Krauthammer does an interesting turn of math and solves for "X" thusly:

        And what have been Obama’s own debt-reduction ideas? In last week’s news conference, he railed against the tax break for corporate jet owners — six times.
        I did the math. If you collect that tax for the next 5,000 years — that is not a typo — it would equal the new debt Obama racked up last year alone. To put it another way, if we had levied this tax at the time of John the Baptist and collected it every year since — first in shekels, then in dollars — we would have 500 years to go before we could offset half of the debt added by Obama last year alone.

This is exactly the kind of fact-checking that every debt-reduction plan should be subjected to.  We are not impressed with bogeymen or greed-heads as scapegoats or false solutions.  Every plan needs to detail where the cuts are going to be and the actual result reflected in the balance sheet.  What Obama is suggesting is nothing more than more tactics of class warfare and attempts at wealth redistribution. 

US Default Watch, Part 3

Yesterday, House Speaker Boehner rejected the President's plan to reduce the deficit.  Boehner cited the proposed tax hikes as one his main reasons.

“The White House will not pursue a bigger debt reduction agreement without tax hikes,” the Ohio Republican said in a statement released Saturday night. “I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase.”

The President's plan was to attempt to reduce the deficit by $4 trillion over the next ten years by relying largly on tax increases to do so.  Boehner is pushing for a plan in which the deficit is reduced by $2 trillion but achieves this without increasing taxes, which is to say, it would be achieved through cuts and through reducing taxes but expanding the tax base.

One philosophical issue that the President's plan raises is what happens when we achieve the $4 trillion reduction, and what will occur during that ten years.  First, will taxes then be reduced?  Hard to say - depends on who is in power then.  We can count on a few things, though - Obama will have put the hard decisions off to another, future set of leaders but will take credit for his attempts to tackle the deficit.  What we don't know is what effect higher taxes will have moving forward.  We are in a recession TODAY.  50% of households pay zero taxes TODAY.  So, we would be thrusting this burden onto the backs of the wealthy, as well as onto the backs of those who are in the unfortunate position of being too rich to avoid taxes but too poor to weather a decade of higher taxes.  History tells us what tax hikes during a recession does to the economy, and it ain't good.  So, how do we count on the revenue from those tax increases to actually materialize?  Also, isn't the worst thing we can do is allow the government to have MORE of our money?  I mean, look at the mess they've created with what we've already given them.

James Pethokoukis has a terrific take on the proposal. He quotes a source with this insight:

Their fierce insistence on higher taxes is beyond bizarre. After months of demanding ‘clean’ increase to avert economic calamity (default), WH threatens economic calamity (default) unless they get economic calamity (trillions in tax hikes). No wonder these guys are governing over an economic calamity (9.2% & growth malaise), w/ an economic calamity on the horizon (debt explosion as mapped out in president’s budget). The bipartisan consensus on tax reform (broader base & lower rates) was championed by President’s fiscal commission, and yet now is being rebuked by the President. Lowering top rates that would help make America more competitive was too large a leap for a true class warrior.

 

US Default Watch, Part 2

The 14th Amendment issue.

Recently Tim Geithner referenced the 14th Amendment to the Constitution as it applies to the debt ceiling.

Some left-leaning media-types have taken that to suggest that either the debt ceiling is in itself unconstitutional or that the President has the ability to side-step congress and act unilaterally.

Well, the answer to that issue seems to be a resounding NO.

Further, the General Counsel for the Treasury has sent a letter to the NYT in which he states that Geithner believes that the issue is part of Congress' powers, and not the President, but also wants to clear the record that Geithner never suggested that the 14th Amendment gives the President the power to bypass Congress on this issue.

So, there we have it: Geithner never said that the President has the authority to ignore the debt ceiling, and only the wishful thinkers who view the Constitution as being subject to fanciful interpretation are clinging to this idea.

What I find interesting is that these people were audacious enough to lodge hope that WH would employ  "an obscure clause" to advance their position, while a plain reading, oh, say, the 2nd Amendment is abhorrent.  I think this underscores the importance of an obscure power of the President - the power to nominate judges and SCOTUS justices.

Senate Budget Watch, Part 1

[Crickets]

US Default Watch, Part 1

Tim Geithner has claimed that a failure to raise the debt ceiling by August 2nd will result in the US defaulting on its debts, which will in turn have "catastrophic" effects...on stuff.   Until statements to the contrary arise, I am going to ascribe that view as the White House's position on the issue.  If Geithner's view is correct, then it would follow that the debt ceiling needs to be increased so that we can sleep at night for another year and hope that Obamanomics finally gets enough fairy dust together to magically lift the US out of this recession.

But it doesn't appear that the issue is that simple...mainly because not everyone who has a say in the matter agrees with Geithner's conclusion.  That is not to say that the debt ceiling is irrelevant, but rather that the result of maintaining the current debt ceiling would not catastrophic.  There is simply no getting around the fact that our country is drowning in national debt - we are committed to spend more money than we can raise right now. The issue facing congress is essentially what expenditures should be prioritized, and which can be reduced or eliminated in the future.  

The underlying concern in Washington is what is the plan going to be moving forward?  One fear is that Moody's is going to lower the US's credit-rating, thereby making it either more difficult or at least more expensive for America to borrow money...to pay its debts.  Well, would that really be the worst -case scenario?  If analysts who disagree with the WH and believe that the US will not default are correct and the result of Aug. 2nd passing with no action is that the US is downgraded, won't we still survive?

Sen. Pat Toomey believes so.  He points out that the Debt Ceiling relates to our ability to borrow money, and not our ability to raise money, and the US doesn't become broke at the stroke of midnight - we still have the ability to pay some debts.  His position is essentially that confidence in US Bonds will not evaporate on August 3, and that we can survive by showing that our nation is serious about paying its debts and is working towards a national policy of fiscal responsibility - hence his support for a Balanced-Budget Amendment to the Constitution.

There is no easy way out of this situation for the US - no solution comes without its share of pain.  On one hand, we can raise the debt limit and keep borrowing money on the hopes that the economy turns around before we get back to this point.  However, with unemployment creeping higher  - number that is underscored by the vast numbers of people who have given up seeking employment - and still no budget proposal from the Democrat-controlled Senate, it seems at best a risky wager that we will soon see a light at the end of this tunnel.  If the economy does not turn around, we will quickly find ourselves back here with an even bleaker view.  On the other hand, now may be the time to make a stand, get serious about the budget, borrowing and spending and make some hard cuts so we can start to build moving forward.

But then, the Democrat keep going back to their same old well - minimal cuts that save a nominal amount of money spread-out over a long-period of time, plus immediate tax increases.  In short, raise taxes and kick the can down the road and proclaim the problem solved.

And Now The Part Where We Display How Reactionary Our Society Really Is

If the Casey Anthony trial were not a large enough spectacle already, the industry of outrage's flames are reaching the clouds.  Ok, we get it - a lot of people are upset at the verdict.  However, being upset or disappointed isn't enough for some people, and so we see full-on outrage.

But now things have gone too far, I think.  Now we have Caylee's Laws popping up in a few states.  The idea is that it would be a separate felony for a parent or caregiver of a child to fail to report the child's death or disappearance within a certain amount of time after the discovery of said death or disappearance.  At first blush, it's easy to think that this is a good idea.  One might think that such a law will help ensure that a nefarious parent or caretaker won't be able to get away with...something?  The theory behind the law seems to be that Casey Anthony got away with murdering Caylee because she waited a few weeks before reporting Caylee as missing.  Presumably, if this type of law had been in effect in Florida, Casey could have been convicted of a felony and everyone in America would be happy and unicorns would appear and fart rainbows all over the place. Of course, Caylee would still be dead...


I get that new laws are drafted to meet new deficiencies as society evolves.  This type of legislation does not represent a legitimate attempt to address a new area of lawlessness.  Rather, it is indicative of how reactionary we are with regard to the law.  Children are not a new aspect of society, nor is the need to protect children or recognize that children are a vulnerable class.  Casey Anthony represents an anomaly not the norm.  How many similar cases have there been?  I don't expect that so-called Caylee's Laws will have any impact towards protecting children, and therefore the law is merely another tool to extract vengeance when a child is killed. I also find the premise that a parent/caretaker who kills a child would then have a legal obligation to report the death or face more criminal charges somewhat bizarre.

The kind of logic behind Caylee's Law would be better used if we outlawed prosecutors from bringing such garbage cases to the jury.  I don't mean to suggest that Casey is innocent; the prosecution simply had no chance of proving a murder case and should have realized that at the outset.  But that's just my knee-jerk reaction...

In other important news: (h/t: Lucianne)