This past week the administration announced its choice for the first credit czar at the new Consumer Financial Protection Bureau. This bureau was created as part of the supposed Wall Street reform bill recently passed by Congress. This new bureau, which represents nothing more than another layer of useless Washington bureaucracy, will be housed within the Federal Reserve-- one of the most anti-consumer institutions in Washington.
The appointee named to run the bureau is an Ivy League professor. By her own admission she is an academic, not a business person. She has very little real world business experience with the highly complex financial instruments she will oversee. The administration has done nothing to refute her characterization by some in the financial press as an anti-business, ivory tower leftist with an aversion to free market principles.
She also admits to being told, or warned, that the big banks always win in Washington - yet she trumpeted the creation of this new agency as a win against those banks. I would caution her against declaring victory too soon.
Outrageously, she has been appointed as a “special advisor” to design and lead the bureau, but the administration has not disclosed the exact length of her term. There will be no Senate confirmation hearings, nor will the public or the financial industry be allowed to comment on her appointment. We simply are expected to accept the appointment of an enormously powerful regulator without question, and without regard to the constitutional requirement that the Senate advise and consent with regard to her appointment. This means you, as a voter and citizen, effectively have no say whatsoever for the duration of her appointment. In the meantime, she has unprecedented new powers over private business decisions.
The truth is that this new bureau is just more of the same ineffective and damaging regulation we typically get from a crisis. Just as the FDA serves big pharmaceutical companies, not patients, and just as the SEC serves Wall Street, not investors, this agency will end up serving the banks. All regulatory agencies eventually become co-opted by the industries they regulate, and they become chiefly concerned with restricting the entry of new competitors and protecting market share for the big players. This new bureau is not likely to straighten out Wall Street, so much as it will instill a false sense of security in the public about banking and investing again.
No bureaucrat, no federal agency, and no ivory tower academic can replace the regulatory powers of the free market. “Caveat emptor” remains the rule for intelligent investors and depositors. Buyers always need to beware, especially when politicians say they have it all under control.
Real reform starts with transparency and an adherence to the rule of law. The administration would do well to adhere to the law, rather than shoving a new economic czar down our throats without congressional involvement. Real reform would mean taking steps toward restoring sound money and getting back to the Constitution. The Constitution does not allow for favors to special interests, or handing out public money to keep private businesses afloat. The Constitution necessitates a small, impartial government that first and foremost, protects liberty, and sees all citizens as equal. It does not recognize a special banking class. The fact that measures to achieve these ends are still quashed tells me that indeed, the banks do still win in Washington.
Tuesday
ON MORE STIMULUS SPENDING
Faced with continuing economic decline and an impending election, the administration, predictably, is entertaining the idea of another stimulus package. To explain why the last one didn’t work, adherents to the Keynesian economic philosophy are claiming that they actually did work - it just looks like they didn’t because we don’t realize how much worse off we would be right now without trillions of dollars of public spending. The last administration bought into Keynesianism just as much as this one does, unfortunately. Until we have leaders who understand that debt is not the way to prosperity, there will be no stopping runaway government spending.
While it is nice to hear about business tax breaks, the positive results of these tax cuts will be dwarfed by its negative effects. First of all, $200 billion or so in temporary tax cuts and credits to businesses are nothing compared to the $3.8 trillion in tax hikes that will hit the economy like a ton of bricks on January 1, 2011 if the Bush tax cuts are not extended by Congress.
Second of all, businesses are reluctant to hire and invest, not because they are looking for temporary credits, but because of future uncertainty; they simply don’t know what the government is going to do next and how future government policies will affect decisions they make now. What new costs and regulations will be placed on them with healthcare reform and financial services reform? Will Congress convene a lame-duck session this winter to pass cap-and-trade and other destructive legislation? What will the cost of compliance be for hiring new employees, and will that force them to simply lay off anyone they hire now? Worse, will the government come up with fines or additional costs if businesses have to lay people off in the future? Right now, the safest thing for businesses to do is nothing. Until we regain respect for the rule of law and remove some of this uncertainty, I’m afraid none of these temporary promises, made right before an election, will do much towards any economic improvement.
The other glaring problem with this proposed stimulus package is that it couples tax cuts with spending increases, which makes no sense when we are already heavily indebted to foreign countries. We should be cutting taxes and slashing government spending dramatically. The private sector simply cannot bear the burden of our engorged public sector. In fact, one reason earlier stimulus programs did not result in any private sector growth is because large amounts went to the public sector. Indeed, the spending that the administration is now proposing arguably constitutes a bailout of the public sector and various union allies of the administration.
This administration is falling into the same dangerous trap we fell into during the Great Depression, as did the Germans leading into their hyperinflation of the 1920’s. The temptation is to do something, anything, proactive to attempt to stimulate the economy, but history has shown us that governments cannot spend their way into prosperity. The best thing government could do is get back to its Constitutional limitations and let the economy stabilize, heal and recover without the crushing burden of government holding it back.
While it is nice to hear about business tax breaks, the positive results of these tax cuts will be dwarfed by its negative effects. First of all, $200 billion or so in temporary tax cuts and credits to businesses are nothing compared to the $3.8 trillion in tax hikes that will hit the economy like a ton of bricks on January 1, 2011 if the Bush tax cuts are not extended by Congress.
Second of all, businesses are reluctant to hire and invest, not because they are looking for temporary credits, but because of future uncertainty; they simply don’t know what the government is going to do next and how future government policies will affect decisions they make now. What new costs and regulations will be placed on them with healthcare reform and financial services reform? Will Congress convene a lame-duck session this winter to pass cap-and-trade and other destructive legislation? What will the cost of compliance be for hiring new employees, and will that force them to simply lay off anyone they hire now? Worse, will the government come up with fines or additional costs if businesses have to lay people off in the future? Right now, the safest thing for businesses to do is nothing. Until we regain respect for the rule of law and remove some of this uncertainty, I’m afraid none of these temporary promises, made right before an election, will do much towards any economic improvement.
The other glaring problem with this proposed stimulus package is that it couples tax cuts with spending increases, which makes no sense when we are already heavily indebted to foreign countries. We should be cutting taxes and slashing government spending dramatically. The private sector simply cannot bear the burden of our engorged public sector. In fact, one reason earlier stimulus programs did not result in any private sector growth is because large amounts went to the public sector. Indeed, the spending that the administration is now proposing arguably constitutes a bailout of the public sector and various union allies of the administration.
This administration is falling into the same dangerous trap we fell into during the Great Depression, as did the Germans leading into their hyperinflation of the 1920’s. The temptation is to do something, anything, proactive to attempt to stimulate the economy, but history has shown us that governments cannot spend their way into prosperity. The best thing government could do is get back to its Constitutional limitations and let the economy stabilize, heal and recover without the crushing burden of government holding it back.
SUCCESSFUL ECONOMIC POLICIES? FOR WHOM?
Last week, in the wake of another uptick in the official unemployment rate, the administration continued to claim that their economic policies were working, just not fast enough. This administration inherited an unemployment rate of 7.7% and promised a peak of no higher than 8% if their policies were followed. Not only does the administration have a funny way of ending a war, but now they claim their economic policies are successful. For whom, I wonder?
These policies are not working for the 9.6% of Americans who are out of work, nor for the over16% underemployed. They are not working for nearly 3 million Americans who have declared bankruptcy in the last two years, or the 40 million currently on food stamps. Nearly 1 in 6 Americans depend on those and other government anti-poverty programs such as Medicaid and unemployment benefits. As more Americans are added to the unemployment rolls, the tax base from which to hand out their benefits is shrinking. Still, businesses are being taxed and regulated out of the market, adding to the problem. What solutions are put forth? More government spending - even as each citizen’s portion of the public debt is over $43,000 and expected to increase by $250,000 over the next 40 years.
No, this economy is not working for these people. But current economic policy does “work” for some people. For example, it has worked out very well for certain bankers and large corporations, who took on too much risk and got themselves in hot water, and were declared “too big to fail” which is really a euphemism for “friends in high places”. It works well for large, well-connected military industrial corporations, who can always count on perpetual war and conflict to keep them in business. It also works for those on the government’s payroll, which is increasing as the tax base is decreasing.
So where does the government get all this money even as its most obvious stream of revenue dries up? How can it keep spending seemingly indefinitely? Once it steals as much from you as it can get away with through taxation, it steals even more from you through what central bankers like to call quantitative easing, which is more or less the same thing as counterfeiting. When the money is no longer based on a finite quantity of something of value, like a store of gold or silver, the amount of money in circulation is not limited by anything but the restraint of those in control of the printing presses, in our case the Fed and the US Treasury. When increasing pressure is put upon them by irresponsible politicians, it is predictable that out of thin air, more money will be created to satisfy the insatiable appetites of those on political spending sprees. As money becomes more plentiful, it becomes less valuable, and the average citizen suffers again as the value of their savings evaporates. It has happened over and over in history, and what usually follows is the total debasement of the currency, hyperinflation and chaos.
Sound economic policy would be to take our foot off the gas and apply the brakes to government spending as the economic cliff approaches. We must get back to where our economy produces actual wealth, rather than mere paper wealth. The road back to fiscal sanity and a strong economy is simple: Congress just needs to get back to following the Constitution.
These policies are not working for the 9.6% of Americans who are out of work, nor for the over16% underemployed. They are not working for nearly 3 million Americans who have declared bankruptcy in the last two years, or the 40 million currently on food stamps. Nearly 1 in 6 Americans depend on those and other government anti-poverty programs such as Medicaid and unemployment benefits. As more Americans are added to the unemployment rolls, the tax base from which to hand out their benefits is shrinking. Still, businesses are being taxed and regulated out of the market, adding to the problem. What solutions are put forth? More government spending - even as each citizen’s portion of the public debt is over $43,000 and expected to increase by $250,000 over the next 40 years.
No, this economy is not working for these people. But current economic policy does “work” for some people. For example, it has worked out very well for certain bankers and large corporations, who took on too much risk and got themselves in hot water, and were declared “too big to fail” which is really a euphemism for “friends in high places”. It works well for large, well-connected military industrial corporations, who can always count on perpetual war and conflict to keep them in business. It also works for those on the government’s payroll, which is increasing as the tax base is decreasing.
So where does the government get all this money even as its most obvious stream of revenue dries up? How can it keep spending seemingly indefinitely? Once it steals as much from you as it can get away with through taxation, it steals even more from you through what central bankers like to call quantitative easing, which is more or less the same thing as counterfeiting. When the money is no longer based on a finite quantity of something of value, like a store of gold or silver, the amount of money in circulation is not limited by anything but the restraint of those in control of the printing presses, in our case the Fed and the US Treasury. When increasing pressure is put upon them by irresponsible politicians, it is predictable that out of thin air, more money will be created to satisfy the insatiable appetites of those on political spending sprees. As money becomes more plentiful, it becomes less valuable, and the average citizen suffers again as the value of their savings evaporates. It has happened over and over in history, and what usually follows is the total debasement of the currency, hyperinflation and chaos.
Sound economic policy would be to take our foot off the gas and apply the brakes to government spending as the economic cliff approaches. We must get back to where our economy produces actual wealth, rather than mere paper wealth. The road back to fiscal sanity and a strong economy is simple: Congress just needs to get back to following the Constitution.
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