The Debate

I love the spin from the Dem talking heads this morning: Yes, Romney won the debate in spite of the fact that everything he said was full of shit.

That is, if only a real debater had shown up last night instead of Obama, the real debater would have kicked Romney’s ass.

Once again, we are being told that there is nothing wrong with the President's policies, which have crushed the economy, created chronic high unemployment, and added trillions to the national debt. Rather, it is just that the President has not been able "to communicate his policies clearly enough."

The Dem talking heads do not seem to realize that, by jumping in this morning with attempts to refute this or that statement of Romney's, they are merely confirming the President's ineptness: he can't make the case himself, but needs his flacks to make the case for him.

Simon vs Angela, Newt, and Grover

Simon Johnson, the professor from MIT, is a left wing advocate masquerading as an even-handed moderate.

In his recent column and in his book (with James Kwak), White House Burning, Johnson tries to make the case that our current budget/debt crisis is the fault of Newt Gingrich, Grover Norquist, the Tea Party, and other "extreme Republicans," whose tactics of "fiscal confrontation" (that is, their stubborn refusal to raise taxes) are undermining the dollar and destabilizing the American economy and global markets.

Johnson conveniently ignores the fact that much of our current financial distress is the result of actions taken by well-meaning, but economically naive Democratic Presidents and Congresses decades ago. Medicare and Social Security, the two entitlement programs that threaten to blow up government finances in the near future, are essentially creations of the Democratic Party. Social Security was given to us in 1935 by FDR and the 77th Congress, in which Democrats outnumbered Republicans in the Senate 69 to 25 and in the House 322 to 103. Medicare was given to us by LBJ and the 89th Congress, in which Democrats outnumbered Republicans 68 to 32 in the Senate and 295 to 140 in the House. And now there is Obamacare, once again passed by a Democratic President and Congress, and destined to become yet another expansive entitlement program that -- pace the scores from the OMB -- will end up imposing enormous new costs on American tax payers and businesses. To blame our current economic problems on one former Speaker, a lobbyist, and the-catchall-for-all-left-wing-accusations, the Tea Party, while ignoring the massive state entitlement programs created by Democratic Presidents and Democratic majorities in Congress is simply dishonest.

The finances of the Federal Government are in a shambles today not because taxes are too low, but because programs introduced by Democrats are causing Federal spending to rocket out of control. It is this spending and the borrowing required to finance it, and not a bunch of stubborn Republicans refusing to raise the debt ceiling, that threatens to plunge America into extreme financial volatility in the not too distant future. In fact, just about our only hope is that Republicans will take a page out of Ms Merkel's playbook, continue their intransigence, and use the leverage they have to get real reductions in spending and to restore order to our fiscal house.

In the meantime, people like Mr Johnson will continue to try to persuade you that, oh, you had better watch out; all this stubborn, nutso, Tea Party resistance is going ruin America; much better to raise taxes to avoid all these nasty consquences; yes, if we don't raise taxes, the White House will burn again!

The wonderful thing about Grover Norquist is that he is completely unpersuaded by such dishonest pleading. He will listen to all the arguments of the MIT professor and still refuse to raise taxes. He recognizes that America is already on the road to financial perdition as a result of decades of Democratic tax/spend/borrow policies and that our only salvation is to reject these policies and dismantle the entitlement state. The sooner we get down to the business of doing that, the better off we will all be.

Yes, our only hope is if Angela and Grover hold their ground and the American electorate starts to see through the masks of people like Professor Johnson.

For Hillary's sake, Dems should withhold vote from Obama

Democrats need to imagine what the situation will be like for Hillary in 4 years if they vote to reelect Obama now.

Americans will have experienced 4 more years of a stagnant economy, high unemployment, massive deficits and ballooning debt, and government intrusion into our lives. Obamacare will be kicking in: people will be losing their current insurance and doctors, Medicare will be getting cut, and hospitals will be overloaded with tens of millions of new patients added to the insurance rolls by the ACA. States like Michigan and California, which have been dominated by the Democratic Party for decades, will have had 4 more years to deteriorate. (Can you imagine how much more devastation Democratic rule will wreak on California over the next 4 years?)

Hillary will have been an active member of Obama's Democratic administration. Obama's will be the record that Hillary will have to defend. The voter fatigue with the Democratic Party will be simply overwhelming. There is no way that Hillary will be able to be elected under such a scenario.

So, Democratic voters had better decide whether they want to hitch their wagon to Barack for another term and thereby guarantee defeat for Hillary 4 years from now or whether they would rather withhold their vote from Obama this November and at least give Hillary a fighting chance in 2016.

The Dems are toast on Medicare

The Dems' complete misunderstanding of the state of the argument over Medicare is simply stunning. In today's NYT, Roger Cohen writes:

[T]he line of Democrat attack against [Romney] and Ryan is so clear: They are the heartless would-be destroyers of Medicare, the health insurance program for retirees (who abound in battleground state Florida), and Medicaid.

The problem with this line of attack is that the biggest threat to Medicare is posed not by Romney and Ryan, but by Obamacare, which requires that Medicare be cut by $700B to pay for some of the cost of adding tens of millions of new people to the insurance rolls. For example, John McDonough writes in the Boston Globe:

[I]t is undeniable that Congressional Democrats and the Obama White House chose to pay for nearly half the cost of the ACA by reducing Medicare's expected rate of growth by about $450 billion between 2010 and 2019. The number, according to the non-partisan Congressional Budget Office (CBO), is now up to around $700B because three early no-or-little reduction years have been supplanted by three full impact years (2013-2022).

(By the way, as I pointed out in an earlier blog post, the rest of the cost of adding those tens of millions of people to the insurance rolls will be paid for by tax increases.)

To be fair, the Democrats will argue that the $700B in cuts will result from cost savings brought about by the wonderfully enlightened provisions of Obamacare. For example, Ezra Klein writes in WaPo:

[I]n Title III, you’ll find dozens of different efforts to achieve these [cost-cutting] goals. The most famous of them is Section 3403, which establishes the Independent Payment Advisory Board (IPAB). ... . And then there are the subsequent reforms the administration has proposed to save more money. Those can be found on pages 33-37 of the president’s 2013 budget proposal.

In effect, the Democrats are telling seniors: Don't worry. Be happy. Yes, Obamacare does require us to cut $700B from Medicare, but wait until you see how much money IPAB and a couple of other enormous new bureaucracies are going to save us.

Here's where a little "senior" common sense will come in handy. Seniors will ask themselves: When was the last time the federal government created an enormous new bureaucracy and it saved $700B? And then they will say to themselves: And, if the savings don't materialize, real cuts will have to be made to Medicare (after all, those tens of millions of new insureds are definitely coming on board and will have to be paid for) and seniors will be screwed.

Yes, this is the "devastating" argument the Dems will be able to make to all those seniors who abound in battleground state Florida.

Coming out

After much soul searching, I have decided to follow the example of such noteworthy celebrities as news anchorperson Anderson Cooper and come out of the closet and publicly declare my sexual orientation to the whole world: I am a heterosexual. Yes, the fact is: I am a guy.

This was not an easy decision for me to make. Living as a guy in the Bay Area can be very trying at times, in particular, when one has the added pressure of being a socially conservative, white guy. There is so much intolerance for guys in Northern California. I have been subjected to so many hurtful and insensitive guy-bashing comments over the years. In spite of this, I have decided to stand up for my guy rights and let the world know who I really am.

It has been difficult for my family to accept my public declaration of my sexual orientation. Many family members have been ashamed of me for years. Some called me a butch jerk. Some said that my heterosexuality was just a bad choice or a passing phase; with adequate conversion therapy, they claimed, I would be able to overcome my guy impulses. But, when I stood my ground and made clear to them that guy is what I am by nature, little by little, they came around. After all, they only want what will make me happy. Over time I think I have gained their grudging respect. My dream is for all of us one day to be able to walk arm in arm down Market Street in San Francisco in a Guy Pride parade.

I just want everyone to know that I would not have been able to take the enormous step of coming out of the closet and declaring my open guyness without the loving support of my partner, Nancy. In spite of all the vilification that is heaped on heterosexual married couples these days, we have remained monogamous and devoted to each other for over 20 years, dispelling the common misconception that heterosexuals are unable to remain in stable, long-term relationships or raise children. I love, and I am loved.

So, yes, I have embarked on a new era in my life, an era where I shout to all the world unashamedly: I am a heterosexual! I am looking into taking classes in Guy Studies at my local community college to increase my guy awareness. I have also decided to become more politically involved and to dedicate my life to the struggle for guy rights. I call on the members of our government, and, in particular, on President and Mrs Obama, to announce their unqualified support for the guy life style. Only when our leaders are not afraid to step forward and defend all of us, including guys, will tolerance and diversity finally blossom.

I hope that by coming out of the closet and living as an open guy I will help to serve as a role model for other Bay Area heterosexual men and help them take the difficult, yet liberating, step of acknowledging publicly that they, too, are guys.

NYT's take on Paul Ryan

Here's what the NYT editorialized about Paul Ryan this morning:

As House Budget Committee chairman, Mr. Ryan has drawn a blueprint of a government that will be absent when people need it the most. It will not be there when the unemployed need job training, or when a struggling student needs help to get into college. It will not be there when a miner needs more than a hardhat for protection, or when a city is unable to replace a crumbling bridge.

And it will be silent when the elderly cannot keep up with the costs of M.R.I.’s or prescription medicines, or when the poor and uninsured become increasingly sick through lack of preventive care.

What's missing from the Times' diatribe, of course, is any discussion of how a government with $15 trillion of debt on balance sheet (and hundreds of trillions of dollars more off) might actually pay for any of these things. Liberals never seem to be able to understand that it doesn't matter how wonderful and compassionate their vision for social spending is if the government can't actually pay for those programs.

For example, it would also be a wonderful act of compassion, no doubt, if the government bought every US citizen a new car ("Cash for Clunkers" on steroids), but that would raise the question: How would the government pay for this? Or the government could buy us all a new house (that would certainly help underwater homeowners). But how would the government pay for this? Or the government could simply provide permanent unemployment benefits for everyone so that no one would ever have to work again. But how would the government pay for this?

In Democrat la la land all the wonderful benefits of compassionate social programs simply materialize for free. It's as simple as just taxing the rich more or borrowing more money from China. Does any sensible person really believe this is how the world works?

Democrats are children. The addition of Paul Ryan to the discussion brings another Republican adult voice to the table. As Chairman of the House Budget Committee, Ryan has actually grappled with the hard question of how to finance government spending. Senate Democrats have not proposed a budget in 1200 days. Mr Ryan, on the other hand, has introduced budget legislation to the House every year since President Obama took office. Mr Ryan's experience in government finance complements wonderfully Mr Romney's experience from the private business world.

Romney's choice of running mate sends a clear signal that Romney is going run his campaign this fall by wrapping himself in the mantle of fiscally responsible Republicans, like Ryan and Republican governors Scott Walker, Chris Christie, and Mitch Daniels. The contrast for the American people could not be more stark. Do they want to vote for the party of Romney, Ryan, Daniels, Christie, and Walker? Or do they want to vote for the party of Obama (with his trillion dollar deficits and 8.3% unemployment), Jerry Brown (with his bankrupt California government, and $100B train to nowhere), the Senate Democrats (who have not passed a budget in years), and the public service employee unions (whose extravagant pay, benefits, and pensions are bankrupting our municipalities)?

It remains to be seen whether Americans are the country of my parents' generation or whether they have become a bunch of spoiled, whining Greeks?

The incestuous relationship of Obama's Treasury and the Fed

My last blog post was an email to my son about Obamacare and the deficit. I copied a couple of friends on the email. One of those friends, Gene, sent a reply to me and my son with some general comments about how both liberals and conservatives are to blame for the financial pickle we find ourselves in. Here is a new email I sent to my son commenting on Gene’s email and clearing up some of the things he said.

Dear Son,

Gene always likes to masquerade as a kind of Solomonic figure: fair, impartial, apportioning equal amounts of blame to both ends of the political spectrum. But, come November, he will toe the line and vote for Obama and the rest of the Democrats. And, whenever I point that out to him, he flies into a rage.

There is one thing, however, that I do agree with Gene about: the Federal Reserve, under the stewardship of Ben Bernanke and in conjunction with Obama’s Treasury Department, is continuing its massive devaluation of the American dollar. Here’s how they do it.

The Obama administration continues to spend dollars it doesn’t have, running up trillion dollar deficits. When it comes time to pay the bills, the Obama Treasury Department borrows money by issuing debt. That is, the Treasury prints up a bunch of fancy-looking, gilded Treasury certificates that say: "The Treasury Department solemnly promises to repay the face value of this certificate, say, $1000, with interest after 10 years." The Federal Reserve then buys a bunch of those certificates, crediting the Treasury Department’s account with $1000 for each certificate the Treasury Department sells to it. So now the Treasury Department has additional dollars in its account and the Obama administration can keep on spending.

Where, you might ask, do the dollars come from that the Fed credits to the Treasury Department’s account? Excellent question. The Fed creates them out of thin air, with the stroke of a pen (or, in this day and age, with the flow of a few bits over the Ethernet). In other words, the Fed simply declares that now the Treasury has $1000 more in its account, and, voila, $1000 appears in Treasury’s account. This is what is called "fiat money." The Latin word "fiat" means "let there be," as when God said "fiat lux" or "let there be light." So, "fiat money" is money that is created out of nothing; the Fed simply declares "let there be dollars" and the dollars are created.

If this sounds too good to be true, that’s because it is. As with anything, the more you have of it in the marketplace, the less it is worth. Likewise, the more dollars that are circulating through the economy, the less each individual dollar is worth (that is, the less it can buy). This is inflation. There are individuals, like Paul Krugman, who scoff at the threat of inflation, and, so far, they have had the better part of the argument, since inflation has remained relatively tame. But, the signs of increasing inflation are already starting to show up (for example, I spent $4.59 on a loaf of fucking Columbo French Bread in Sacramento the other day and I spent $3.65 this morning to buy your mother a Chai drink at Starbucks; also just look at how much the price of gas has soared over the last ten years). But, regardless of what the current level of inflation is, what normally happens when you flood the economy with enormous amounts of new money is: eventually, hyperinflation rears its ugly head. And, there is no good reason to believe that the Fed’s current actions will not have the same outcome.

Another consequence of the Treasury and Fed's incestuous activities is that, as the Treasury Department issues more and more Treasury certificates, there will be fewer and fewer outside parties that will be willing to buy them. This is already happening, as countries like China have cut way back on their purchases of Treasury certificates. Eventually, the only party that will be willing to buy these certificates will be the Federal Reserve. But, even the Federal Reserve’s capacity to absorb Treasury debt is limited since, as already noted, buying too much of this debt will flood the economy with dollars and trigger hyperinflation. Eventually, the only way the Treasury will be able to sell new debt to outside parties will be by promising to pay higher and higher interest rates. But this will just make potential buyers suspicious that the US will not be able to repay all this debt and will eventually default. And this suspicion, in turn, will just make those buyers even more reluctant to buy Treasury certificates and demand even higher interest rates. This is what’s called a “vicious circle” and is precisely what is happening in Greece, Spain, and Italy right now. Those governments need to keep borrowing more and more money to keep their governments operating, but fewer and fewer parties are willing to buy that debt because they realize how much debt is already outstanding and how shaky the governments already are. Consequently, interest rates for Greek, Spanish, and Italian sovereign debt spiral ever higher, weakening those countries even further.

So, financial Armageddon is coming. As noted, it is already happening in Europe. The Europeans are better off than the Americans, however, in that at least the Europeans are already standing at the edge of the abyss and consequently are actually trying to implement austerity measures that will keep them from plunging in. As Paul Krugman points out, these austerity measures will cause tremendous short term pain in Europe since the European economy will contract and there will be a recession or even a depression there as the governments cut back on their spending and borrowing. But, at least there is some recognition (primarily in Germany) of the problem and some hope that over the long term Europe will eventually get its fiscal house in order and emerge from the other side of this economic minefield. Americans, on the other hand, still delude themselves into thinking that somehow they are special, that the normal laws of economics don’t apply to them. They mock the Germans for fearing hyperinflation and for insisting on austerity. They laugh at Greece and Spain and Italy and say things like: “Nothing like that could ever happen over here.” Americans are like people who have smoked, drunk, and eaten fatty foods all their lives and think that, simply because they have not yet gotten cancer or sclerosis of the liver or had a heart attack, they are healthy. Ha!

The only people who really sense the impending doom are Republicans like Ron Paul, who has been preaching the evils of the Federal Reserve and fiat money for years, or Paul Ryan, who, unlike the Democrats in power, actually proposes a budget, or Grover Norquist, who sees through the "one dollar in new taxes for every three dollars in cuts" bullshit the Democrats always try to pull (they add the one dollar in taxes, but the three dollars in cuts never materialize). So, don't believe for a moment anyone who, like Gene, tells you that the Republicans are just as responsible for the fiscal mess we find ourselves in as the liberal, tax and spend Democrats.

Loving you always and firm in my belief that as your mind ripens you will abandon the liberal path (LYAAFIMBTAYMRYWATLP),

Dad

Update:

Gene replied: "The Fed does not buy Treasury notes directly from the Treasury. That is illegal. Likewise it cannot "credit" the Treasury"s account by purchasing notes directly."

My response to Gene: Technically, that is correct, but the outcome is the same as I described even if the transactions take place in the open market. The Fed is monetizing Treasury debt like crazy. Lawrence Goodman, a former Treasury employee, wrote in WSJ in March:

Last year [2011] the Fed purchased a stunning 61% of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis. This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits. … The Fed is in effect subsidizing U.S. government spending and borrowing via expansion of its balance sheet and massive purchases of Treasury bonds. This keeps Treasury interest rates abnormally low, camouflaging the true size of the budget deficit. Similarly, the Fed is providing preferential credit to the U.S. government and covering a rapidly widening gap between Treasury's need to borrow and a more limited willingness among market participants to supply Treasury with credit.

The fact that the Fed and the Treasury conduct their activities through open market operations is just an enormous money laundering scheme.