US Political Dysfunction -(a very good read)

[chefdennis]

This is an excellent article and well worth the read. It is also a long article so i just pulled out a few excerpts...the author is not a fan of barry and he is also no a fan of bushs so that will appease everyone from both sides..take the time to read the whole article and the introduction to the author..he isn't just a "blogger" with a axe to grind....He also shares his education and his work with very well known lumminaries and Nobel Prize winners...Again, it is well worth the read.


Jim Powell on US Political Dysfunction and Four Freedom-Oriented 'Nobel Prize-Winners'

Sunday, September 26, 2010
Ron Holland
Jim Powell on US Political Dysfunction and Four Freedom-Oriented 'Nobel Prize-Winners'

Excerpts from the article:

Daily Bell: What do you think of the two latest Supreme Court Justices?

Jim Powell: They, too, are all in favor of expanding government power, regardless what the Constitution might say. Fortunately, the ideological balance on the court doesn't appear to have changed. It's still possible to believe that the court might uphold a constitutional challenge against Obamacare. But Obama is less then two years into his term, and if there are a couple more openings, the floodgates could open.

Daily Bell: What do you think of President Barack Obama?

Jim Powell: He has pursued the expansion of government power more aggressively than any other president since FDR, and he might turn out to be the all-time biggest spender. He seems oblivious to the fact that the government was already in big financial trouble.

He appears to be a profoundly ignorant or arrogant man. He seems to have simplistic ideas, such as that one can spend one's way to prosperity; one can stimulate the private sector by taking more money from taxpayers and giving it to government bureaucracies; government spending can be paid for by soaking the rich; temporary tax breaks will promote an economic recovery; promoting compulsory unionism will help the economy; one can raise taxes, talk about raising more taxes, multiply regulations and other ways create uncertainty that won't have an adverse impact on the economy or employment. I could go on. Unfortunately, Obama isn't the only one who believes in such simplistic ideas.

Obama reminds me of the fanatical ideologues who flourished in Europe after World War I and in many other places – socialists, communists, fascists, Nazis and the rest. Or maybe Obama might be compared with Argentina's Juan Peron. Obama's speeches bristle with anger, resentment, envy and even hate. He demonizes industries, attacks "the rich," blames all his troubles somebody else (usually his predecessor).

One might wonder if he has totalitarian aspirations after seeing the way he appointed Elizabeth Warren to run the Consumer Financial Protection Bureau, established by the Dodd-Frank law. The Constitution specifies that federal officers be appointed subject to the advice and consent of the Senate, and the Dodd-Frank bill specifies the same thing, but Obama maneuvered to avoid having Warren appear before a Senate committee, since many believe that she was too controversial to be confirmed.

Obama gave her a lesser title intended to evade the constitutional and Dodd-Frank requirement for a Senate confirmation hearing, and he set her up in the U.S. Treasury, although apparently she won't be regulated by the Treasury Secretary. Technically, she seems to be a presidential assistant. Meanwhile, she'll have unprecedented power over financial services in the United States. Companies are currently spending a tremendous amount of time and money trying to figure out what it might take to be in compliance with this 2,300-page law. Obama is thumbing his nose at the Senate, defying them to demand that their constitutional power be respected, and it appears that they're rolling over.

In other countries, we have seen how a ruler demands more power and then more and more and more, as long as they don't encounter much resistance. Once power is ceded to an ambitious ruler, it's hard to get back. Obama appears to be very different than the well-spoken, moderate, reasonable, bipartisan man Americans thought they were voting for.

Fortunately, Obama seems to be his own worst enemy. He ignored what the people wanted – economic recovery and jobs – and focused on his progressive agenda. He thought that he could make the economy recover by giving several hundred billion dollars to government bureaucracies, and then he could spend a year promoting a government takeover of health insurance. He appears to be surprised, if not stunned, that a sluggish economy and high unemployment have persisted, and he seems perplexed because his subsequent gimmicks (like Cash for Clunkers) didn't work. The economy could be his undoing in the elections.

Daily Bell: Where will America end up?

Jim Powell: Probably the government will go broke, because it's politically almost impossible to cut spending. The population of seniors is growing faster than the population of taxpayers, and a higher percentage of seniors vote, so I expect they will succeed at increasing taxes until we reach a point of diminishing returns – the higher taxes go, the strong incentives people have to reduce their tax liabilities.

People will dump taxable corporate bonds and buy tax-free government bonds. More people will relocate to lower-tax states. More people will incorporate themselves to take advantage of tax breaks. More capital will be transferred offshore. More people will operate off the books, in the underground economy that's hard for tax collectors to penetrate. So spending can't be paid for by raising taxes.

Consequently, the government will run up more and more debt until lenders lose confidence that they will be paid back. At this point, the only remaining option will be inflation. I expect the government will go broke, and the welfare state will be stripped down. The government will probably have to renounce Social Security's middle class obligations and make it a means-tested welfare benefit.

Medicare might become a shell, as co-pays soar and more and more treatments are excluded from coverage. Medicaid will probably become a shell, too, since declining reimbursements would have made it impossible for Medicaid patients to find doctors willing to take them. There will be huge political turmoil, possibly something approaching a civil war between legions of seniors demanding their entitlements, and taxpayers declaring that they can no longer take care of themselves and take care of everyone else, too.

Daily Bell: Are we headed toward world government?

Jim Powell: I doubt it. Undoubtedly there are rulers like Obama who might believe in it, but I expect nationalism will prevail. People aren't going to want their lives run by somebody else, and probably they'll back off if they find out that's what's happening.

I think it's likely that the U.S. government will default on its debt, starting with obligations to foreigners, and the government will end up having to make some humiliating concessions. For example, the Chinese might demand that the U.S. withdraw from Asia. China might insist that's going to take over Taiwan, Korea and Japan.

Right now, the Chinese are rapidly building up their military capability. I don't know why they're doing it, but there has been speculation that they want East Asia to be their sphere influence, just as the Americas are our sphere of influence. Are we going to go to war if/when China makes Taiwan a protectorate, maybe paying tribute to the mainland government? Are we going to go war if/when China makes Japan their protectorate? I doubt it.

Maybe, years from now, the United States ends up paying tribute to China, but I wouldn't expect that Chinese officials will establish offices in the U.S. to tell us what to do.

Daily Bell: Do you think the bailouts in the West help at all?

Jim Powell: Bailouts make things worse. The idea is that bailouts can stop a crisis by preventing the collapse of essential institutions such as banks. But usually there are adjustments that must be made because of a monetary contraction, inflation, a transition from a wartime economy to a peacetime economy, whatever. I think it's better to make adjustments as rapidly as possible, which means letting mistakes be flushed out. Bailouts just slow down if not stall the process, and they work by transferring resources from people who are productive to people who are unproductive. The money needed to do the bailouts doesn't come out of thin air.

We're seeing now that efforts to prop up the housing market and prevent people from losing their homes has prolonged the adjustment process. Mortgage terms have been modified, but millions of homes are still in the hands of people who are overloaded with debt. They're living under constant pressure, because a high portion of their earnings go for the mortgages. Virtually all their assets are tied up in their house, the value of which is stagnant if not declining. These people can't save for the future. It would more sense for such people to get out of their houses and live in apartments where they don't have to pay out so much for debt and maintenance. They can save and buy a home when they can afford it. People who want to sell a home will be able to do it at a reasonable price only after all those over-leveraged people are out of the market. Right now, those homes are hanging over the market, and more will be foreclosed when interest rates go up.

Interestingly, in Canada, a slightly higher percentage of people own their homes, yet Canada hasn't had anything like Fannie Mae and Freddie Mac to spend trillions trying to support the housing market, mortgage interest isn't deductible from income taxes, and Canadian governments haven't intervened in other ways to promote home ownership like the U.S. has done. All the losses and turmoil the U.S. has incurred in the name of "affordable housing" has been unnecessary. Income verification is standard practice in Canada, and so are full recourse loans – mortgage lenders can go after a borrowers other assets if necessary to pay off a default, which means Canadians buy homes when they can afford them.

If the government hadn't bailed out Wall Street firms, there would have been many more failures. Goldman, Morgan Stanley and others would have gone down with the rest. And why not? They were reckless beyond belief. The government contaminated Bank of America by forcing it to absorb Merrill Lynch and its losses in the billions.

It has become clear that moral hazard is politically uncontrollable. When Alan Greenspan was Fed Chairman, he succeeded in maintaining stability by pumping more money into the economy every time there was a crisis – the stock crash of 1987, the Mexican peso crisis, the Asian currency crises, the failure of a big hedge fund, and so on. Greenspan's very success encouraged people to believe that the downside risk was limited, and the could take crazy risks, which led to the dot-com bubble and crash. And to make sure that was vanquished, Greenspan pursued an easy money policy that was a key factor leading to the housing bubble.

The only reliable way to control moral hazard is to let reckless, overleveraged gunslingers go broke. Clear them out.

This is what happened in the U.S. before the Federal Reserve was established in 1913. There were panics and crashes that put a stop to reckless practices. The only way to pay for bailouts is to take money from prudent people who survived a meltdown, making it more difficult for them to carry on. That makes no sense.

In 2008, the giants of Wall Streets might have vanished, which would have been quite a shock. But there was plenty of money in the country – in the Midwest, the South and elsewhere. Smaller but sound institutions would have gradually stepped in to perform essential functions that had been performed by the big old Wall Street firms. I think the choice is probably to make a transition quickly or to make it slowly. We're seeing that dragging out the process is a serious problem.