Here’s a fun chart. (Source: Gluskin-Sheff. Hat tip, Zero Hedge.)

What does it mean? It means that, starting around 2008 or so, the stock market has been strongly linked to the Federal Reserve Bank’s “Quantitative Easing” (QE) policy.

We’ve seen that point before; this chart shows it another way. Since the second half of 2008, the market moves up if the Fed is growing its balance sheet; the market stops (or declines) if the Fed stops; which means that the ratio of them (shown above) has kept fairly level.

In other news (and also hat tipping Zero Hedge), a Chinese woman wants to sue the Fed over its QE policy:

A woman in Kunming, Yunnan province, is trying to sue the United States central bank after discovering that the real value of the US$250 she put in an account in 2006 had shrunk by 30 per cent.

She claims it was a result of the Federal Reserve issuing too much money.

Her attorney, her son Li Zhen , called the lawsuit “litigation for the public good” which aimed to stop the Fed from continuing its quantitive easing policy…

He filed the lawsuit alleging “the abuse of monopoly in issuing currency” last month at the Kunming Intermediate People’s Court…but the court has yet to decide whether to officially place the case on file.

Why didn’t I think of that? The woman gets the issue: that the Fed has been debauching the dollar. Whether her suit succeeds is another question, but God bless her!

Finally, I want to mention the recent controversy over Reinhart-Rogoff’s work. It might be boring, so further discussion is beneath the following ‘fold’.

(now with updates) (more…)

And they do it as only leftists can: by blaming nasssssty Republicans for magically changing how the voters feel about the word “entitlement”, which now begins to sound bad.

From the linked article:

Obama Programs Derided by Republicans as Pejorative Entitlements

…Republicans have been working to convert the once-neutral entitlement label into a negative…

…“‘Entitlement’ used to be a fairly positive thing,” said historian Edward Berkowitz, an expert on social-welfare policy at George Washington University in Washington. “Now, the term is being changed. Entitlement is this form of social spending that’s getting out of control.”

Look, Mr. Berkowitz: If Republicans’ power to mold language/voters were that good, Romney would have won in 2012.

But further down, some facts creep into the article:

…Obama [ed: yes; not Republicans] last week proposed changing the formula for calculating cost-of-living adjustments for Social Security recipients [to reduce future benefits]…

Spending on Social Security and…Medicare, Medicaid, food stamps and jobless benefits — rose 40 percent over the decade ending in 2012…more than twice the inflation-adjusted increase in the size of the economy…

…while Democrats portray the most costly entitlements as benefits that voters have paid for, typical wage-earners retiring in 2010 will receive at least $3 for every $1 they contributed to [Medicare]…

Social Security’s disability trust fund is expected to be exhausted in 2016…A two-income couple with both individuals earning an average wage of $44,600 who reached age 65 in 1960 received more than seven times as much in lifetime benefits as they paid in…

Golly, do you think maybe the facts are what make the word “entitlement” seem bad? That maybe entitlements are a “form of social spending that’s getting out of control”?

And that settles the question, right? Because, in the new world’s glorious Declarative style of governing, what Obama says he’s doing is what counts; never mind the facts.

Well, let’s try on a few facts:

• Obama’s budget proposes a further 2.5% increase in federal spending, after some years of increases.[**]
• Despite all the talk about budget cuts this year, we have not seen a year-on-year reduction in federal spending.[**]
• “The budget projects a deficit for the current year of $973 billion, falling to $744 billion in 2014. Those would be the first deficits below $1 trillion since 2008.”
• But in FY2008, when Bush ran a budget deficit of $438 billion, Obama called that “unpatriotic”.

Don’t get me wrong: Obama had kind of a point, in 2008. A point which should be applied doubly now, to him.

Hypocrisy alert level Red (Severe): Obama also declared that “Our economy is poised for progress as long as Washington doesn’t get in the way.”

Hmm… What law could Obama be implementing right now that puts businesses in a quandary, making it tougher for them both to plan and to hire people? What could it be?

[**] NB: These points were overstated in the original version of this post; I regret the error. Actual federal spending grew through the 2000s, peaked in 2009 (the Obama “stimulus” budget – thank you, RH at comment #9), declined in 2010, and has increased again since 2010. The increases have been smaller than GDP growth, so that federal spending has declined since 2009 as a percentage of GDP; while still remaining, at 22% of GDP, higher than in the Clinton-Bush era.

In the New York Times on Sunday, David Stockman made some points that I’ve been making on this blog: that America has lost its way in a decades-long orgy of government spending, deficits and money-printing, creating a “bubble economy” where the real prosperity is rather less than the statistics claim, and each bubble’s burst is greater than the last, meaning that we’ve got a doozy coming.

Stockman’s piece speaks for itself, encasing relevant facts in very sharp rhetoric. I won’t quote it here, just recommend it to your interest.

His piece isn’t perfect; it contradicts itself in a few places. For example, Stockman rips (rightly) on Keynesian economic theory, but also affirms (wrongly) the neo-Keynesian story for why the Great Depression ended (that it was somehow due to WW2 spending). Or Stockman characterizes the last several decades both as rough times, and times of living “high on the hog”; that could seem contradictory if you don’t fill in the missing context yourself (that it’s been “higher” for the politically-connected and a little rougher for the rest of us).

And, while I agree with Stockman’s knocks on Alan Greenspan, I find him unfair in his treatment of such figures as Milton Friedman, Ronald Reagan and Paul Ryan. But Stockman’s piece is a polemic, and no polemic is ever perfect. It’s a good one if it manages to get a lot right, and Stockman’s does.

UPDATE: John Tamny at Forbes critiques Stockman’s piece in more detail, from a perspective that I respect. (Non-Keynesian; perhaps Supply-side or even Austrian?) Like I did, he acknowledges large areas of agreement.

(NB: As often happens with my posts, I’ve tweaked a couple phrases since publication to better fit what I really had in mind.)

Remember the ‘sequester’ spending cuts? Per Obama a month or two ago, they were supposed to be The Apocalypse. His administration even rolled out Janet Napolitano to try to fan public fears of terrorist attack (notwithstanding that her budget is still higher this year, after the sequester cuts).

It’s been a month since the cuts kicked in, and it turns out that the reality is ho-hum. The paltry cuts have mostly had small, manageable impacts.

Except, of course, that school kids still can’t go on White House tours. Obama’s administration has held the tours hostage, even refusing patriotic donations that could have restored them. “Nice guy.”

UPDATE: Defense is hit with $41B in cuts, which will cause civilian Defense Dept. employees to be furloughed 14 days this year. Top Defense officials try to help a little, by returning part of their own salaries. Clearly, they aren’t part of the White House.

France’s President Hollande is determined to confiscate wealth; mere constitutions and courts can’t stop him:

French President Francois Hollande declared on Thursday that companies would have to pay a 75 percent tax on salaries over a million euros after his plan for a “super-tax” on individuals was knocked down by the constitutional court…

Irony alert:

On the defensive, with his approval ratings in tatters, Hollande acknowledged he had failed to anticipate the crisis dragging on for so long…

Gee, I anticipated it, from 6,000 miles away. I’m not very smart, I just understand that no country can tax its way to prosperity.

Moving along – It seems that in the wake of Cyprus, a top European official accidentally told the truth:

Monday March 25 – Markets took fright after the head of the group of eurozone finance ministers indicated that the Cyprus rescue could be a template for similar situations…

…Jeroen Dijsselbloem, the Dutch finance minister, told Reuters…”If the bank can’t [survive], then we’ll talk to the shareholders and the bondholders…and if necessary the uninsured deposit holders”…

“Talk to” means “take from”, of course. A chorus of other top officials swiftly denied it was true and said, “Because, shut up.” Which means they’d do it again in a heartbeat; after all, one of their top bankers once confessed that lying to the public was part of his job.

UPDATE April 4: A top Italian banker says yes, actually, taking from the depositors is acceptable.

“Cyprus in your Heart” is the tourism slogan of the small Mediterranean nation of Cyprus. It is a member of the Eurozone. Perhaps you’ve seen headlines, the last couple of weeks, about its banking crisis. This post is to sum up a few points about it.

• The Europeans plan to resolve the crisis with yet another bank bailout.
• This bailout is different. For the first time, bank customers (depositors) will be hit with losses. “Small” or “insured” depositors under 100,000 Euro will be left alone; but over that amount, depositors could lose 20%, 40% or more of their money in the bank.
• That’s important. It’s a dangerous precedent. It means that “money in the bank” isn’t all that safe. Not in Europe; and if you believe a similar crisis could happen in the U.S. eventually, then not here.
• They were originally going to hit even the depositors under 100,000 Euro. That would have been an even more dangerous precedent. Thank God, the Cypriot parliament refused.
• The Russians are quietly furious with Europe, over all this. Cyprus had been sort of the Russians’ Cayman Islands or Switzerland; the Russians’ banking haven. Russian depositors may be hard hit (although some say that the clever Russians had already withdrawn their money).
• Also, Cyprus has a strategic location near Turkey and Israel, and important natural gas fields. So Russia and the EU both want it as their satellite. The Europeans were determined to keep Cyprus from withdrawing from the Euro.
• *IF* this outcome means that Cyprus stays with the Europeans (rather than the Russians – and I’m not sure if it does mean that, in the long run), it’s probably good for Israel.
• But for now, Cyprus will be hit with a severe depression, as its “Russian banking tourist” industry is gone, probably forever.

These developments have the Cypriots up in arms, feeling like their futures have been stolen. A few pictures here.

This all goes to the importance of money as a social contract. People put their trust in money as the basis for trading with each other, in all kinds of ways. If people’s bank accounts are violated – and/or, if the value of money is violated – then people feel hurt and disoriented, because a key social contract has been violated. I may say more about that in a future post.

This is a nice illustration of the point that a large government debt and a sluggish economy go together:

Hat tip, David Houle at Seeking Alpha. The “EM” means, a whole bunch of Emerging Markets economies.

The picture shows that the higher-debt countries tend to have lower growth; the lower-debt countries tend to have higher growth. I would argue that the direction of causation is mostly that policies of high government spending, high deficit and high debt will burden an economy, slowing its growth.

But one could argue for at least some causation in the other direction: if a country is low-growth to begin with, it will be higher-debt, just because it can’t grow out of its debts as easily. My counter-argument is that it almost doesn’t matter: The picture suggests that, once your country is stuck in a high debt / low growth mode, adding more debt (or Keynesian “stimulus”) just makes you Greece.

Some make the case for how well things are going, in the U.S. economy. The statistics say that GDP has been edging up, and unemployment ticked down to 7.7%. One GP commentor recently put it like this:

…the stock market is reaching all time highs, the real estate market is bouncing back and the unemployment rate is going down. Yes, the unemployment rate needs to go down lower but overall, things seems to be really improving.

But I say, look at how we’ve gotten here: not in any way that can end well.

Last week, I mentioned that the markets are most likely up because the Federal Reserve Bank is pumping out $85 billion per month in new money. That’s a rate of about $1 trillion per year. By no coincidence, the government’s FY2013 deficit is projected to be around $1 trillion.

Please let me borrow, print-n-spend $1 trillion a year (or more), and I will also get you higher GDP numbers, along with financial market bubbles, $4.50 gas, and job growth that is positive, only after several years (and with a lot of part-time jobs). But, how much real wealth?

Analogy: Say your spouse is out of work. You have a family business. You create a job paying your spouse $50,000. The job doesn’t really produce much. You created it so your spouse will feel good. Paying for it tips your business into a loss, that you make up by borrowing. Has your household gained? Your tax return says that your household income is $50,000 higher. Is it?

The income isn’t an economic gain, if all you did was borrow money to simulate earned income. That’s what the government does. It borrows money, spends it on un-economic jobs (e.g., bureaucrats, bailouts, or paying the unemployed to do nothing), and says “Look – the national income (GDP) is up!” (^^)

I’ve said for a couple of years that GDP is not a number we should care about. We should look at GDP net of new debt.

According to this chart, in the four years of Obama’s reign so far, the U.S. has added around $1.1 trillion to its GDP level, and around $2 trillion in cumulative GDP (giving Obama credit for all amounts above the deep-recession GDP level that he inherited). In the same calendar period, the U.S. added $5-6 trillion in debt.

That’s a disaster. In the name of government deficits to “stimulate” the economy, we have, over several years, added much more in debt than we’ve gotten in GDP increases.

It’s not all Obama’s fault. But he’s captain of the ship, (more…)

Four years ago this month President Barack Obama told Jay Leno that one thing he wanted “to break is a pattern in Washington where everybody is always looking for somebody else to blame.”

Seems he was talking to the late night talk show host the way some people talk to a therapist by projecting their own problems onto others.  Not since Nixon have we seen a president so obsessed with his “enemies.”  As the sequester goes into effect, a “combative” Mr. Obama, reports the AP’s Jim Kuhnhenn, “blamed Republican lawmakers Friday for failing to stop automatic spending cuts that were to begin kicking in later in the day, calling the cuts ‘dumb, arbitrary.’”

Barack Obama is always looking for somebody else to blame.  And this week, he is trying to shift the blame for his (and his party’s) failure to control spending (and avert the sequester) onto Republicans.

In his column today, Charles Krauthammer reminds us that the Democratic Senate
hasn’t passed a budget . . .

. . . in four years. And the White House, which proposed the sequester in the first place, had 18 months to establish rational priorities among accounts — and did nothing.

When the GOP House passed an alternative that cut where the real money is — entitlement spending — President Obama threatened a veto. Meaning, he would have insisted that the sequester go into effect — the very same sequester he now tells us will bring on Armageddon.

Republicans need to keep challenging the president to put forward his plans to cut spending (remember that was part of the “balanced approach” he favored to address our nation’s debt crisis*) because nearly every voice in the legacy media seems intent on ignoring the president’s spendthrift record.

The blame here lies with the president and his party.  Instead of working with Republican leaders over the past 18 months to try to reach a compromise on spending, he spent that time demonizing them.  As is doing so today.

Will Americans continue to join him in shifting the blame?

* (more…)

If President Obama were serious about preventing the supposedly draconian cuts in the sequester, instead of demagoguing Republicans in campaign-style events, he wouldn’t be waiting until the after the last minute to sit down with congressional Republicans.

But, as Jim Geraghty reminds us, campaign-style events are this Democrat’s modus operandi:

How did Obama try to pass his stimulus? Campaign-style events. How did Obama try to pass Obamacare? Campaign-style events. How is Obama pushing for amnesty legislation? Campaign-style events. How is Obama pushing for gun control? Campaign-style events. Fiscal cliff? Campaign-style events. This is all separate from his actual presidential campaign.

Geraghty cites Moe Lane who observes that

Barack Obama knows how to do one thing: elect Barack Obama to public office.  And that’s not ‘elect Democrats.’  Or ‘elect liberals.’  Or even ‘elect people that Barack Obama likes.’  It’s just him: his team is trying pretty hard right now to figure out how to use their over-specialized skill more generally, but they don’t have much time to figure it out and the system is actually rigged against them in this case.

Perhaps, Republicans can be more effective in standing up to this Democrat if every time he attacks them, they respond by pointing out the problem and asking for his plan to fix it, in this case, out-of-control federal spending.

They might also remind Americans of Barack Obama’s promise of a “net spending cut” and pledge to cut the deficit in half by the end of his first term.

Obama, Top Lawmakers to Meet Friday on Budget Cuts

Why are you waiting until the last minute, Mr. President?

FROM THE COMMENTS: “Actually”, writes Ted B. (Charging Rhino), correcting me, “he’s waiting for AFTER the last minute. The Sequester starts tomorrow-night at Midnight.”

Via HotAir and others, we had the news last week that:

The Justice Department sued Standard & Poor’s Ratings Services late Monday, alleging the firm ignored its own standards to rate mortgage bonds that imploded in the financial crisis and cost investors billions. The government was seeking penalties of more than $1 billion…which would be the biggest sanction imposed on a firm related for its actions in the crisis.

This is market manipulation at its dirtiest. I’ll explain.

During the housing bubble, the government’s mortgage finance agencies, FNMA (Fannie Mae) and FHLMC (Freddie Mac), securitized scads of mortgages (re-packaged them as securities, in this case bonds, that could be traded on Wall Street), including sub-prime mortgages. That was an important enabler of the bubble.

All three of the major U.S. bond ratings agencies – S&P, Moody’s and Fitch – gave those ‘securitized mortgage’ bonds the safest rating, AAA, which helped keep the housing bubble going. And that was what almost everyone wanted at the time, including the government. Later, when the housing bubble burst, it was clear that these bonds did not deserve an AAA rating, and probably never had. The ratings agencies had been wrong, along with everyone.

One question to ask is: why is S&P the first ratings agency, and so far the only one, to be punished after all this time? What distinguishes S&P? The answer seems fairly obvious: In August 2011, S&P downgraded the U.S. government’s own bonds, which remains a huge blow to Obama’s reputation.

Reports indicate that the government may also sue Moody’s. But they haven’t yet; any efforts there “are in the early stages, largely because state and federal authorities have dedicated more resources to the S&P lawsuit.” Golly, ya think?

So far, then, the moral of the story is: Don’t criticize Obama. Nice business you got there; would be a shame if anything happened to it.

But there is a deeper story: how market manipulation by the government causes bad outcomes; for which politicians (and other supporters of Big Government) always blame the market’s players, rather than themselves.

It was government which created Fannie and Freddie and had them massively support the sub-prime mortgage market. (For which GayPatriot has criticized Barney Frank’s involvement; see here, here, here, here, here, here, here and here.)

Moreover, as Peter Schiff reminds us, it was government which established the Big 3 ratings agencies in positions free from ‘consumer’ pressure, where they would descend into a culture of complacent groupthink that favored, not the small investor, but the big players: (more…)

(Worse than Lance Armstrong.)

UPDATE: Obama getting an intervention: (more…)

A few days ago, Kurt posted on this speech by Daniel Hannan. I agree that it’s brilliant, in how much it packs into a short space.

Kurt’s angle was, Who are our Hannans? But I would like to get into the substance of what Hannan said.

You may disagree, but I find that any of Hannan’s major points (summarized below) could be expanded into a worthy discussion.

• The 2008-9 bailouts, and the money-printing which continues today (another form of bailout), are an ethical crime. In effect, they transfer wealth from the poor and middle class to the largest banks.

(more…)

I first became aware of Daniel Hannan, a British Conservative Member of the European Parliament (MEP), in the spring of 2009 after the video of his speech attacking Gordon Brown went viral.  Over the past few years, he has continued to garner attention here, “across the pond,” for other speeches, and he has been a repeat guest on conservative talk radio and Fox News.

This past weekend, Anne Sorock at Legal Insurrection linked to his recent take down of the Occupy Movement from an appearance at the Oxford Union.

It is an impressive performance.  Hannan not only delivers a ringing endorsement of capitalism and an indictment of the bailouts, but he also explains the links between what the Occupy crowd says it wants and today’s economic woes, and he does so with a force and a clarity that is thrilling to witness.

Watching it, I was struck by how much Hannan reminded me of some of the clips I’ve seen of Margaret Thatcher’s appearances before the House of Commons during her time as Prime Minister, particularly this one from her last appearance.  I had to wonder if Hannan’s career might in time resemble Thatcher’s and if some day he will be the Prime Minister of Great Britain.

At the same time, though, I have to wonder: who are the Hannans here in the U.S.?   When Romney selected Paul Ryan as his running mate, I had hopes that he would provide such clear-spoken explanations of conservative economics on the campaign trail.  While it’s quite possible he did and the press did its best to muzzle them, I suspect that, in actuality, they were few and far between, as the Romney campaign seems to have been reluctant to hit the Obama administration too hard.  In the past few weeks, many conservatives have been talking about recent statements made by Senator Marco Rubio, Senator Rand Paul, and even the newly-minted Senator Ted Cruz from Texas.  So are any of these men likely to be our Hannans?  If not, then who might be?

The word ‘austerity’ has been kicking around in political life, these last few years. It conjures images of Greek old people forced to eat cat food as their country’s economy collapses and to burn furniture for heat, because right-wing budget-balancing Nazis have forced cruel cuts to social spending.

I exaggerate, but not much; see this Greek depiction of Germany’s Merkel. Leaving aside the fact the Nazis were socialists who believed in Keynesian deficit-spending on public works and social benefits (much like our Democrat friends believe), the word ‘austerity’ – specifically, the image of cruel spending cuts – is largely a myth, that left-wingers deploy to narrow the range of acceptable thought.

“Look at Europe!”, cry advocates of Big Government and deficit spending, “They’ve tried austerity and it doesn’t work!” And what they mean is: don’t you dare think about government spending cuts.

If you corner them, they may acknowledge that tax hikes also count as ‘austerity’ policies. But they are usually fine with tax hikes; they love tax hikes. So when they hurl ‘austerity’ as a pejorative, they mean, DON’T CUT SPENDING.

But let’s step back a minute. Have European countries actually cut their spending? And if they are suffering, might other factors – another policy, perhaps – explain the suffering? These questions are worth examining. (more…)

As the Democrats were gaveling open their Convention in Charlotte, the United States National Debt reached the astonishing $16 Trillion mark.

CLICK PHOTO FOR VIDEO.

Eric Bolling said tonight on “The Five” that Barack Obama has been President 1.6% of our time as a Republic and has amassed 33% of our entire national debt.

Obama Isn’t Working.

-Bruce (GayPatriot)

Earlier today, a college classmate asked me on Facebook to make the case for Mitt Romney. Among the arguments I made was that spending has skyrocketed under the incumbent president. And that same incumbent has put forward no plans to address the coming insolvency of federal entitlements.

Now comes a reports showing just how grim the picture is for our national debt, largely due to the burgeoning costs of those entitlements:

U.S. debt is on track to be nearly twice the size of the U.S. economy by 2037, the nonpartisan Congressional Budget Office (CBO) warned Tuesday.

The new CBO report states that increased entitlement spending driven by the retirement of the baby boomers and insufficient revenue is making the long-term outlook for the national debt increasingly dire.

Sifting through the CBO report, James Pethokoukis highlights its “7 scariest facts“:

The aging of the population and the rising cost of healthcare would cause spending on Medicare, Medicaid, and Social Security to grow from more than 10% of GDP today to almost 16% of GDP 25 years from now, equivalent to about $850 billion today. (By comparison, CBO says, spending on all of the federal government’s programs and activities, excluding net outlays for interest, has averaged about 18.5 percent of GDP over the past 40 years.)

To address this, the National Review’s Yuval Levin contends that

Medicare spending growth must be restrained, and it can be restrained in a way that drives innovation and efficiency and continues to provide guaranteed comprehensive coverage to seniors. Paul Ryan has shown us how, and the CBO today shows us why. (more…)

You know, when I think of these things, I really should just go ahead and post them right away…it’ll make me look more prescient and brilliant than simply linking:

This is something that’s been on my mind for quite a while, and Chris Wallace put great words to exactly what I’ve been thinking lately with regard to the Supreme Court’s ultimate decision on ObamaCare:

(sorry for the commercial, the discussion with Brit Hume starts at about 3:50)

The gist is that win or lose with SCOTUS, it’s a lose situation for Obama:

Either he loses his signature legislative victory because it’s unconstitutional, or the well-over 50% of Americans who hate it have no other recourse than to elect Republicans to both houses of Congress and the White House and Obama loses obviously in that case.

This, I think, lends itself to the point I was making earlier today that this is an opportunity for those of us who love Liberty and Independence to make crystal clear the choice we have before us this year: Do we continue down the path of governmental intrusion into and management of our lives, or do we assert ourselves and tell the dictators in Washington that, No thanks, we’ll take care of our own lives?

(Interestingly, Brit makes an excellent point that I’d not thought of: Basically, with our fiscal house in such disarray, ObamaCare cannot stand on its own failures anyway. That our debt and unfunded social liabilities are so massive that it doesn’t matter what happens with the Supreme Court or—it seems he’s suggesting—with repeal even through legislative remedies…that it will collapse simply because it cannot be afforded. Scary stuff, especially considering the likelihood that he’s wrong, and that the unaffordability of any mandate dating all the way back to the New Deal has never kept this country from burying itself in debt in order to continue to feed its appetite for mother’s milk from the teat of the government trough…if you’ll excuse my abusively mixed metaphors.)

-Nick (ColoradoPatriot, from HQ)