Monetary Policy Limit: a monetary limit exists just as a fiscal limit exists

Compromise Defined

US Growth and Prosperity Trend Line: 17% below trend.

The 1920–1921 Depression and Coolidge - Harding vs. The Great Depression and FDR economics

Please take a moment and play the above video regarding Standard and Poors down grade of U.S. debt. There is a wealth of information in this eleven and one half minute video. U.S. debt is real and something needs corrected post haste and straight away.

Uncharted economic waters



One must remember we are in uncharted economic waters. One must further remember that much empirical study of past depressions/recessions, and there has been many deep recessions aka depressions in the U.S. economy, are based on the study of U.S. recessions/depressions when household and government debt was small and/or non existent. That is, we are in uncharted economic waters within an environment of hyper-debt. Hence past empirical studies have a component in common of studying many recessions/depressions in which low debt was the norm.



However, take a special look at 10:08 until the end of the video. Especially 10:08 until 10:48. What is eluded to is that Great Depression economics of the FDR administration did not work in this current economic environment of uncharted waters.. Larry Kudlow may well be contrasting the FDR economics with the 1920–1921 depression and Coolidge - Harding economics.



Note: if you have never heard of the 1920–1921 depression and Coolidge - Harding economics you are not alone. Its glossed over in history books. However, well known in the field of economics.



Friedman and Schwartz



One might trace back QE1 and QE 2 to Milton Friedman and Anna Schwartz. That the Fed’s tight, tighter, tightest money policy deepened and prolonged the Great Depression. Hence the money supply clearly needs expanded when cataclysmic financial shocks occur. Hence Bernanke is following Friedman-Schwartz.



Coolidge - Harding or FDR



On the other side of economics, aside from monetary policy, we have fiscal policy. If you deploy Schwartz-Friedman do you deploy Coolidge - Harding or FDR? The strategy chosen was FDR economics.



The FDR strategy has failed for a second time. Friedman and Schwartz appears to be working. However Friedman and Schwartz is temporary and meant to find a soft economic landing zone. Coolidge - Harding?

Political Constituency Building: the Necessary, Required, and Needed Politico Proposition

The Science of Non-Budgeting

If you propose to spend $3.7 trillion dollars and have an income of $2.2 trillion dollars that is likely reckless budgeting. What if you spend more than you take in for twenty nine straight months. Is that reckless as well? What if you run a monthly deficit for February, 2011 of $223 billion [a new world's record for a monthly deficit....congratulations!], a monthly deficit by-the-way which is larger than the entire annual deficit for fiscal year 2007. Is that reckless budgeting?


The Art and Science of Non-Budgeting


If your intuitive answers to the above reckless budgeting questions were “Yes”, well you have another thing coming. You see, the answer is “No”. No way! Way!

You see, government budgeting is not a science. Government budgeting is not based on mathematics. Rather government budget is predicated on the money tree growing in your backyard. Yes, the money tree’s bounty is harvested by forest nymphs who magically turn the money tree’s bounty into pixie dust and all is well!


$3.7 Trillion Spending - $2.2 revenue = Political Constituency Building


As a nice politico, the strategy is to spend money upon particular groups and thereby build a constituency that is dependent on the continual spending. Or simply put: its all for the children. Senator Durbin, notional proposition poster boy at large, states that if we were to cut spending we would be kicking kids out of school and ruin our infrastructure. Not to be outdone Senator Kerry, poster boy for marrying the proper amount of money, states cutting spending is just plain reckless. Finally, as a crescendo to spend, spend, spend, the wizard of constituency building Senator Schumer, quasi-economist at large, states cutting spending will cause a double dip recession.

In summation, by cutting spending, we will in fact fulfill the long known and empirical proposition of Chicken Little: the sky will fall!


Spending Rigidity


Why can’t we cut spending? If one builds a political constituency on spending other people’s money on other people, and the recipient class of other people’s money is in fact you political constituency, then cutting spending is reducing your political constituency. Nay, Nay! Can’t have that happen! Further, the recipient class of other people’s money i.e. you political constituency have become dependent on designated spending directed their way. Hence cutting spending merely sets off a Madison, Wisconsin type temper tantrum. Don’t underestimate that tantrum, as the sponsoring politicos are depending on that tantrum.


Necessary, Required, and Needed


Given the above mentioned political phenomena, enter the political-economy of necessary, required, and needed. What’s that mean? An implicit assumption in the continued hyper spending argument set forth by those who spend other peoples’ money on other people is: that somehow, someway, the current spending level is necessary, required, and needed. No empirical evidence is forth coming regarding “necessary, required, and needed” as it’s a notional proposition based on “the way things ought to be”. It’s a notional argument with no facts and is a central implicit assumption to the argument to spend more and more money. Watch carefully and note that all political arguments to “spend” come from the starting point of “necessary, required, and needed”.


Tax Then Spend or Spend Then Tax? Phase Two of Necessary, Required, and Needed


Politicos who’s existence depends on political constituency building through spending other people’s money on selected groups have two options: tax then spend or spend then tax. If the particular politico or group of politicos can’t raise needed tax revenue to spend on their particular constituency [can’t sell the notional proposition of necessary, required, and needed on a current basis] they merely opt for plan B which is to spend so much money that they then declare raising taxes is “necessary, required, and needed“.

Yes, you figured it out! “Necessary, required, and needed” is a political-economy argument set forth by politicos used in both realms: spending and taxing.


Update 03/11/2011:
Reporting on All-Time One Month Deficit, AP's Crutsinger Blames Lower Taxes, Not Spending


http://newsbusters.org/blogs/tom-blumer/2011/03/10/reporting-all-time-one-month-deficit-aps-crutsinger-blames-lower-taxes-n#ixzz1GDROPiJ9

State Debt Threatens ObamaCare?

State governments are broke and some states appear on the verge of bankruptcy. There are plenty of components to the financial woes of the several and many states. One of the components is Medicaid. State budgets are straining under existing Medicaid costs.

ObamaCare is predicated on expanding Medicaid rolls exponentially. State governments would be crushed by the added expense of expanded Medicaid participants and their associated cost. Further, the crushing additional cost would be atop the existing Medicaid rolls that appear unsustainable from a state budget prospective. That is, adding a crushing cost atop an unsustainable cost creates an impossible cost.

Meanwhile, Obama is now taking a position that states can opt-out of ObamaCare as long as they institute a plan exactly like ObamaCare. Huh?

Take four minutes and watch the above video with Larry Kudlow and Governor Sam Brownback of Kansas discussing Medicaid's crushing costs and Obama's new non-proposal proposal.

Unemployment Insurance is Insurance?

Not everything named insurance is insurance. - Thomas Sowell

Rising unemployment insurance taxes?

"Rising unemployment has placed such a burden on states that 30 of them owe the federal government $42 billion in money borrowed to meet their unemployment insurance obligations. Three states already have had to raise taxes to begin paying back the money they owe. More than 20 other states likely would have to raise taxes to cover their unemployment insurance debts. Under federal law, such tax increases are automatic once the money owed reaches a certain level.

Under the proposal, the administration would impose a moratorium in 2011 and 2012 on state tax increases and on state interest payments on the debt.

In 2014, however, the administration proposes to increase the taxable income level for unemployment insurance from $7,000 to $15,000. Under the proposal, the federal unemployment insurance rate would be adjusted so that the new higher income level would not result in a federal tax increase, the person familiar with the plan said." (1)

How is your state doing?

"Due to record high unemployment claims and in many cases poor financial planning, 25 states have run out of funds and been forced to borrow from the federal government, raise taxes or cut benefits. Increasingly, those fiscal woes are landing at the doorstep of business owners and unemployed workers. Employers in 36 states face unemployment insurance tax increases ranging from a few dollars to nearly $1,000 per worker for 2010, and six states have taken steps to cut back or freeze benefits". (2)

You can find a search-able data base for each state regarding tax increases and/or benefit cuts associated with state unemployment insurance at the following link:

http://projects.propublica.org/tables/unemployment-tax-increases-by-state-2010

Which states unemployment funds are bankrupt and borrowing atop of bankruptcy?

"The unemployment insurance system is in crisis due to a combination skyrocketing unemployment and – in some cases – poor planning. A record 20 million Americans collected unemployment benefits last year, and thirty states have run out of funds and been forced to borrow from the federal government, raise taxes, or cut benefits. In many other states the situation is deteriorating fast. Using near real-time data on state revenues and the benefits they pay out, we estimate how long state trust funds will hold up. Click on a state to find the latest, plus historical data, and details on tax increases and benefit cuts." (3)

The following is a link to a map showing which states unemployment funds are not only bankrupt but are borrowing to boot:

http://projects.propublica.org/unemployment/

Unemployment insurance is insurance? A social insurance safety net?

Unemployment insurance is not "insurance" in the traditional sense. It looks like insurance, is portrayed as insurance, is sold by politicos as insurance, has insurance in its name, but sorry its not insurance.

Unemployment insurance, like most social insurance schemes, is not a reserved insurance plan as found in the realm of private sector insurance. Rather its a quasi-reserved scheme which depends on the taxing ability of a central government to supply benefits. Unemployment insurance suffers from the same basic problems that exist in other social insurance schemes such as Medicare, Social Security and your newest friend ObamaCare.

Social insurance schemes work nicely as long as no one uses the benefits. What? Insurance is to pay for sudden claims? That you are transferring a risk for a consideration. If a loss occurs then your consideration paid is your basis for your ability to make claim. Then why does the social insurance scheme only work if you don't make a claim? That makes no sense!

It makes total sense. You see, a social insurance scheme is not reserved to pay claims or is only thinly reserved. When claims roll in the quasi-reserve is quickly depleted. The reason the reserve is quickly depleted in that the system is based on "pay as you go". The pay as you go system quickly breaks down when current claims exceed current tax dollars flowing into the plan. The result being an increase in tax and a rationing of benefit. Its an old story.

The political-economy of disincentives followed by more disincentives

Politicos at the federal level used borrowed money to create a disincentive to work (the time period from 26 weeks to 99 weeks of unemployment benefits). The states used borrowed money as well [borrowing from the borrower i.e. feds] to create a disincentive to work (give the scheme the benefit of the doubt and say the marginal end of the 26 weeks creates a disincentive).

Wait! Its a social safety net that helps the unemployed. Yes and no. First we have to understand that as far as an insurance plan its a political mirage that doesn't pay the benefit advertised. That the benefit paid merely results in an increase in taxes paid and/or a reduction in benefit paid. However, studies show that when people collect benefits that on average people stay on the benefits until the last four weeks before the benefit ends. Hence we have a social safety net that creates a moral hazard of staying on the benefit until the end of the benefit period which is then a disincentive to seek employment, on average, in an expeditious fashion. (4)

Politicos through the mechanism of government have gone way beyond the moral hazards associated with 26 weeks of unemployment and have created 99 weeks of unemployment. The disincentive to seek work has exponentially increased. Further, there is a grand difference between seeking work near the end of a 26 week period vs. the end of a 99 week period.

Creating disincentives is bad economic policy. However, if you borrow money to create a disincentive, that is pure madness. Moreover, if sub-governments [states]borrow money from a central government, who is simultaneously borrowing, you are then borrowing from the borrower to create disincentives which is maximum insanity.

Welcome to The Asylum for the Disincentive Borrower. Those that have created disincentives go onto create yet another disincentive: doubling the unemployment "insurance" tax. Hence politicos through the mechanism of government have created disincentives through 99 weeks of unemployment insurance merely to turn around and create an additional disincentive for firms to hire those that are in fact unemployed.

Exactly what kind of insane exercise is this little trip into the vortex of disincentive? Once politicos have entered the vortex of disincentive they somehow portray this entire exercise as being beneficial to John and Jane Goodfellow. How so? Politicos then frame this disincentive boondoggle as economic stimulus!

Let me say that unemployment insurance… is one of the biggest stimuluses (sic) to our economy. Economists will tell you, this money is spent quickly. It injects demand into the economy, and it’s job creating. It creates jobs faster than almost any other initiative you can name. - Nancy Pelosi (5)

Notes:

(1) http://www.canadianbusiness.com/markets/headline_news/article.jsp?content=b5884614&utm_source=markets&utm_medium=rss

(2)http://projects.propublica.org/tables/unemployment-tax-increases-by-state-2010

(3)http://projects.propublica.org/unemployment/

(4)http://townhall.com/columnists/ThomasSowell/2010/08/27/moral_hazard_in_politics

(5) http://blog.heritage.org/2010/07/07/pelosi-unemployment-benefits-biggest-stimulus-for-economy/

Three Year Freeze on All New Regulation Including ObamaCare

ObamaCare mandate, Wickard v. Filburn, and the auto insurance argument

Wheat and the ObamaCare mandate?

U.S. District Judge George Caram Steeh ruled on 10/07/2010 that Congress has the authority, in regards to ObamaCare, to mandate that individuals carry health insurance. The decision was based in part on a 1942 court decision:

"Steeh invoked the New Deal era case of Wickard v. Filburn (1942), which substantially broadened the authority of Congress to regulate under the Commerce Clause. The high court agreed with the federal government that Roscoe Filburn’s decision to grow excess wheat for himself would affect interstate commerce, because the farmer would not be forced to buy extra wheat under a New Deal regulatory scheme designed to increase wheat prices during the Great Depression. "(1)

Expressed alternatively:

"So the Supreme Court has allowed Congress to prohibit a farmer from growing wheat for his own use and a sick woman from growing her own medical marijuana. The Court majorities have reasoned that the restrictions on intrastate activities are necessary and proper for Congress to be able to control the interstate markets in wheat or marijuana. (Wickard v. Filburn; Gonzales v. Raich)."(2)

Another observation is:

"In just a few perfunctory pages, Judge Steeh dismisses this argument on the theory that the Commerce Clause allows Congress to regulate economic decisions, and not just economic activity. Thus, the decision not to purchase health insurance is ripe for regulation. As Professor Barnett points out, "Judge Steeh offers no limiting principle to the “economic decisions” theory," and does not even acknowledge the profound implications of government regulation of all "decisions" that might in some way affect economic activity." (3)

More court challenges

The Michigan case is merely the first of a long line of court decisions to come as the ObamaCare mandate is being challenged on many fronts. Matter of fact, the Obama Administration has attempted to block courts from even considering the constitutionality of the mandate. "So far, the Obama administration is 0 for 3 in its efforts to block courts from considering the constitutional merits of the health control law." (4)

Debating the mandate and auto insurance?

Needless to say the debate over the ObamaCare mandate will resurface as the Steeh ruling is further discussed and the remaining court rulings come to fruition. Along the way you are going to hear a debate point that the ObamaCare mandate is nothing more than the same mandate as owning auto insurance. The rebuttal to this debate point will be that you have the ability to avoid owning auto insurance by merely not owning a vehicle. These debate points have already surfaced on CNBC'S The Kudlow Report on Friday 10/08/2010 as articulated by Matt Miller and Betsy McCaughey. (5) You can view the debate by going to this link:


http://www.cnbc.com/id/15840232?video=1610828961&play=1

The debate point regarding ObamaCare mandate and auto insurance

In the coming months, when you hear the debate point put forward that the ObamaCare mandate is akin to owning auto insurance, you should consider the following: that the debate point has a major flaw which is based on "obligation". The debate point makes the implicit assumption that you have an obligation to own auto insurance and hence that same "obligation" exists in the ObamaCare mandate. (6) (7)

The fatal debate flaw is the implicit assumption of obligation. In other words, the debater is hanging their debating hat on auto insurance and the ObamaCare mandate as being equivalent obligations of the buyer. That each buyer of auto insurance has the same obligation as each buyer of health insurance hence "obligation" is being presented by the debater as equivalent obligations regarding auto insurance and health insurance.

What is your obligation to own auto insurance? Your obligation is that of liability to another party, a third party obligation. What is your obligation to own health insurance? Your obligation is to yourself, a first party obligation. Hence one obligation is to a third party whereas the other obligation is to a first party (you). In other words, the debater is comparing obligations that are not equivalent. That is to say, the debater defeats himself/herself by presenting "obligation" as a focal point of the debate then making the incorrect obligation comparison which then negates their own argument.


For further information regarding the "obligation" aspect please visit these two links:

http://thelastembassy.blogspot.com/2009/10/socialized-medicine-scheme-compulsory.html


http://thelastembassy.blogspot.com/2009/09/socialized-medicine-scheme-now-its-like.html

Notes

(1)http://www.lifesitenews.com/ldn/2010/oct/10100715.html

(2) http://dailycaller.com/2010/10/08/the-obamacare-mandate-is-unconstitutional/

(3) http://ricochet.com/conversations/Slippery-Slope-Watch-ObamaCare-Upheld-on-Dangerous-Grounds

(4) http://dailycaller.com/2010/10/08/the-obamacare-mandate-is-unconstitutional/

(5) http://www.cnbc.com/id/15840232?video=1610828961&play=1

(6) http://thelastembassy.blogspot.com/2009/09/socialized-medicine-scheme-now-its-like.html

(7) http://thelastembassy.blogspot.com/2009/10/socialized-medicine-scheme-compulsory.html