Michael E. Newton's Blog, page 26

Interview at Manifest Liberty

I was interviewed by Manifest Liberty about politics, history, and economics.
http://manifestliberty.com/interview-...

Bush got things done, Obama takes credit for doing nothing.

Regardless of your opinion of President George W. Bush, there is no denying that he knew how to get things done. Unfortunately for him, much of what he did was vilified by the media. The Bush tax cuts, for instance, were portrayed as "tax cuts for the rich" even though the rich's share of the tax burden rose and the tax cuts helped spur economic growth. In the words of Rodney Dangerfield, Bush "got no respect."

Along comes President Barack Obama. As candidate and President, Obama attacked the "tax cuts for the rich" that Bush gave out. But then, suddenly, President Obama compromises with the Republicans and extends the Bush tax cuts. CNN, who heeped no praise on Bush for his tax cuts, is now praising Obama for extending the tax cuts:

Most Americans like the new tax cut law that President Barack Obama signed into law on Friday, according to a new national poll.

And a CNN/Opinion Research Corporation survey released Monday also indicates that while the tax cut compromise the president struck with congressional Republicans didn't spark Obama's overall approval rating, it may have given him a boost as "Triangulator in Chief."

The poll also indicates that 55 percent of the public thinks Obama's policies will move the country in the right direction, with just over four in ten saying the president's policies will move the nation in the wrong direction. Obama's 55 percent is 11 points higher than the 44 percent who say the policies of congressional Republican leaders will move the country in the right direction. Americans are split at 48 percent on whether what congressional Democrats are proposing will move the country along the right path.

"Since the GOP just picked up 63 seats in the House, what's not to like about their policies? The tax bill may be a good place to start," says Holland.

According to the poll, 56 percent of the public say that the bill does too much for wealthy Americans and six in ten don't like extending the tax cuts for families making more than $250,000 or the changes in the estate tax. And less than one in four believe that their personal situation will improve as a result of the tax bill. Only four in ten favor an increase in the federal deficit to pay for tax cut compromise.

But despite those figures, three-quarters of all Americans approve of the tax bill overall, including the extension of jobless benefits for the long term unemployed.

If you are keeping score at home:

President Bush and the Republicans were wrong to pass the tax cuts in 2001 and 2003.
President Obama was right to extend them in 2010.
Republicans were wrong to extend them in 2010.

Europe burns! CDS imply 7 to 11 notch credit downgrades. Belgium and France to join the sovereign debt crisis?

First Greece. Then Ireland. Next may be Portugal and Spain. Some are talking about Italy as well. As the sovereign debt crisis spreads through Europe, it is working its way up the food chain. Now, some are talking about Belgium and France too:

France risks losing its top AAA grade as Europe's debt crisis prompts a wave of downgrades that threatens to engulf the region's highest-rated borrowers, with Belgium also facing a possible cut.

Moody's Investors Service said Dec. 15 it may lower Spain's rating, citing "substantial funding requirements," and slashed Ireland's rating by five levels on Dec. 17. Standard & Poor's is reviewing its assessments of Ireland, Portugal and Greece. Costs to insure French government debt rose to a record today with the country's credit default swaps more expensive than lower-rated securities from the Czech Republic and Chile.

Costs to insure French government debt trebled this year, reaching an all-time high of 105.5 today, according to data provider CMA. Credit default swaps tied to Czech securities were little changed at 90 basis points and Chilean swaps ended last week at 89.

The credit default swaps tied to the French bonds imply a rating of Baa1, seven steps below its actual top ranking of Aaa at Moody's, according to the New York-based firm's capital markets research group.

Contracts on Portugal imply a B2 rating, 10 levels below its A1 grade, while swaps tied to Spanish bonds trade at Ba3, 11 steps below its Aa1 ranking, data from the Moody's research group show. Derivatives protecting Belgian debt imply a rating of Ba1, nine steps below its current rating of Aa1.

This is eerily familiar. The credit rating agencies gave overly optimistic ratings to collateralized mortgage obligations (portfolios of mortgages) and were then slow to downgrade them. Now, they are making the same mistake on an international level.

What do you think would happen if the credit rating agencies recognized reality and downgraded these countries to where the market believes they should be? The markets would crash. That's why they are avoiding the painful truth.

However, the credit rating agencies and governments can only deny reality for so long. Eventually, they will have to recognize the truth. The market will force the credit rating agencies to downgrade sovereign debt whether they want to or not. The market will force countries to restructure their welfare state systems or force them into bankruptcy.

I pray that this is done sooner rather than later. It will be painful. Extremely painful. There will be riots in the street as we are already seeing. But it is better to bear the cost now when the situation is still manageable, just barely so, than when all chances of saving western civilization are gone and nations descend into anarchy and tyranny.

A good sign. Republicans get religion on earmarks.

Byron York reports:

In the 2011 House budget, the groups found that House Democrats requested 18,189 earmarks, which would cost the taxpayers a total of $51.7 billion, while House Republicans requested just 241 earmarks, for a total of $1 billion.

The Senate is a different story. But even though some Republicans are still seeking earmarks, Democrats are by far the bigger spenders. The watchdog groups found that Democrats requested 15,133 earmarks for 2011, for a total of $54.9 billion, while Republicans requested 5,352 earmarks, for a total of $22 billion.

In the House, Democrats out-earmarked Republicans by a 50-to-1 margin. Democrats out-earmarked Republicans by a 5-to-2 margin in Senate.

With Republicans taking over the House in January, we could see earmarks disappear. At least that is my hope.

Yes, I know that earmarks are just a small portion of the wasteful government spending. I even heard one Democratic analyst say "Earmarks are a rounding error." Only in Washington is $8,300,000,000 considered a rounding error.

More important is that earmarks are, in effect, a bribe to get Representatives and Senators to vote for a bill they otherwise would not have voted for. If a Congressperson likes a bill, he or she should vote for it on the merits and not for the earmarks. And if he or she dislikes the bill, vote against. Thus, earmarks are either a complete waste of money if they don't affect how our Congressperson votes or is a form of bribery if it does effect them. Earmarks are wasteful or evil. Either way, we should get rid of them forever.

Irish Credit Rating Crashes

Just yesterday, somebody told me the Irish credit problem has been solved. With the market indexes trading at or near two-year highs, that would seem to be the case.

But then we get news that Moody's cuts Irish credit rating by five notches:

Moody's Investors Service said Friday it has cut its rating on Irish government bonds by five notches to Baa1 from Aa2. The credit rating agency said the outlook for the rating is negative. The downgrade comes after the agency said in November that the most likely outcome for Ireland's credit rating was a multi-notch downgrade that would leave it within the investment-grade category. "Ireland's sovereign creditworthiness has suffered from the repeated crystallization of bank related contingent liabilities on the government's balance sheet," said Dietmar Hornung, lead analyst for Ireland. As well as the cost of supporting the banking sector, Moody's said the increased uncertainty over the country's economic outlook and the decline in the Irish government's financial strength contributed to the downgrade.

OUCH! Ireland's credit rating drops 5 notches and the outlook is still negative, which means Moody's could downgrade it even further.

The sovereign debt crisis is far from over.

The Monster from the Senate Chamber

The latest spending bill out of the Senate is a monster. According to John McCain as reported on Drudge, the bill has 6,488 earmarks worth $8.3 billion. That's 65 earmarks and $83 million per Senator. It gets worse. "Members requested over 39,000 earmarks totaling over $130 billion." That's 390 earmarks and $1.3 billion each.

Now you know why I am proud member of the Tea Party. This unchecked wasteful spending has to stop. If I am an extremist for this, so be it.

"Extremism in the defense of liberty is no vice." Barry Goldwater

Michelle Obama's War

Michelle Obama recently said:

Childhood obesity isn't just a public health threat, it's not just an economic threat, it's a national security threat as well.

Previously, we had heard that our deficit was a national security issue:

The record U.S. budget deficit and debt should be viewed as a growing national security concern, U.S. Secretary of State Hillary Clinton told lawmakers yesterday.

"We have to address this deficit and the debt of the U.S. as a matter of national security, not only as a matter of economics," Clinton said in testimony to the House Appropriations Subcommittee on State, Foreign Operations and related programs.

Why must everything be a national security issue? And if these things really are national security issues, why are they announcing it to our enemies? And if our enemies already know this, do these Washington bureaucrats think we, the American people, are too stupid to realize it for ourselves?

I explain this obsession in The Path to Tyranny in a section about War Powers:

Seeing the usefulness of war to expand government and gain powers not enumerated in the Constitution, politicians and bureaucrats often use war terminology to advance their agendas. The War on Drugs, War on Poverty, and War on Cancer were not real wars, but by creating a sense of urgency, proponents of these issues hoped to receive government funding before public sentiment shifted to other causes. Many argue the War on Terrorism should also be on this list of fictitious wars, but it at least involves real military conflict. To some extent, the War on Drugs also requires military support, but it remains primarily a job for law enforcement and public education. The wars on poverty and cancer though require neither the military nor law enforcement and, therefore, the use of the war metaphor is simply a deceptive tool used to gain support for increased government spending.

The same could be said about the two "wars" above. While our deficit may in fact be an immediate national security issue, the use of this "war metaphor" will simply be used to force higher taxes upon the people or reductions in promised benefits (social security) to pay for these new "wars." It is a stretch to claim childhood obesity is a national security issue. It is a serious problem and is symptomatic of our society, but it in itself is not a national security issue, though its underlying causes (consumerism, laziness, lost productivity, increased health-care costs) may themselves indirectly affect national security.

Don't let the politicians trick you with their use, rather misuse, of words.

President Obama: The Health Care Tyrant

The incoming governor of South Carolina challenged President Obama to repeal the health care bill. TheSunNews.com reports:

Obama rejected Haley's request to repeal the health care bill – but said he'd consider letting states opt out of its mandates if they ran exchange programs, banned insurance firms from denying coverage of pre-existing conditions and enabled people to pool together for better rates.

Now, I must admit that I did not read the 2,600 page health care bill, so I don't know if there is a provision that allows the President to issue such exemptions under those terms. Either way, this is very disturbing.

According to this story which is based on Nikki Haley's comments afterward (there is no way to know what exactly the President said), President Obama "said he'd consider letting states opt out of its mandates…" He apparently is under no obligation to do so even if a state complies with his demands.

According to Obamacare or the government interpretation and enforcement of it, the President has dictatorial powers. The President can grant exemptions to whomever he pleases and deny exemptions to others who comply with the very same provisions.

We have already seen the government issue exemptions for individual corporations, but I was under the impression that there were strict rules to follow and those who follow those rules and apply for an exemption would get one. But now, at least with the states and maybe on the corporate side as well, the exemptions require Presidential approval and the President can make up his own rules.

Hail to the Health Care Tyrant!

Britain on the path to tyranny?

The title of my book and the blog is The Path to Tyranny. The book describes how the demand for free gifts from the government leads to tyranny. But this road does not always lead straight to tyranny. It often falls into anarchy first.

Today's headline at Drudge Report:

So how exactly does anarchy lead to tyranny? First, I'll share a couple of quotes from some people much smarter than me.

John Adams in A Defence of the Constitutions of Government of the United States of America:

The moment the idea is admitted into society that property is not as sacred as the laws of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence.

Plato's Republic:

And so the probable outcome of too much freedom is only too much slavery in the individual and the state… from the height of liberty, I take it, the fiercest extreme of servitude.

Montesquieu explains exactly how anarchy leads to tyranny in his Considerations on the Causes of the Greatness of the Romans and their Decline:

For in a free state in which sovereignty has just been usurped, whatever can establish the unlimited authority of one man is called good order, and whatever can maintain the honest liberty of the subjects is called commotion, dissension, or bad government

I already expounded upon this quote in a previous blog post:

This is the real reason so many today advocate anarchy and anti-globalization. They do not really want anarchy. Instead, they want to establish a situation which would call for immediate order, to be established by the government and "intellectual elites." First stage is anarchy, second is totalitarianism. These "anarchists" hope they can direct events towards socialism, as they successfully did in Russia in the 1910s and attempted to do in Italy and Germany, though other collectivist regimes beat out the socialists and communists, though both the Fascists and Nazis adopted socialist platforms to win favor among the people.

The ultimate result of the anarchy spreading through Europe is not yet known. History shows that this often, but not always, leads to tyranny.

The situation reminds me of Germany in the 1920s, except that all of Europe and the United States is in a similar situation to the Weimar Republic with huge deficits and debts that cannot be paid off. That led to the tyranny of the Nazis. Will we be able to avoid the mistakes of the past?

Interview at Financial Sense

I had the honor of being interviewed by Jim Puplava of Financial Sense. We talked about my book, The Path to Tyranny: A History of Free Society's Descent into Tyranny and its applicability to today's world.