Nemo me impune lacessit

No one provokes me with impunity

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No Title of Nobility shall be granted by the United States: And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.

Article 1, Section 9, Constitution of the United States

If this is the law of the land...why in a republic (little r) and as republicans, do we allow mere POLITICIANS to the right to use a "title of office" for the rest of their lives as if it were de facto a patent of nobility. Because, as republicans, this should NOT be the case...just saying...

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Thursday, June 03, 2010

What Ailes the Country?

The root economic collapse are not simple. They stem from several sources, but primarily within Congress and a few Senators and Congressmen who insisted 12-14 years ago that owning a home was a "right" and must be extended to the broadest possible base. Another root cause is...again Congress, only this time, their ability to spend money without having to make commensurate cuts elsewhere in the budget. A third root cause of our economic woes is related to and a subsidiary dividend of the first two issues: Credit, or rather the lack thereof.

A number of years ago, Congressman Barney Frank, (D-MA4) along with Senator Charles Schumer (D-NY) and Christopher Dodd (D-CT) decided that home ownership was a right that must be extended to everyone in the United States...regardless of their ability to pay the resulting mortgage. They insisted that Fanny May and Freddie Mac, the publicly owned/financed mortgage guarantee corporations must begin issuing subprime home loans. Wikipedia defines subprime loans as follows:
"Subprime lendings evolved with the realization of a demand in the marketplace for loans to high-risk borrowers with imperfect credit.[2] The first subprime was initiated in 1993. Many companies entered the market when the prime interest rate was low, and real interest became negative allowing modest subprime rates to flourish; negative interest rates are hand-outs, such that the more you borrow the more you earn.[citation needed] Others entered with the relaxation of usury laws.[2] Traditional lenders were more cautious and historically turned away potential borrowers with impaired or limited credit histories.[2] Statistically, approximately 25% of the population of the United States falls into this category.[citation needed] In 1998, the Federal Trade Commission estimated that 10% of new-car financing in the US was provided by subprime loans, and that $125 billion of $859 billion total mortgage dollars were subprime.[2]

"In the third quarter of 2007, subprime ARMs only represented 6.8% of the mortgages outstanding in the US, yet they represented 43.0% of the foreclosures started. Subprime fixed mortgages represented 6.3% of outstanding loans and 12.0% of the foreclosures started in the same period.[3]"
Thus in a nutshell, subprime loans are those that are granted to people with poor credit, who have in the past shown that they are irresponsible and defaulted on loans in the past. An additional criteria of subprime home loans was that they were often granted with little or no money as down payment and the loans often exceeded 125% of the value of the home...thus more money was given than the borrower's ability to pay back and was greater than the value of the property in question. Thus the borrower has little or no incentive to remain in the property if the ensuing housing bubble bursts...

When the credit crisis of 2007-8 began to perk up into the greater economy, it stemmed from increasing foreclosure rates of those very borrowers who should never have been granted loans in the first place. Then, as credit began to dry up, it effected all other sectors of the economy but most significantly, automotive sales and construction, as those industries are based heavily on the availability of credit lines, first in auto loans, and secondarily in construction firms being able to borrow the funds necessary to construct homes, commercial property, etc. Without easily available credit, those two industries are bound to fail in a rapid manner...and fail they did.

Enter Congress...Congress in it's infinite stupidity, led by Speaker of the House, Nancy Pelosi, and the Senate Majority Leader, Harry Reid, jumped into the fray with the Toxic Asset Relief Program (TARP) which was supposed to buy up foreclosed properties and keep various "too big to fail" banking/lending houses on Wall Street solvent. Not coincidentally, AIG, was the most seriously endangered...it also happened to be the administrator of Congressional retirement funds...

These companies were deemed to important to be allowed to fail through normal marketary forces, i.e. they followed bad business plans and were rewarded for their stupidity, while small houses who followed economically vaible plans were punished by being forced to pay higher taxes and fees to partially fund the $750,000,000,000.00 plan (which has now ballooned beyond a trillion dollars). Unfortunately, most of these funds have been dispensed by the administration in a manner other than that which was mandated by Congress. Secretary of the Treasury, Timothy Geithner has used these funds to a slush fund in order to bailout GM and Chrysler to the tune of almost $100,000,000,000.00 so far.

Following the election, a victorious Barack Obama, with his enablers, Messer's Reid and Pelosi, settled upon a plan to spend another trillion dollars as a "stimulus package" to jump start the economy. Mr. Obama, in failing to show any leadership at all, delegated the formulation of the "package" to Congress...who larded it with pork typical of an emergency spending bill. It has been shown, that spending in Democratic districts has been more than 2-1 that of GOP held seats regardless of actual need in those districts.

However, in a recent study by Lauren Cohen, Joshua Coval and Christopher Malloy of the Harvard University Business School in their study, 'Do Powerful Politicians Cause Corporate Downsizing?' they discovered, much to their surprise, that massive government spending in Congressional districts (a convenient size for the purposes of their study) had the effect of eliminating jobs and a reduction in research expenditures in the private sector. In other words, they concluded that the stimulus package wouldn't stimulate the economy, it would have the direct and negative effect that it has had. Thus, unemployment has remained at 25 year highs...with a U6 rate of 17-20%. which is well above the U3 rate of 9.9%.

Once more enters Congress, which has passed in the past two years, record sized government budgets that will double the national debt within five years. Additionally, each year's projected deficit has exceeded $1,300,000,000,000.00 for last year, and 1,600,000,000,000.00 for this year, though that figure is been altered upward several times over the past few months as revenue received by the IRS has continued to slide.

There are several options available to alleviate our current economic woes. Unfortunately, this administration and Congressional leadership is deeply wedded to a flawed Keynsian economic model and won't implement any of these ideas. First off, a steep reduction in business taxes would release the private sector from an onerous burden and enable it to reinvest funds in expansion. Secondly, reducing or eliminating the Capital Gaines Tax would encourage further investment in the private sector. In the past, reducing taxes has been followed almost immediately by rapid expansion of the economy. The Reagan tax cuts of the 1980's led to the longest period of economic growth in our nation's history. Unfortunately, Congress as it is presently constituted will not implement either of these proposals, despite the fact that reducing taxes encourages economic growth, which leads to higher tax revenues.

Lastly, if Congress in a fit of sanity that's not envisioned in the near future, would not pass spending bills that increase spending without commensurate decreases' in other areas. This won't happen as our political class refuses to make the difficult decisions needed to eliminate deficit spending prefering to "kick the can down the road," and avoid having to make any hard decisions now.

Eliminating those governmental departments that are unnecessary or have become "jobs" programs, such as the Dept of Education, Health and Human Services, Commerce, as well as Energy. None of these departments are really necessary and don't actually perform well or efficiently in the sectors that they are purported to regulate. By eliminating them, nearly 25% of the overall budget would be eliminated and that unnecessary spending could be saved with an overall savings of nearly $1,000,000,000,000.00 per year. Yet, none of this will occur as Congress and this Administration want to have their cake and eat it too...

However, neither party has shown the political fortitude needed to tackle this growing list of economic problems.  Both seem to be enamoured of government expansion.  It's merely a matter of the rate of expansion that is the root issue.  In 2002-2006, the GOP expanded the scope of government to an unprecendented degree...but then, the Democratic Party took control of the reigns of government, in 2006, an began to pass budgets that exceed even those.  Once a Democrat took over the White House, the scope of government expansion sky rocketed.

Last year, compensation of government employees exceeded that of the private sector.  Addtionally, the numbers of people who no longer produce actual goods or services exceeded those in the productive private sector.  This sort of growth cannot be sustained.  In a business, if the administrative side begins to out number that of the productivity based side the business fails (i.e. GM, is an excellent example of this).  Government has now achieved that magic number.  What happens when governments reach this point?  Look at Greece, Spain and Portugal.  These three countries are bankrupt and can no longer afford the level of governmental spending that they have been following for several decades.  Greece's GDP is now exceeded by it's level of debt and is on the verge of defaulting on it's debt payments.   Our own government is predicted to reach this point in 2020...if not sooner.

The time has come for us as a nation to make those hard choices that are necessary in order to remain the ecnomic powerhouse that we have been for the past 160 years.  We have allowed our political class to spend money like drunken sailors without regard to the consequences to the future.  Social Security, which should have been able to sustain itself for another 50 years, has been through accounting tricks, systematically looted by Congress, both Democrat and Republican controlled, for more than 60 years, virtually since it's inception.  Medicare/Medicade, which were supposed to be capped at $40,000,000,000.00 spending now waste at least that much yearly.  We have allowed ourselves to be duped by politicians into believing that we can continue to spend money we don't have.

The time has come for us, as a nation to clean house and regain some measure of fiscal sanity.  In November, we must remove from office, thos incumbents who have shown that they are unable to look towards the future of our nation, and only look towards enriching themselves at the public trough.  Remember November!

2 comments:

Mister Sinister said...

Amen brother. Good info and well presented. Remember to start hitting this theme again around Halloween in time for the November elections.

Republicans need to start distancing themselves from the trend GWB started in growing government which has been increased exponentially by the moonbats. They need to lay low until the most opportune moment issue and time-wise and then spring the new vision.

It will be inspiring to witness.

Rich Vail said...

Hi, thanks for taking the time to comment...the biggest problem is that our country no longer has the money to lend to business while at the same time floating loans to the government...