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The National Debt: The Fed and Our Options

November 12th, 2013

The following is a guest post from Murray T. Holland. If you are interested in guest posting at Geek Politics, check out the guidelines here.

I wrote A Nation in the Red(aff) as a call to action for concerned citizens to save this country before we become inextricably caught in the debt trap that has shocked the economies of so many countries. Moms and dads, and especially moms and dads of children in their teens, twenties and thirties (this is the generation that will shoulder the burden of this debt), need to become informed of the problems that this much debt creates and make an issue out of it with all your friends, colleagues, schools and businesses. That is the action step that each concerned parent must take to save our country.

With regard to your specific question about the role of the Federal Reserve in helping the government out of the debt crisis, the Fed is now forced to walk a tightrope. Their primary job now is to grow the economy, but the traditional growth mechanisms are not working. The Fed has created more than sufficient reserves for banks to start lending, but consumers and governments have been de-leveraging since 2008 so there is no growth in the demand for consumer debt and hence slower economic activity. This has recently turned around but has not yet had much of an effect. Some economists argue the Fed should increase it purchases of Treasuries (to create inflation) while others think just the opposite (the normal mechanisms are not working).

Once the economy starts growing the problem becomes managing interest rates because the federal government has so much debt it cannot withstand large interest rate increases. This is the tightrope: if the economy grows, interest rates will increase due to increasing demand for debt. The Fed will be forced to maintain very low short-term rates so the federal government can pay interest expense without hurting other outlays. Then, what is the Fed going to do with the $3.6 trillion of Treasuries it already owns? A sale of even a portion of this amount would create a freefall in the debt markets. This is a problem. Unfortunately, the Fed is playing with “experimental” economics because no country has been here before so no one knows the exact outcome of Fed actions. Had the government not deficit spent, we would not have this problem and the recovery could be more straight-forward.

How does the U.S. get out of the debt trap? For countries that get to our debt levels, there are unfortunately only five methods out of the trap. The most used method is default and repudiation. Unfortunately for all of us, this method would devastate the world economy and needs to be avoided. The second method just recently created is a bailout, which of course is not available to us due to our size. The third method is pay the debt with newly printed money, but this has hyper-inflation side effects. The two remaining methods are grow the economy and balance the budget by spending cuts and tax increases. If we utilize the last two, my calculation is that we will be back to a 35% debt/GDP ratio in 36 years, assuming good economic growth and balanced budgets. This is where we were in 2008, five short years ago.

*Murray T. Holland is a 30-year veteran of the finance industry and managing director of Dallas-based MHT Partners. He is the author of A Nation in the Red(aff) (McGraw Hill, November 15, 2013). Readers are encouraged to visit ANationintheRed.com for more resources.

Author: Derek Clark Categories: Uncategorized Tags:

Campaign Finance and the Super Pac

October 17th, 2012

Campaign finance is a touchy subject. The 2010 decision by the Supreme court was a massive failure in my opinion. With the huge amounts of money being given the candidates can’t help but support their causes. Now, this isn’t quite as bad as it sounds, because the reason they are giving is likely that the candidate already supports their cause. That being said, it gives the candidates a conflict of interest. If the facts change they might still feel they have to support it because of all this money. Barack Obama and his Super Pacs have gotten big money from the likes of Michael Bloomberg and George Soros while Mitt Romney and his Super Pacs from Sheldon Adelson and the Koch brothers.

This can’t help but be a problem. That being said, to put it in perspective we will spend more on Halloween candy this year than on the presidential election. I think this makes a good argument for public financing of elections. It’s hard to decide who gets the money then, but if we can do that, a billion or 2 is a tiny drop in the bucket every 4 years compared to our budget. Wouldn’t a fair election not bought and paid for by the super rich and corporations be worth it?

Note that this infographic is out of date from this spring. I think it makes a good point though. Just add a few hundred mil to each of the numbers.

Elections & Money - Moneyocracy

Browse more data visualization.

Author: Derek Clark Categories: 2012 Election Tags:

Could We Have an Electoral College Tie?

October 12th, 2012

I wrote about the Pros and Cons of the Electoral College 4 years ago after the last election. One interesting tidbit that I didn’t mention was the possibility of a tie. This map, while still unlikely, is completely possible - http://www.270towin.com/2012_election_predictions.php?mapid=HqD.

What Happens With an Electoral College Tie

According to the Constitution a candidate is required to have a majority of the Electoral College to win the presidency. In some of the early elections we had more than 2 viable candidates. The the House of Representatives. Because there were 4 candidates receiving votes none of them got over 50%. In that case the House of Representatives votes and picks a candidate.

Currently, it is impossible to imagine someone other than Romney or Obama winning a state. That means that the only way neither of them would get a majority would be if they tie 269-269. In that case, the election would be decided by the House of Representatives. As the Republicans control the House, it is likely Romney would win a tie. It certainly wouldn’t be the type of victory he’s hoping for though.

Author: Derek Clark Categories: 2012 Election Tags:

Romney and Obama: A Match Made in Harvard

October 12th, 2012

The following is a guest post from Michelle Ontario. If you are interested in guest posting at Geek Politics, check out the guidelines here.

As election day draws closer, the rhetoric from both parties gets even more heated and the accusations spewed by partisan windbags on both sides becomes more bitter and less relevant. In this present election, much has been made of the slow economy under Barack Obama and the conspicuous absence of Mitt Romney’s tax returns. What has been lost in all the bickering is the fact of how similar the two candidates actually are. In fact, it could be argued that this is deliberately being ignored as it serves neither of them if it is pointed out that they have much in common. What would the partisans have to complain about? So, how similar are Romney and Obama? Are there any differences? The respective answers to those questions are “quite” and “yes.” See below.

Romney and Obama: The Harvard Connection

Harvard. The name alone conjures up an image of privilege and of an enclave for the wealthiest families in the nation. Those who attend and graduate from Harvard belong to a small and elite club of people who have a head start in life as a result of going to this prestigious school. A subset of this already elite set graduates from Harvard Law School, one of the most celebrated honors in the legal profession. Both Barack Obama and Mitt Romney belong to this group. That fact alone guarantees that they have more in common with each other than they do with most of the people who plan on voting for them. They not only have received the fruits of the intensive and broad education provided by one of the best schools in the world, they have all the connections that Harvard degrees bring. They are brothers in an exclusive club, and this should not be forgotten when evaluating both men.

Another important fact is that both Obama and Romney did well academically while at the school. This is another shared element of both men’s stories. The academic drive and eagerness that they possessed may have been due to the influence of their fathers, both of whom were high achievers; Romney’s father in business and politics and Obama’s father in the field of economics. Willard Mitt Romney would graduate from both Harvard Business School and Harvard Law School. He was in the top five percent of his class in business school and graduated cum laude from law school. Barack Obama would graduate magna cum laud from law school and went on to be a lecturer at the University of Chicago Law School for four years.

Prior to Harvard

By the time they entered Harvard, both Romney and Obama were older than the typical college student. Romney was 24 and Obama was 27. Both men had previously attended other schools, with Romney’s educational path going through Stanford and later on Brigham Young before winding up in Cambridge. Barack Obama’s academic path was slightly different in that he attended Occidental College in Los Angeles right out of high school and majored in political science; he would eventually transfer to Columbia University in New York. Obama would also work as a community organizer before attending Harvard Law School and as an associate at two law firms while at the school.

Michelle Ontario is a professional blogger who occasionally writes about American politics. She is a fan of election season and has written multiple essays and blog posts about the last two American presidential elections. She also contributes to Degree Jungle who just launched an infographic on the Costs to Educate President which looks at the education background of both candidates.

Author: Derek Clark Categories: 2012 Election Tags:

Failed War on Drugs

October 2nd, 2012

I just had a great infographic about the war on drugs and I thought I’d share it with you. We’ve talked about this several times here on GeekPolitics so I’ll just leave a few links and get to the graphic.

The Failed War on Drugs
Legalize Marijuana
Want to Decrease Illegal Drug Use? Decriminalize It!

Failed War On Drugs

Author: Derek Clark Categories: General Politics Tags:

Why Failing Civilizations Usually Destroy Their Own Middle Classes

September 25th, 2012

The following is a guest post from Larry Kelley. If you are interested in guest posting at Geek Politics, check out the guidelines here.

Like the Britons of Edward Gibbon’s day, most Americans are instinctively coming to understand that the fall of Rome contains ominous warnings for own declining Empire.

The Sack of Rome

During the winter of AD 408-409, Alaric’s growing army of Goths once again moved north into the Italian peninsula. The army swarmed and pillaged its way south until it arrived at the gates of the West Coast city of Portus, the harbor city that supplied Rome with food and goods from its overseas trading partners. Encountering little resistance, the Goths captured the city and cut off all food shipments to Rome. Over the next eighteen months, Alaric’s army mounted three sieges of Rome, each ending in a stalemate. The Emperor, Honorius, cowered in Ravenna, whose defenses amounted to disease-ridden swamps and marshes that surrounded the city. There he was able to make only the feeble gesture of sending a small contingent, some 4,000 troops, to aid in manning Rome’s walls. Some sources tell us these troops were ambushed and massacred on their way. But it may very well be that they deserted. No one knows. What is clear is they didn’t show up. (An excerpt from the new book, Lessons from Fallen Civilizations)(aff.)

For the first time in 800 years, on August 23, 410 AD without food or a professional garrison to man its walls, the city elders of Rome elected to surrender. The Goths entered the city for a three-day sack. When news of it reached them, the inhabitants of the entire civilized world went into shock. The city of Rome which had long been a symbol of permanence, prestige, and mankind’s most advanced civilization was gone. Chaos in the west ensued.

For much of the fourth century leading up to the fall of Rome, the western European half of the Empire had gone about the task of destroying its middle class. In AD 161 under the Emperor Marcus Aurelius, there were about 3,000 officials in the imperial government. By the abdication of Diocletian in 305 there were 35,000. Taxes rose from what a small farmer could produce in two days a month to half his monthly output. The empire exacted such an onerous level of taxation that many of its citizens defected, abandoned their lands or the legions in which they served and joined the barbarian invaders.

The Fall of the American Middle Class:

While Obama claims he is working to improve the lot of the American middle class, the runaway cost of his government has begun the beginning stages of destroying it. Stop to consider what has happened to the middle class in just the three and a half years since Obama has assumed office.

Median Income: The median income has fallen from $54,983 near its zenith in January of 2009 to $50, 964 by June of 2012. Over the past 3 years and during a supposed recovery median middle class net income after inflation fell by $4,019 or approximately by one-month pay.

Median Net Worth: Early this year, the Federal Reserve released a report that due to collapse of the housing market, lack of gainful unemployment, and vast new regulations on business, over the first three years of this administration American median net worth fell by a staggering 39%.

The Coming Cost of Crushing Indebtedness: Obama recently told David Letterman that he wasn’t aware that nation’s official debt had passed the $16 trillion This was a lie. But the number is important because it means our debt has now eclipsed our entire gross domestic product, a benchmark that is generally viewed by economists as unsustainable. But the more ominous fact is that the country’s total debt including our unfunded liability is twice the size of world GDP or something approaching $120 trillion or just over $1 million per taxpayer, an unpayable sum for the coming generation.

One in Seven Americans Are Now Unable to Feed Themselves: Relative to the fall of the American middle class, perhaps the most damning statistic for this administration is rise of food stamp recipients. In November of 2008 there were 31 million food stamp recipients. In June of 2012, there were 45 million. This statistic show that 14 million Americans have fallen out of the middle class and into poverty.

Obama has so institutionalized out-of-control spending that unless we remove him from office, gain a majority in congress, (that is, run the table), and significantly downsize government , the country is faced with encumbering its citizens with trillion dollar deficits as far as the eye can see. And although the top 1% of the income earners now pay 37% of the income taxes, the managers of our governmental leviathan, like the senatorial elites of the late Roman Empire, will soon be forced to devour more and more of the earnings of its middle class as well. The real tax burden of an oppressive failing state always falls on the middle class because that is where the vast majority of country’s taxable income is generated.

In our president’s world of the Saul Alinsky radical, it is both necessary to make the middle class believe that he is on its side while at the same time working to destroy it. Obama clearly believes what leftist totalitarians have always taught—a burgeoning American middle class will produce fewer leftist voters. A declining impoverished middle class will produce vast numbers of new ones. Since the FDR administration, it has long been the goal of creating a enough dependence on the government so that the nation could be governed by a permanent Democrat majority…by a permanent Marxist majority.

But as we approach this election, more and more Americans are coming to understand that taxing the rich and the promise of free health care and “shared prosperity” for all is simply part of a familiar con. They’ve awakened to the fact that individuals making $200,000 a year are hardly rich, nor are there enough of them to feed Obama’s welfare state. The middle class has been his target all along. In his second term, its obvious that he will extract the money from them in a myriad of ways—fees, hidden taxes, higher Medicare deductibles, penalties and fines, carbon taxes, special assessments to cover failing hospitals and school districts, crony capitalist value-added taxes, the Obamacare mandate and the biggest hidden tax of all—inflation.

By the end of a second Obama term is not conceivable that a much enfeebled America might be confronted by an emboldened consortium of enemy allies—China, Russia, and Iran, all nuclear armed? And like the Roman legions sent to defend the capital of a dying empire, might underpaid, dispirited rank and file middle class American soldiers simply refuse to show up?

Larry Kelley earned his BA in English Literature from the University of California at Santa Barbara and operates his own small business. Since 9/11 he has written over 100 articles on terrorism and resurgent militant Islam (http://larrykelley.com/). His new book is Lessons from Fallen Civilizations(aff.).

Author: Derek Clark Categories: 2012 Election Tags:

Stopping a Massacre

September 11th, 2012

This is why the 2nd amendment is so important. I don’t know why it is so hard to figure out that criminals don’t care about your gun laws. They are planning on breaking several others, what’s one more? The thing that gun laws do accomplish, is taking the gun away from law abiding citizen who saved several lives in this video.

Author: Derek Clark Categories: Gun Rights Tags:

Clint Eastwood RNC Convention Video

August 31st, 2012

Good to see that there are a few conservatives in Hollywood. Also, this video is awesome. Gotta love Clint Eastwood.

Author: Derek Clark Categories: 2012 Election Tags: