From Investor’s Business Daily (read it all here):

Understand, this is a time of great financial peril. That’s the main reason why Bernanke was renominated. The idea of changing Fed leaders in the middle of a financial crisis was too much.

Bernanke has printed close to $2 trillion in new money to help refloat the economy. President Obama is no doubt happy — if for no other reason than it will let the White House claim its $787 billion “stimulus” is the real reason the economy’s starting to grow again.

But the naming of [Denis] Hughes as the top banker at the New York Fed is the real news. And it’s quite astounding.

He has no significant finance experience. Nor does his educational background — “Brother Hughes,” as the AFL-CIO’s Web site calls him, has a B.S. degree from the Harry Van Arsdale School of Labor Studies at Empire State College — reassure us…

Of greater concern is his career as a bought-and-paid-for union official and political operative. The New York Fed chairmanship is hardly a place for a person whose entire career has been spent fighting and strong-arming the very people he’ll now be regulating.

Putting this key Fed bank in the hands of a person whose experience suggests a bred-in-the-bone hostility to capitalism strikes us as bizarre at best and dangerous at worst. And it bears the unmistakable imprint of the White House. Just last week we wrote about plans to elevate former United Steelworkers adviser Ron Bloom from head of the auto task force to “industrial policy czar.”

Putting so many union people in powerful positions of economic policymaking is a recipe for disaster. Since 1955, the share of the workers belonging to unions has plunged from 33% to about 11%. Still, though increasingly unpopular, unions have helped wreck two major industries: autos and steel. Not much of a track record.

But now, through politics, unions are getting rewarded with control of the economy — a very bad omen for American capitalism.

A British Housewife’s view of the UK economy:

Treasury forecasts that in five years the UK Government will owe £1,400,000,000,000. No, I didn’t lean on the ‘0’ key. It really is that big. Let’s take the very most optimistic view possible:

1. suppose this is true and it is not higher (bank bale-outs, PFIs, decommissioning power stations, civil servant pensions and so forth blithely ignored for the moment because Labour have made this ‘off balance sheet’ to hide it);
2. suppose this is only serviced at a rate of 3% and that it will not cost more (for example, because interest rates rise, because investors will not buy gilts, or because the pound drops further against other currencies and gold);
3. suppose that other Government income does not drop (because the economy shrinks, because people and companies pay less tax if they are bankrupt or unemployed);
4. suppose that other expenses do not go up (unemployment benefit; more bale-outs; rising pay demanded by the 40% of the workforce in the public sector);

and suppose these things even though they are probably not true at all.

Even with this rosy view, the cost of servicing that debt will be, at a modest 3%, some £42,000,000,000 a year. Again, I do not lean on the ‘0’ key.

This means that towards the end of the next Parliament, the cost of paying for all the debt will amount to about the same as the total corporation tax income the treasury takes in a year at today’s rates.

Just paying interest Government’s term will cost the entire contribution of British business to the pubic purse . Or look at it this way, interest payments will take funds which amount to more than the Government spends a year on public order (police, law courts, prisons, etc): that is just to pay the interest, not to pay back what it borrowed.

What is the alternative view? Maybe the public debt could be £1,840,000,000,000 (including the off balance sheet items ignored in the Treasury forecasts). Maybe my assumptions are a tad too optimistic. If interest rates on gilts then go up to a fairly unremarkable 6%, that would be a debt interest cost of £110 billion a year – about the current cost of the National Health Service.

What happens then, as the Government runs out of money?

It still wants to pay for the NHS, pensions, the Army, Police, welfare, rubbish collection, equality, redistribution of wealth, pocket money for low income teenagers (I kid you not), schools, universities, nauseating public art, the climate nonsense and so forth. Government spends about half our output and employs nearly half of us at the moment. It spends about £43 million a day on the European Union. Well at some point, say it can’t actually pay because of the debt interest it needs to pay.

You may say it will have to raise taxes, sell gilts (borrow even more), sell gold, or just print more money.

Raising taxes will come. but will simply strangle the last bit of life out of what is left of the productive part of our economy, or push wealth and investors abroad. I would also be amazed if the UK can carry on issuing gilts. Who will buy them? A broke UK is hardly the best investment and the credit rating is already being questioned. And if gilts are sold, we may have to pay punitive rates. Gordon Brown already sold all the gold, by the way, when the price was low. What is left? The Government will have to print money. However, this can only make matters worse. The money supply will go up and therefore prices will rise with interest rates (probably just as oil prices go up further). The worth of pensions, savings and property will be cruelly devalued by this dilution in the value of the pound. There will be public sector anger, unemployment, rising prices and real poverty.

(By the way for all of you who say the CPI and RPI measures of inflation are low, please just remember that food inflation as calculated in the Daily Telegraph, is consistently between 9 and 14%. The indices are low in energy and mortgage payments because oil prices went down and because of the low interest rate. These can always go up again.)

Can Government cut spending? Just just to pay for interest and not really touch capital obligations, we shall have to ditch the equivalent of the NHS. The main political parties have done their typical thing: Conservatives have been vague and Labour has been misleading. Conservatives have said they will cut some spending but will not cut the NHS or Third World Aid. Labour is committed to spending more in real terms but won’t say if that includes interest and unemployment benefit so this means in reality spending less too, but not admitting it (in the usual Labour way).

The only answer is of course to make the productive part of the economy work again. We must reduce the cost and size of the public sector and ditch the EU. We must somehow allow businesses to create wealth, make a profit, employ people and thereby help them pay their mortgages. Even if we do this, it is going to be tough and public policy makers simply are not facing up to it. Both main parties have obviously never kept to a household budget.

Mrs M A Westrop, UK Housewife: economists please comment.

Thomas Sowell writes that the way the government is setting about using the vast sums of taxpayers’ money it has appropriated is so slow a process that it can be compared to ‘mailing a letter to the fire department to let them know that your house is on fire.’

That is because the aim of the Democrats in power is not to put more money in circulation, or create more jobs, or in any other way help the country out of recession, but to increase their own power. 

One important clue may be a recent statement by President Obama’s chief of staff, Rahm Emanuel, that "A crisis is a terrible thing to waste."

This is the kind of cynical revelation that sometimes slips out, despite all the political pieties and spin. Crises have long been seen as great opportunities to expand the federal government’s power while the people are too scared to object and before any opposition can get organized.

That is why there is such haste to do things that will take effect slowly.

What are the Beltway politicians buying with all the hundreds of billions of dollars they are spending? They are buying what politicians are most interested in– power.

In the name of protecting the taxpayers’ investment, they are buying the power to tell General Motors how to make cars, banks how to bank and, before it is all over with, all sorts of other people how to do the work they specialize in, and for which members of Congress have no competence, much less expertise.

This administration and Congress are now in a position to do what Franklin D. Roosevelt did during the Great Depression of the 1930s– use a crisis of the times to create new institutions that will last for generations.

To this day, we are still subsidizing millionaires in agriculture because farmers were having a tough time in the 1930s. We have the Federal National Mortgage Association ("Fannie Mae") taking reckless chances in the housing market that have blown up in our faces today, because FDR decided to create a new federal housing agency in 1938.

Who knows what bright ideas this administration will turn into permanent institutions for our children and grandchildren to try to cope with?

 

             Read the whole column here.

All too ominously the signs point to a clean sweep for the Democrats. They will probably command both Congress and the White House.

The pundits say, almost unanimously, that  the reason why most voters will put power into the hands of the Democratic Party is the economic crisis.  If this is so, the irony is heavy. The crisis was fundamentally caused by the Democrats. Pursuing their ideology, they insisted, and legislated to ensure, that people who couldn’t afford mortgages be given them. When the red lights started flashing, both President Bush and John McCain (amongst other Republicans) warned that measures must be taken to prevent impending disaster, but Democrats voted against the bills that were presented to avert it. Among the most guilty of the Democrats were Chris Dodd, Barney Frank – and Barack Obama.

And the Democrats are going to be voted into power primarily to fix the economy? Seems so!

But do most voters know that the Democrats – including, most importantly, Obama himself – are the first and chief cause of the economic collapse? Surely, if they knew, they wouldn’t hire the thieves to guard the treasure, the arsonists to protect the house?

So if they they do not know, who is to blame for that?

First, obviously, the media. This presidential election is a dark chapter in the history of the MSM. They have deliberately withheld essential information about the Democrats’ culpability for the sub-prime collapse and Barack Obama’s  communist training and ties.

But the one person who could have by-passed the media by using his opportunities to spread the information to tens of millions of people in his convention speech and the presidential debates, and did not do so; who could and should have done it fully and clearly and insistently and convincingly, is John McCain. He did not even vaunt his own prescience and efforts to avert the calamity, let alone point his finger at the guilty men. He was too nice, too scrupulous, too respectful to do what urgently needed to be done to save America. This is a destructive kind of hubris. He esteems his own moral superiority more than he desires the freedom and prosperity of his country!  Instead, batting his eyelashes like a starlet, and opening wide his goody-goody eyes, he tell us not to fear an Obama presidency – even though he has noticed of late (too late?), with the help of Joe the Plumber, that Obama’s economic policy is ‘socialistic’.

So he too bears a terrible responsibility for what is now likely to come about: the unimpeded enactment of socialist policies which can only make the economy worse.

Jillian Becker

October 2008