Archive for the ‘Economic Terms You Should Know’ Category

European markets took a serious dip on Friday rattled by fresh concerns over the eurozone debt crisis and a poor US employment report. Paris’ CAC 40 slipped 3.6 percent while London’s FTSE 100 index of leading companies dropped by 2.3 percent.

Worries that the U.S. economy is stalling and may be heading back into recession caused a severe slump in stock markets around the world on Friday.

With European indexes already shaken by a disagreement between the EU and Greece over how to plug a deficit gap, worse-than-expected U.S. jobs data drove investors to unload stocks.

The U.S. Labor Department announced that the world’s largest economy created no new jobs in August, disappointing forecasts for a 93,000 increase. The figure was the worst in almost a year, leaving the unemployment rate unchanged at 9.1 percent.

Investors watch the jobs report as a key barometer of the health of the U.S. economy, which despite its recovery from the worst of the sub-prime mortgage crisis and the global financial meltdown has struggled to create new jobs.

“The stagnation in U.S. payroll employment is an ominous sign,” said Paul Ashworth, economist at Capital Economics. “The broad message is that even if the U.S. economy doesn’t start to contract again, any expansion is going to be very, very modest and fall well short of what would be needed to drive the still elevated unemployment rate lower.”

Britain’s FTSE 100 closed down 2.3 percent to 5,292.03 while Germany’s DAX slumped 3.4 percent to 5,538.33 and France’s CAC-40 shed 3.6 percent to 3,148.53.

Wall Street also slid – the Dow industrials fell 1.4 percent to 11,336.08 and the S&P 500 lost 1.6 percent to 1,185.54.

In Europe, concerns about the debt crisis flared up again after international debt inspectors paused their review of Greece’s finances.

An EU official, who declined to be named because of the sensitivity of the issue, said there were disagreements over the country’s deficit 2011 and 2012 figures and how to make up for the budget shortfall.

Greek finance chief Evangelos Venizelos, however, denied that the pause it was due to a breakdown in talks.

The uncertainty, however, put extra pressure on European stock markets and the euro, which fell to $1.4214 from $1.4273 the day before.

In Asia, Japan’s Nikkei 225 index, Asia’s biggest market, ended a six-session winning streak, falling 1.2 percent to 8,950.74. Hong Kong’s Hang Seng index declined 1.8 percent to 20,212.91.

Mainland China’s Shanghai Composite Index fell 1.1 percent to 2,528.28 amid concerns over the potential impact of currency appreciation.

In Seoul, South Korea’s Kospi shed 0.7 percent to 1,867.75, ending six consecutive gains. Markets in Australia, New Zealand, Thailand and Singapore also fell.

Benchmarks in the Philippines and India, however, bucked the losing trend to gain less than 1 percent each.

In currencies, the dollar was down slightly at 76.76 from 76.79 yen the day before.

New Japanese Prime Minister Yoshihiko Noda named Jun Azumi, a 49-year-old former journalist, to succeed him as finance minister Friday as he launched his Cabinet. Japan, the world’s third-largest economy, is struggling with the effects of a currency that remains near an all-time high against the dollar.

“We expect Noda to maintain the links he formed with the BOJ as finance minister and continue with a policy framework that includes forex market intervention,” Naohiko Baba, chief economist for Goldman Sachs in Tokyo, wrote in a report Friday, referring to the new prime minister’s relationship with the Bank of Japan.

The central bank carries out currency market intervention on behalf of the finance ministry.

Benchmark oil for October delivery was down $2.16 to $86.77 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 12 cents to settle at $88.93 per barrel on the Nymex on Thursday.

In London, Brent crude for October delivery was down 90 cents at $113.39 on the ICE Futures exchange.

Posted on January 25, 2012 at 8:42am by Becket Adams

This photo provided by CBS Sunday, April 25, 2010, shows Lawrence Summers, former Director of the National Economic Council as he makes a point on the Sunday talk show “Face The Nation” in Washington, April 25, 2010.
Columnist Ryan Lizza’s in-depth New Yorker article (“The Obama Memos”) examines some of the strategies and reasoning behind the Obama administration’s handling of the U.S. economy. But unlike most op-eds, his column involves more than just speculation and conjecture. As one of the article’s chief resources, Lizza uses a 57-page, “Sensitive & Confidential” memo written by the economist Larry Summers in 2008.

For those unfamiliar with that name, Larry Summers is the former Director of the United States National Economic Council for President Obama. And although he resigned from this position in November 2010, as the White House’s chief economist he “played a leading role in crafting the administration’s interventions in the economy,” according to the Wall Street Journal.

Summers’ influence being understood, this “sensitive and confidential” memo helps explain why certain economic strategies and initiatives have been adopted, and in many cases maintained, by the Obama administration. But it does a little more than that: the memo also sheds some light on why the administration has failed to revive the economy.

Summers’ 57-page memo is “striking for two reasons,” writes Dean Baker of The Guardian. “First, it…showed the economic projections that the administration was looking at when it drafted its stimulus package. These projections proved to be hugely overly optimistic.”

Many critics would agree.

Baker continues:

The other striking part of this memo is the concern with “bond market vigilantes”. The memo discusses the need to focus on the medium-term deficit with the idea of reaching deficit targets by 2014. The highest deficit target listed in the memo for this year was 3.5% of GDP. The memo also includes calculations with a deficit target of 2.5% of GDP, and a balanced budget.The deficit for the fiscal year that ended last October was 8.5% of GDP. Depending on how the payroll tax debate, the extension of unemployment benefits and a few other issues get resolved, the deficit is not likely to be very much lower in 2012.
This means that getting from a 2012 deficit near 8.0% of GDP to even the 3.5% target for 2014 would require some very serious budget cuts in an economy that will still be suffering from massive unemployment. The difference between a budget deficit of 8.0% of GDP and 3.5% of GDP is equal to almost $700bn annually.
So what does this mean?

Larry Summers and Barack Obama.
“In short, the Obama administration made plans that were quite obviously based on a far too rosy view of the economy,” Baker concludes. “While this favorable assessment was the prevailing view at the end of 2008, what is inexplicable is why the administration never appears to have strayed from its original path – even when it became clear that the economy was doing far worse than projected.”

Just how poorly did Summers and the Obama administration “fail to grasp” the seriousness of America’s economic situation?

For an answer to this question, one can turn to James Pethokoukis of The American, the online magazine for the American Enterprise Institute.

The following are the most “stunning revelations” about what President Obama’s economic team was thinking as the financial crisis was blowing up (as compiled by Pethokoukis, with quotes from the 2008 memo itself):

1. The stimulus was about implementing the Obama agenda.
The short-run economic imperative was to identify as many campaign promises or high priority items that would spend out quickly and be inherently temporary. … The stimulus package is a key tool for advancing clean energy goals and fulfilling a number of campaign commitments.
2. Team Obama knows these deficits are dangerous (although it has offered no long-term plan to deal with them).
Closing the gap between what the campaign proposed and the estimates of the campaign offsets would require scaling back proposals by about $100 billion annually or adding new offsets totaling the same. Even this, however, would leave an average deficit over the next decade that would be worse than any post-World War II decade. This would be entirely unsustainable and could cause serious economic problems in the both the short run and the long run.
3. Obamanomics was pricier than advertised.
Your campaign proposals add about $100 billion per year to the deficit largely because rescoring indicates that some of your revenue raisers do not raise as much as the campaign assumed and some of your proposals cost more than the campaign assumed. … Treasury estimates that repealing the tax cuts above $250,000 would raise about $40 billion less than the campaign assumed. … The health plan is about $10 billion more costly than the campaign estimated and the health savings are about $25 billion lower than the campaign estimated.
4. Even Washington can only spend so much money so fast.
Constructing a package of this size, or even in the $500 billion range, is a major challenge. While the most effective stimulus is government investment, it is difficult to identify feasible spending projects on the scale that is needed to stabilize the macroeconomy. Moreover, there is a tension between the need to spend the money quickly and the desire to spend the money wisely. To get the package to the requisite size, and also to address other problems, we recommend combining it with substantial state fiscal relief and tax cuts for individuals and businesses.
5. Liberals can complain about the stimulus having too many tax cuts, but even Team Obama thought more spending was unrealistic.
As noted above, it is not possible to spend out much more than $225 billion in the next two years with high-priority investments and protections for the most vulnerable. This total, however, falls well short of what economists believe is needed for the economy, both in total and especially in 2009. As a result, to achieve our macroeconomic objectives—minimally the 2.5 million job goal—will require other sources of stimulus including state fiscal relief, tax cuts for individuals, or tax cuts for businesses.
6. Team Obama wanted to use courts to force massive mortgage principal writedowns.
The next step in the housing plan is responsible bankruptcy reform along the lines of the Durbin bill you cosponsored. This would allow bankruptcy courts to write down the principal of primary residences to the current market value. We recommend announcing this reform to begin immediately following the close of the enhanced Hope for Homeowners period.
7. Team Obama thought a stimulus plan of more than $1 trillion would spook financial markets and send interest rates climbing.
To accomplish a more significant reduction in the output gap would require stimulus of well over $1 trillion based on purely mechanical assumptions—which would likely not accomplish the goal because of the impact it would have on markets.
8. Greg Mankiw, economic adviser to Mitt Romney, was dubious about the stimulus.
Greg Mankiw is the only economist we have consulted with who refused to name a number and was generally skeptical about stimulus.
9. But the Fed was a stimulus enabler.
Senior Federal Reserve officials appear to be of the view that a plan that well exceeds $600 billion would be desirable.
10. IPAB was there at the very beginning.
There are two possibilities for making tough decisions on the long-run budget, which could be done either separately or together: creating an executive-branch “health board” (which focuses on one part of the issue) and a Congressionally chartered commission (which could focus more broadly).
11. The financial crisis wasn’t just Wall Street’s fault.
A significant cause of the current crisis lies in the failure of regulators to exercise vigorously the authority they already have.
Perhaps more unsettling than Pethokoukis’ list is the fact that the Obama administration has done very little to update any of these ideas. It’s as if Summers set the tone in 2008, and nobody has looked back since.

Therefore, given what some have called a naïve (if not willfully ignorant) handling of America’s economic crisis (based on just these eleven examples), is it any surprise that Obama administration has been set on all sides with severe criticism? Consider from just one side of the political spectrum, the conservative commentators who, although having once possessed “a surprising degree of hope and good cheer” for his presidency, have denounced Barack Obama and his administration as abject failures:

In 2009, the president was a dinner guest in the home of conservative commentator George Will, according to Lizza. By 2011, Mr. Will had declared President Obama a “floundering naïf” and someone advancing “Lenin-Socialism.”

In 2009, Fox News commentator Charles Krauthammer wrote that Obama could be “a president with the political intelligence of a Bill Clinton harnessed to the steely self-discipline of a Vladimir Putin” who would “bestride the political stage as largely as did Reagan.” By 2011, Mr. Krauthammer had written the president off as “sanctimonious, demagogic, self-righteous, and arrogant.”

In 2009, the economist Larry Kudlow claimed that the president loved “to deal with both sides of the issue,” when it came to business and the economy and that he “revels in the back and forth. And he wants to keep the dialogue going with conservatives,” according to Lizza. By 2010, Mr. Kudlow had accused President Obama of presiding over a government of “crony capitalism at its worst.”

In 2009, while commenting on the violence set off by Iran’s rigged elections, the supposed “Reaganite” Peggy Noonan gushed “Mr. Obama was restrained, balanced and helpful in the crucial first days, keeping the government out of it.” By 2011, Miss Noonan had declared the president “a loser.”

Given the fact that the Summers memo only confirms what many these critics had already feared (i.e. that the Obama administration is woefully incompetent in regards to dealing with the U.S. economy), perhaps their “over-the-top” criticism isn’t that far off the mark.

Not all Republicans are rolling over in the face of President Obama’s unconstitutional usurpation of power.Rep. Tim Scott, R-SC, said if the president moves forward with a plan to raise the debt ceiling without Congressional authority, he would consider it “an impeachable act.” Scott told the Tea Party group LowCountry 9.12 on Tuesday:

This president is looking to usurp congressional oversight to find a way to get it done without us. My position is that is an impeachable act, from my perspective. There are a lot of things people say, “Are you going to impeach the president over that?” — No. But this? This is catastrophic. This jeopardizes the credibility of our nation if one man can usurp the entire system set up by our Founding Fathers over something this significant…There will be a revolt among the American people, and that’s what it takes.

Americans are fortunate some Congressmen take their oath of office seriously. And Rep. Scott is right; it is going to take a citizens’ uprising to force Congress to do what is right. We have to be willing to do our part to hold the president accountable for his crimes. Congress must have the courage to do its part and begin impeachment. And Heaven knows, Barack Obamahas done his part.

We now have concrete evidence that Wall Street and Washington are running a secret government far removed from the democratic process. Through a freedom of information request by Bloomberg News, the public now has access to over 29,000 pages of Fed documents and 21,000 additional Fed transactions that were deliberately hidden, and for good reason. (See here and here.)

These documents show how top government officials willfully concealed from Congress and the public the true extent of the 2008-’09 bailouts that enriched the few and enhanced the interests of giant Wall Streets firms. Here’s what we now know:

• The secret Wall Street bailouts totaled $7.77 trillion, 10 times more than the $700 billion Troubled Asset Relief Program (TARP) passed by Congress in 2008.

• Knowledge of the secret bailout funds was not shared with Congress even while it was drafting and debating legislation to break up the big banks.

• The secret funding, provided at below-market rates, gave Wall Street banks an additional $13 billion in profits. (That’s enough money to hire more than 325,000 entry level teachers.)

• The secret loans financed bank mergers so that the largest banks could grow even larger. The money also allowed banks to step up their lobbying efforts.

• While Henry Paulson (Bush’s Secretary of the Treasury) was informing Congress and the public that only minor reforms were needed to protect Fannie and Freddie from collapse, he met secretly with leading Wall Street hedge fund managers — among them his former colleagues at Goldman Sachs — to alert them that he was about to nationalize the giant mortgage companies – a move that would eradicate nearly all the stock value of the companies. This information was enormously valuable because it allowed these hedge funds to short Fannie and Freddie and thereby make a fortune.

• While Timothy Geithner was head of the NY Federal Reserve, he argued against legislative efforts by Senator Ted Kaufman, D-Delaware, to limit the size of banks because the issue was “too complex for Congress and that people who know the markets should handle these decisions,” Kaufman recalls. Meanwhile, Geithner was fully aware of the enormous secret loans while Senator Kaufman was kept in the dark. Barney Frank, who was authoring key bank reform legislation was also not informed of the secret loans. No one in Congress was told.

So what does this all mean?

1. The big banks and hedge funds were in much more trouble than we were led to believe. 

As many of us suspected, all the big banks were on their knees begging for help – secretly – while telling their investors, the public and Congress that all was well. They had gambled and lost. Under the rules of ideal capitalism, they should have suffered some “creative destruction,” and seen their shareholder value eliminated through bankruptcy, and their managers replaced. The entire banking system should have been reorganized from top to bottom as well. Instead, these colossal failures were secretly rewarded.

2. Wall Street’s secret government made sure the largest banks would grow even larger, aided by the secret funding. 

While Congress was debating legislation to break up the large banks and reinstitute Glass Steagall (to separate risky investment banking from insured commercial banking,) the secret government was using public funds to grow even larger through mergers and acquisitions. Because Congress and the public were unaware of the secret funding and ill-health of all the banks, the legislation was easily defeated. As the chart below makes painfully clear, too-big-to-fail banks grew even bigger.

3. The bigger Wall Street becomes, the more government it can buy.

This part isn’t secret. As the top six banks grew larger, they spent more funds lobbying to make sure that they wouldn’t suffer any unprofitable impacts from banking reform legislation. So after the biggest banks received hundreds of billions in secret loans, they upped their lobbying funds to maintain their size and power. Read ‘em and weep:

4. Wall Street’s secret government protects its own. 

At first, it’s not easy to understand how Treasury Secretary Paulson, the former head of Goldman Sachs, could risk attending a secret meeting with giant hedge fund managers, many of whom used to work at Goldman Sachs. How could the nation’s highest ranking financial official dare to tip off these hedge fund elites about the imminent government takeover of Fannie and Freddie before Congress and the public were informed? Well, one answer is that Paulson felt obliged to warn his old comrades of the impeding nationalization. Maybe, he wanted to get them out of harm’s way just in case they were heavily involved in those markets. Or maybe he also wanted to give them a very valuable tip to profit by. But the deeper explanation, I believe, is that Wall Street’s key government officials – Paulson, Summers, Geithner, Orszag (the former Obama OMB chief who now makes millions working for CitiGroup), etc. truly believe the following:

• Wall Street banks are the best in the world and are the cutting-edge of the American economy. They are our future.
• Wall Street bankers and hedge fund managers are enormously smarter and sharper than the rest of us. They deserve our admiration.
• Helping Wall Street to grow and prosper is precisely the same thing as helping all Americans and the entire economy. They deserve our support.
• Secret meetings to provide insider information are normal on Wall Street. There’s nothing wrong with warning your friends about upcoming policy decisions that might impact their profits.
• There’s also absolutely nothing wrong with providing trillions of dollars of secret loans to the best and the brightest and not telling Congress about it.

It’s all a closed loop of self-justification and self-deception: Wall Street is brilliant. What Wall Street does is for the good of the country. Helping Wall Street profit is good for the country. Hiding the truth from democratically elected leaders is also for the good of the country because Wall Street is brilliant and knows better.

And all this is deeply believed by Wall Street and its secret government, even though Wall Street, and Wall Street alone, took down the economy and killed 8 million jobs in a matter of months. Simply brilliant!

5. Wall Street is a clear and present danger to democracy.

Usually, I am not an alarmist. In fact, I often argue against facile conspiracy theories. I want to believe that our democracy still has promise. But, the Wall Street-induced crash and the government’s response to it has me very worried. The Bloomberg News revelations suggest that Wall Street’s secret government has enormous disdain for what remains of our democracy. The financial elites obviously believe that Congress cannot be trusted to do the right thing even when it is bought and paid for by the very banks it supposedly regulates. As for the rest of us? We’re just a financially illiterate mass to be manipulated through the mass media. Our minds too can be bought and sold through careful marketing.

This financial arrogance and corruption is enormously corrosive to our democratic values. Already, many Americans, and for good reason, no longer trust their government. Already, many Americans, and for good reason, no longer vote. Already, many Americans, and for good reason, believe that democracy as we know it is a sham. Wall Street couldn’t have written a better script to maintain its domination.

6. Occupy Wall Street is fundamentally correct, but we need more.

The occupiers dramatically attacked Wall Street elites and captured the country’s imagination with their 1 percent, 99 percent framework. And the idea is sticking and spreading. But that’s only the start. To reclaim our country from Wall Street’s secret government we will need to develop an enormous movement among the 99 percent. Although we hope it just happens spontaneously through Twitter and Facebook, we all know it will require hardcore organizing involving millions of us.

At the moment, no one knows what form it will take. But we do know this: great concentrations of power and wealth do not give up their power and wealth without an enormous fight. Wall Street’s secret government is more than ready to protect itself, even if it means subverting democracy. Our occupiers have shown great courage in helping us reclaim our democratic rights. Let’s hope it spreads…and soon.

‘The answer to the Kennedy assassination is with the Federal Reserve Bank. Don’t underestimate that. It’s wrong to blame it on (CIA official James) Angleton and the CIA per se only. This is only one finger of the same hand. The people who supply the money are above the CIA.’
- wife of accused assassin Lee Harvey Oswald, told to author A.J. Weberman

I am one of those who do not believe the national debt is a national blessing… it is calculated to raise around the administration a moneyed aristocracy dangerous to the liberties of the country
.
Andrew Jackson, Letter to L. H. Coleman of Warrenton, N.C., 29 April 1824

Since I entered politics, I have chiefly had men’s views confided to me privately. Some of the biggest men in the United States, in the field of commerce and manufacture are afraid of somebody, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, that they better not speak above their breath when they speak in condemnation of it.

Woodrow Wilson, The New Freedom (1913), Doubleday

“The Rothschilds introduced the rule of money into European politics. The Rothschilds were the servants of money who undertook the reconstruction of the world as an image of money and its functions. Money and the employment of wealth have become the law of European life; we no longer have nations, but economic provinces.” (New York Times, Professor Wilheim, a German historian, July 8, 1937).

“If you will look back at every war in Europe during the nineteenth century, you will see that they always ended with the establishment of a ‘balance of power.’ With every reshuffling there was a balance of power in a new grouping around the House of Rothschild in England, France, or Austria. They grouped nations so that if any king got out of line, a war would break out and the war would be decided by which way the financing went. Researching the debt positions of the warring nations will usually indicate who was to be punished.” (Economist Stuart Crane).

From the days of Spartacus-Weishaupt to those of Karl Marx, and down to Trotsky (Russia), Bela Kun (Hungary), Rosa Luxembourg (Germany), and Emma Goldman (United States), this world-wide conspiracy for the overthrow of civilisation and for the reconstitution of society on the basis of arrested development, of envious malevolence, and impossible equality, has been steadily growing. It played, as a modern writer, Mrs. Webster, has so ably shown, a definitely recognisable part in the tragedy of the French Revolution. It has been the mainspring of every subversive movement during the Nineteenth Century; and now at last this band of extraordinary personalities from the underworld of the great cities of Europe and America have gripped the Russian people by the hair of their heads and have become practically the undisputed masters of that enormous empire.

Winston Churchill, “Zionism versus Bolshevism”, Illustrated Sunday Herald (London), February 8, 1920, pg. 5

The people must be helped to think naturally about money. They must be told what it is, and what makes it money, and what are the possible tricks of the present system which put nations and peoples under control of the few.

Henry Ford, My Life and Work, Doubleday, Page & Company, 1922

I am afraid that the ordinary citizen will not like to be told that the banks can, and do, create and destroy money. The amount of money in existence varies only with the action of the banks in increasing or decreasing deposits and bank purchases. Every loan, overdraft or bank purchase creates a deposit, and every repayment or bank sale destroys a deposit. …. And they who control the credit of a nation, direct the policy of Governments and hold in the hollow of their hands the destiny of the people.

Reginald McKenna, a former Chancellor of the Exchequer, addressing the shareholders as Chairman of the Midland Bank, at the Annual General Meeting in January 1924.

The present Federal Reserve System is a flagrant case of the Governments conferring a special privilege upon bankers. The Government hands to the banks its credit, at virtually no cost to the banks, to be loaned out by the bankers for their own private profit. Still worse, however, is the fact that it gives the bankers practically complete control of the amount of money that shall be in circulation. Not one dollar of these Federal Reserve notes gets into circulation without being borrowed into circulation and without someone paying interest to some bank to keep it circulating. Our present money system is a debt money system. Before a dollar can circulate, a debt must be created. Such a system assumes that you can borrow yourself out of debt.

Willis A. Overholser, A short review and analysis of the history of money in the United States, with an introduction to the current money problem (1936), p. 56

To highlight the problems facing Social Security, Texas Gov. and Republican presidential hopeful Rick Perry is pointing to three Texas counties that decades ago opted out of Social Security by creating personal retirement accounts. Now, 30 years on, county workers in those three jurisdic­tions retire with more money and have better death and disability supplemental benefits. And those three coun­ties—unlike almost all others in the United States—face no long-term unfunded pension liabilities.

Since 1981 and 1982, workers in Galveston, Matagorda and Brazoria Counties have seen their retirement savings grow every year, even during the Great Recession. The so-called Al­ternate Plan of these three counties doesn’t follow the traditional defined-benefit or defined-contribution model. Employee and employer contributions are actively managed by a financial planner—in this case, First Financial Benefits, Inc., of Houston, which origi­nated the plan in 1980 and has man­aged it since its adoption. I call it a “banking model.”As with Social Security, employees contribute 6.2% of their income, with the county matching the contribution (or, as in Galveston, providing a slightly larger share). Once the county makes its contribution, its financial obligation is done—that’s why there are no long-term unfunded liabilities. The contributions are pooled, like bank deposits, and top-rated financial institutions bid on the money. Those institutions guarantee an interest rate won’t go below a base level and her when the market does the last decade, the accrued between 3.75%  and 5.75% every year, with the average around 5%. The 1990s often saw even higher interest rates, of 6.5%-7%. When the market goes up, employees make more—and when the market goes down, employees still make something. But not all money goes into em­ployees’ retirement accounts. When financial planner Rick Gornto devised the Alternate Plan in 1980, he wanted it to be a complete substitute for So­cial Security. And Social Security isn’t just a retirement fund: It’s also social insurance that provides a death bene­fit ($255), survivors’ insurance, and a disability benefit.

Part of the employer contribution in the Alternate Plan goes toward a term life insurance policy that pays four times the employee’s salary tax-free, up to a maximum of $215,000. That’s nearly 850 times Social Secu­rity’s death benefit.

If a worker participating in Social Security dies before retirement, he loses his contribution (though part of that money might go to surviving chil­dren or a spouse who didn’t work). But a worker in the Alternate Plan owns his account, so the entire account be­longs to his estate. There is also a dis­ability benefit that pays immediately upon injury, rather than waiting six months plus other restrictions, as un­der Social Security.

Those who retire under the Texas counties’ Alternate Plan do much better than those on Social Security. Accord­ing to First Financial’s calculations, based on 40 years of contributions:

• A lower-middle income worker

making about $26,000 at retirement would get about $1,007 a month under Social Security, but $1,826 under the Alternate Plan.

• • A middle-income worker making $51,200 would get about $1,540 monthly from Social Security, but $3,600 from the banking model.
• • And a high-income worker who maxed out on his Social Security con­tribution every year would receive about $2,500 a month from Social Se­curity versus $5,000 to $6,000 a month from the Alternate Plan.

The Alternate Plan has demon­strated over 30 years that personal re­tirement accounts work, with many re­tirees making more than twice what they would under Social Security. As Galveston County Judge Mark Henry says, “The plan works great. Anyone who spends a few minutes understand­ing the plan becomes a huge propo­nent.” Judge Henry says that out of 1,350 county employees, only five have chosen not to participate.

 The Alternate Plan could be ad­opted today by the six million public employees in the U.S.—roughly 25% of the total—who are part of state and local government retirement plans that are outside of Social Security (and are facing serious unfunded liability problems). Unfortunately this option is available only to those six million pub­lic employees, since in 1983 Congress barred all-others from leaving Social Security.

If Congress overrides this provi­sion, however, the Alternate Plan could be a model for reforming Social Secu­rity nationally. After all, it provides all the social-insurance benefits of Social Security while avoiding the unfunded liabilities that are crippling the program and the economy.

If the presidential candidates, including President Obama, stop bick­ering about who wants to “save” or “destroy” Social Security and begin debating reform constructively, exam­ining the Alternate Plan would be a good place to start.

Mr. Matthews is a resident scholar with the Institute for Policy Innovation in Dallas.

The official CPI based price inflation rate on a year-over-year basis rose again in the month of August to 3.77% compared to 3.63% in July, 3.56% in June, 3.57% in May, 3.16% in April, 2.68% in March, 2.11% in February, 1.63% in January, 1.5% in December, 1.1% in November, and 1.17% in October. From the low in November, year-over-year CPI growth has increased by 243%!
Inflation is now spreading beyond food and energy and to the areas the Fed focuses on with core-CPI, which deceptively excludes food and energy. Core-CPI has now risen 10 months in a row and core-CPI is about to break the Fed’s unofficial 1.5% to 2% target range, which will hopefully convince the Fed to finally believe there is an inflation crisis, something NIA members knew back when the Fed was still worried about deflation.
Core-CPI was up 1.95% in August on a year-over-year basis compared to 1.77% in July and 1.64% in June. Because the BLS likes to round all CPI numbers, core-CPI on a year-over-year basis is now officially 2% and at the top end of the Fed’s unofficial target range. Back in October of 2010, year-over-year core-CPI growth reached a low of 0.6%.
From October until today, core-CPI growth on a year-over-year basis has risen from 0.6% to 1.95% for a gain of 225%. From October until today, regular CPI growth on a year-over-year basis has risen from 1.17% to 3.77% for a gain of 222%.
Changes in year-over-year core-CPI growth excluding food and energy were actually higher since October than changes in year-over-year regular CPI growth, which shows that the Fed will soon no longer be able to ignore skyrocketing price inflation. NIA believes real U.S. price inflation now exceeds 8% on a year-over-year basis.

How the Boeing case poisons investment.

The Wall Street Journal         august 13, 2011

Reagan inherited economic problems and fixed them. Obama’s strategy is to blame Bush and Standard & Poor’s.

The Wall Street Journal     August 8, 2011 

Godfather Politics

While watching the whole debt ceiling debacle unfold I can’t help but watch how the President of the United States steers his ship. He is called the Commander in Chief, the Leader of this Nation, the “One.” All of which insists that he is, well, the President. But let’s look at it like this. The nation itself is a ship, (that’s why it’s often called the “Ship of State”), the American people are its passengers, the men and women of Congress are the ship’s crewmen and the president is its captain. It must run as a well oiled machine. Everyone needs to be doing his or her part, and it needs an authoritative figure for guidance and direction when the situation is dire.
If the crews cleaning the decks aren’t doing their part, than the crews hoisting the sails aren’t able to move around appropriately to propel the ship. If the crews hoisting the sails aren’t propelling the ship, the captain is unable to steer the ship. If the captain is unable to steer the ship, the ship could hit a reef, sink. Think Titanic. When the ship is in treacherous waters, there needs to be a leader stating “come together, clean the deck, raise or strike the sails, and do it now.” The Caine Mutiny(1954) comes to mind.How a captain runs his ship is how the ship makes it from point A to point B in one piece and able to sail again. Let’s look at why Captain Obama is heading for the rocks.Now, in a management situation where there is a mistake that has been made, the number one rule is “I don’t care who did it, fix it.” President Obama is doing the opposite. He is glaring at the right side and saying “You ran the car into the ditch and now you are sipping on a Slurpee asking if you can drive after we get it out.” He has even gone so far as to compare Republicans to his elementary-aged daughters. He is blaming everyone but himself. It’s like he’s lying down in the middle of the floor holding his breath until he gets his way.

If you are going to captain a ship, run a bakery, drive a nation . . .the main requirement is teamwork. One team working on averting a disaster is much better than two teams going in opposite directions. You, Mr. President, need to put your big boy Dungarees on and state, “We are in a horrible situation, I don’t care who did. Let’s fix it.” Our President needs to stop pointing his finger and start bringing people together. Instead of pitting two sides of Congress against one another, get them to realize that they are in their position for one thing and one thing only: The well being of the passengers of the ship. Get up there and tell the crewmen to pick up the slack, come to an agreement and get us out of this situation without sinking the ship or posturing for political accolades.

A President is someone who is supposed to keep a country together, not rip it down the center.

A welfare state that led to permanent austerity would betray the principles that have made American culture exceptional.

The Wall Street Journal         July 25, 2011 

By ARTHUR C. BROOKS

The battle over the debt ceiling is only the latest skirmish in what promises to be an ongoing, exhausting war over budget issues. Americans can be forgiven for seeing the whole business as petty, selfish and tiresome. Conservatives in particular are beginning to worry that public patience will wear thin over their insistence that our nation’s government-spending problem must be remedied through spending cuts, not by raising more revenues.But before they succumb to too much caution, budget reformers need to remember three things. First, this is not a political fight between Republicans and Democrats; it is a fight against 50-year trends toward statism. Second, it is a moral fight, not an economic one. Third, this is not a fight that anyone can win in the 15 months from now to the presidential election. It will take hard work for at least a decade.Consider a few facts. The Bureau of Economic Analysis tells us that total government spending at all levels has risen to 37% of gross domestic product today from 27% in 1960—and is set to reach 50% by 2038. The Tax Foundation reports that between 1986 and 2008, the share of federal income taxes paid by the top 5% of earners has risen to 59% from 43%. Between 1986 and 2009, the percentage of Americans who pay zero or negative federal income taxes has increased to 51% from 18.5%. And all this is accompanied by an increase in our national debt to 100% of GDP today from 42% in 1980.

Nicole Gelinas of City Journal and Jerry Kremer of the Huffington Post on the possibilities for a debt deal.

Where will it all lead? Some despairing souls have concluded there are really only two scenarios. In one, we finally hit a tipping point where so few people actually pay for their share of the growing government that a majority become completely invested in the social welfare state, which stabilizes at some very high level of taxation and government social spending. (Think Sweden.)

In the other scenario, our welfare state slowly collapses under its weight, and we get some kind of permanent austerity after the rest of the world finally comprehends the depth of our national spending disorder and stops lending us money at low interest rates. (Think Greece.)

In other words: Heads, the statists win; tails, we all lose.

Anyone who seeks to provide serious national political leadership today—those elected in 2010 or who seek national office in 2012—owe Americans a plan to escape having to make this choice. We need tectonic changes, not minor fiddling.

Rep. Paul Ryan’s (R., Wis.) budget plan is the kind of model necessary. But structural change will only succeed if it’s accompanied by a moral argument—an unabashed cultural defense of the free enterprise system that helps Americans remember why they love their country and its exceptional culture.

America’s Founders knew the importance of moral language, which is why they asserted our unalienable right to the pursuit of happiness, not to the possession of property. Similarly, Adam Smith, the father of free-market economics, had a philosophy that transcended the mere wealth of nations. His greatest book was “The Theory of Moral Sentiments,” a defense of a culture that could support true freedom and provide the greatest life satisfaction.

Yet today, it is progressives, not free marketeers, who use the language of morality. President Obama was not elected because of his plans about the taxation of repatriated profits, or even his ambition to reform health care. He was elected largely on the basis of language about hope and change, and a “fairer” America.

 

Alberto Ruggieri

 

The irony is that statists have a more materialistic philosophy than free-enterprise advocates. Progressive solutions to cultural problems always involve the tools of income redistribution, and call it “social justice.”

Free-enterprise advocates, on the other hand, speak privately about freedom and opportunity for everybody—including the poor. Most support a limited safety net, but also believe that succeeding on our merits, doing something meaningful, and having responsibility for our own affairs are what give us the best life. Sadly, in public, they always seem stuck in the language of economic efficiency.

The result is that year after year we slip further down the redistributionist road, dissatisfied with the growing welfare state, but with no morally satisfying arguments to make a change that entails any personal sacrifice.

Examples are all around us. It is hard to find anyone who likes our nation’s current health-care policies. But do you seriously expect grandma to sit idly by and let Republicans experiment with her Medicare coverage so her great-grandchildren can get better treatment for carried interest? Not a chance.

If reformers want Americans to embrace real change, every policy proposal must be framed in terms of self-realization, meritocratic fairness and the promise of a better future. Why do we want to lower taxes for entrepreneurs? Because we believe in earned success. Why do we care about economic growth? To make individual opportunity possible, not simply to increase wealth. Why do we need entitlement reform? Because it is wrong to steal from our children.

History shows that big moral struggles can be won, but only when they are seen as decade-long fights and not just as a way to prevail in the next election. Welfare reform was first proposed in 1984 and regarded popularly as a nonstarter. Twelve years of hard work by scholars at my own institution and others helped make it a mainstream idea (signed into law by a Democratic president) and perhaps the best policy for helping the poor to escape poverty in our nation’s history. Political consultants would have abandoned welfare reform as unworkably audacious and politically suicidal. Real leaders understood that its moral importance transcended short-term politics.

No one deserves our political support today unless he or she is willing to work for as long as it takes to win the moral fight to steer our nation back toward enterprise and self-governance. This fight will not be easy or politically safe. But it will be a happy one: to share the values that make us proud to be Americans.

Mr. Brooks is president of the American Enterprise Institute and author of “The Battle: How the Fight Between Free Enterprise and Big Government Will Shape America’s Future” (Basic Books, 2010).

 

Turn Your Sound On

http://www.youtube.com/watch?v=6W07bFa4TzM&feature=player_embedded

The Gang of Six puts forward some ideas worth pursuing.

•                By PEGGY NOONAN    

• The Wall Street Journal   JULY 23, 2011

It’s good, it represents progress, build from it. That would be a helpful approach to the Gang of Six proposal on the debt. Don’t deep-six it because it’s flawed. Flawless isn’t going to happen. There will be a big election in 2012. A lot can be settled then, and after.

The Gang of Six—three Democrats and three Republicans in the Senate—this week put forward a plan aimed at reducing the national debt by almost $4 trillion over the next 10 years. It includes $500 billion in immediate cuts, and it repeals a costly provision of ObamaCare. It would lower the top individual tax rate to 29%, push corporate tax rates down to 29% from 35%, and abolish the Alternative Minimum tax. On long-term spending, the plan includes a legislative supermajority and sequester feature. In the words of a senator involved in the bargaining, “For the first time, we have some real teeth” in spending controls.This is all pretty good. It moves the ball forward in the right ways.As for the flaws: A lot is left up to committees and future action. A lot is left vague. But a critic of the plan, the Cato Institute’s Dan Mitchell, highlighted with justice one of its central advantages: It “is not fueled by class-warfare resentment.” These days that always comes as a surprise and a relief. And it might have come at a cost to the Democrats in the bargaining sessions.The primary good of the plan is that it represents the work of three serious liberals and three serious conservatives who together are moving in the right direction, not the wrong one. They admit the spending crisis is a crisis; they appear to admit that we cannot, at least now, tax our way out of it. This seems small but isn’t. Agreement on these essentials is an antidote to feelings of widespread public hopelessness: “Washington can’t do anything.” That hopelessness damages us more than we know, both at home and in the world. We have to look competent. We have to look like we can reform ourselves. The other day there was an apparently incorrect report that the Republicans and the president had neared a debt-ceiling deal. The markets immediately jumped. Everyone wants Washington to work. People hunger for it.

The plan has already garnered a lot of opposition, much of it fair, but to quickly push it aside would be a real missed opportunity. Those who critique the plan can help it. Its cuts in entitlements and its attempts to reform them are unclear and appear insufficient. If the Senate passed a final proposal along Gang of Six lines, House Republicans would have to make the bill more concrete, more reliable in its mechanisms. And they’d probably have to make deeper cuts. Overshadowing all negotiations is the persistent threat of a credit downgrade. The senator at the bargaining table said that if a final bill doesn’t contain “at least $4 trillion in cuts,” we will get a downgrade, which would carry costs greater than the cuts in the Gang of Six plan.

Attempts to find a final compromise are delicate, with a lot of moving pieces. But the Gang of Six proposal is cause for encouragement. It could not be turned into specific legislation quickly. Gang of Six member Kent Conrad said Thursday morning it could take six months to get it all done and through the appropriate committees. But President Obama signaled this week, for the first time, that he might back a temporary debt-ceiling increase to allow work to continue.

That’s good. But a note on his efforts in the drama. It is time for the president to get out of the way.

For the longest time he wouldn’t engage, and now he’s engaged. For the longest time he didn’t care about spending, and now he cares about spending. Good, both in terms of policy and for him. But his decision to become engaged has become a decision to dominate, to have his face in front of the television cameras with his news conferences, pronouncements, and what his communications people are probably calling his “ownership” of any final agreement. He’s trying to come across as the boss, the indispensable man, the leader. And, of course, the reasonable one.

That’s all very nice and part of Political Positioning 101, but at this point it’s not helping. He’s becoming box-office poison. His numbers are falling. The RealClearPolitics composite job approval poll rating has him down six points since June 2, when the debt-ceiling crisis began. That fall, from 52% to 46%, exactly tracks his heightened media presence and his increased attempts to be seen as dominant. Public Policy Polling, a Democratic firm, said that if he ran for president today he’d lose, that his job-approval numbers are “worse than they appear,” and that he continues to have real trouble with undecided voters.

And if you’ve watched him lately, you know why. When he speaks on the debt negotiations, he is not only extremely boring, with airy and bromidic language—really they are soul-killing, his talking points—but he never seems to be playing it straight. He always seems to be finagling, playing the angles in some higher game that only he gets. In two and a half years he has reached the point that took George W. Bush five years to reach: People aren’t listening anymore.

The other day he announced the Gang of Six agreement with words that enveloped the plan in his poisonous embrace: “I wanted to give folks a quick update on the progress that we’re making.” We’re. He has “continued to urge both Democrats and Republicans to come together.” What would those little devils do without Papa? “The good news is that today a group of senators . . . put forward a proposal that is broadly consistent with the approach that I’ve urged.” I’ve urged. Me, me, me.

That approach includes “shared sacrifice, and everybody is giving up something.” He was like a mother coming in and cheerily announcing: “Dinner’s served! Less for everybody!”

We’re trying to begin a comeback, not a famine. We’re trying to take actions that will allow us to grow.

He’s like a walking headache. He’s probably triggering Michele Bachmann’s migraines.

The Gang of Six members themselves should have been given the stage to make their own announcement, and their own best case.

The president, if he is seriously trying to avert a debt crisis, should stay in his office, meet with members, and work the phones, all with a new humility, which would be well received. It is odd how he patronizes those with more experience and depth in national affairs.

He should keep his face off TV. He should encourage, cajole, work things through, be serious, get a responsible deal, and then re-emerge with joy and the look of a winner as he jointly announces it to the nation. Then his people should leak that he got what he wanted, the best possible deal, and the left has no idea the ruin he averted and the thanks they owe him.

For now, for his sake and the sake of an ultimate plan, he should choose Strategic Silence. Really, recent presidents forget to shut up. They lose sight of how grating they are.

 

At a recent gathering, a dyed-in-the-wool liberal thought she was complimenting me by saying, “you’re my favorite Republican.” She was surprised when I replied, “I not a republican, I’m a conservative.” I don’t think she understood the difference, and nervously asked me, “well, you’re not a Tea Party member, are you”? I said, “I am.” The conversation ended there.

She’s a woman I like and respect. I think she feels the same about me, or least she did before that conversation. She’s not stupid or uneducated. She’s a professional with a Masters degree. In fact, she’s like most liberals I know. The typical liberal has a stereotypical view of what defines conservatives, republicans and Tea Party members. To liberals, they’re all the same and represent everything they stand against, or at least they think so until they’re asked some direct questions. They’re usually astonished to learn they’re not as liberal as they thought they were. Quite often, they actually turn out to be conservatives, they just didn’t know it.

Here’s some questions to ask them:

1. Do you believe the U.S. Constitution is the supreme law of the land?
2. Do you believe America is a nation of laws, and everyone should be held to the same standard, regardless of class, race or religion? Or, do you believe some in our society deserve special treatment under the law because they’re rich, poor, politically connected, black, white, Hispanic, etc?
3. Do you believe as our founders did that our rights to life, liberty and the pursuit of happiness come from our creator? Or, do you believe our rights come from the government?
4. Do you believe as our founders did that the purpose of the government is limited to the preservation of the rights to life, liberty and the pursuit of happiness and the other powers granted to it by the people in the constitution? Or, do you believe the government can vote itself any power it deems appropriate no matter what the constitution says?
5. Do you believe the money you earn from your job or business belongs to you, as well as the property you buy with the money you earn? Or, do you believe the government has the right to your money and property, and someone in Washington should decide how much of it you should keep based on the adage made famous by Karl Marx, “from each according to his ability, to each according to his need?
6. Do you believe that as long as you earn your money honestly and break no laws, there should be no limit on the amount of money you make? Or, do you believe as President Obama said, “at some point, you’ve made enough money?”
7. Do you believe all Americans should have an equal opportunity to succeed or fail based on their individual ability, intellect and work ethic? Or, do you believe all Americans should have equal outcomes regardless of their ability, intellect or work ethic, and the government should redistribute the wealth of those who succeed to those who don’t in order to level the playing field?
8. Do you believe America is a sovereign nation with borders, and we as a nation should decide which foreign nationals to let in and who we deny access? Or, do you believe there should be no borders and anyone who wants to enter our country is welcome, with or without permission?
9. Do you believe the government should spend no more money than it takes in? Or do you believe we can just continue to borrow money from other countries without worrying about the National Debt?
10. Do you believe the government spends too much money? Or, do you believe Americans are taxed too little?

You’ll find most liberals who answer these questions honestly will find themselves on the conservative side of most of these questions, usually anywhere from 7 – 9 of them.

So why do they think Republicans are sub-human, conservatives are Neanderthals and Tea Party members are a bunch of racists and crazies? Because that’s what the mainstream media has been selling as objective news coverage. Most people are busy earning a living and taking care of their families. They don’t have the time or interest to dig very far for the truth, so they read the New York Times and watch Katie Couric and think they’re getting unbiased news coverage. They have to look further to find out they’re not getting objective reporting, and too many people are not willing to take the time.

But have faith, my fellow conservatives, things are changing. Recent polls have shown less and less people are getting their news from network television and the main stream newspapers. More and more people are getting their news from cable and the Internet, and the cable news they’re watching and trusting more than any other is Fox News, and it’s not even close.

So print this post and keep it in your pocket and the next time you’re at a family gathering or discussing the world with some liberal friends, whip this little quiz out and put some people to the test. You may not change them into conservatives overnight, but at least you can shine some light on who they really are. They might even learn something!

By Kelly Evans

Food prices are on the rise. But for consumers it could be far worse.

Fruits, vegetables and dairy have joined oil and grains on the list of commodities whose price is surging. During a similar run-up in 2008, companies largely were able to shift higher costs to consumers. Today, food companies can pass on only a portion of them.

Thursday, H.J. Heinz HNZ +0.30% and Del Monte Foods DLM +0.16% along with grocery company Kroger KR +0.60% will release earnings that could illustrate this point. Heinz, at an industry conference last week, already offered some detail on its fiscal third quarter. The headlines seemed encouraging: Chief Executive William Johnson said earnings came in at about 84 cents a share, four cents above the consensus estimate, and profit margins also beat expectations.

But as Goldman Sachs noted, the earnings look mostly driven by help from a lower tax rate. Moreover, the company’s 2% organic sales growth for the quarter ended in January was short of the 3%-to-4% range most analysts expected. And the company’s food costs continue to climb. Janney Capital Markets analyst Jonathan Feeney calculates they were up nearly 17% year on year in February, partly because of crop freezes that sent tomato prices soaring.

Can Heinz and other food companies raise consumer prices enough to offset cost inflation? So far, the evidence is mixed. Heinz has upped prices on ketchup, Ore-Ida potatoes and a few other products where it feels it has pricing power. “In the U.S., there’s not much [room] left,” said Mr. Johnson last week. So, the company is looking to double its emerging-markets business, where it sees more opportunity for growth, to 30% of revenue by fiscal 2016 from about 16% today.

The reason is clear. In China, for example, incomes are rising rapidly and the middle class is expanding. In the U.S., not so much. UBS Securities notes real disposable income growth is unusually weak at this point of the business cycle. No wonder private grocery chain Wegmans Food Markets just froze prices on more than three-dozen staples like pasta sauce and frozen vegetables, mostly store-brand items.

That kind of competition will make it tougher for brand-name food companies to raise prices. Consumers may be loyal, but they aren’t blind.

For More Info Write to Kelly Evans at kelly.evans@wsj.com