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When Magic Bullets Fail

I recently read an article written by former Fed economist Richard Alford over at Naked Capitalism. He focused his criticism on the zero interest rate policy (ZIRP) currently deployed by the Fed under the watch of Chairman Ben Bernanke. There has been increasing noise surrounding ZIRP and more mainstream suggestions that interest rates were too low for too long between 2001 and 2006.Alford’s article gets into quite a bit of detail, but it is worth a read if you enjoy geeky economics stuff. Mainstream macroeconomists believe that the economy can be explained and managed with mathematical formulas. In fact, the formulas are really quite simple and do not capture the dynamics of the millions of “irrational” actors therein. One favorite is the Taylor rule which suggests a target for the Fed funds rate – the key interest rate set by the central bank. Alford points to a Taylor op-ed which states that rates were too low from 2002-2005.Bernanke has suggested that rates necessarily had to be low (and must stay low) to fend off the threat of deflation. When analyzing Bernanke’s definition of deflation, however, Alford suggests deflation was never a threat. Thus, interest rates were lower than they “should have been” for no good reason.I don’t believe that the Fed should be setting short term interest rates or any interest rates at all for that matter. It is fun to watch the various economists who think they have a magic bullet to optimize the economy take shots at each other. None of these men (or women, but mostly men) can outsmart the market dynamics of a multi-trillion dollar economy. All of these men think they are smarter than you. What is worse is that such hubris causes damage.The Austrian school of economics (which is not accepted in the mainstream) teaches us that low interest rates lead to malinvestment. Malinvestment leads to over-production, inflation, and asset bubbles. These factors ultimately collapse when the rates are raised or, worse, when credit expansion leads to bankruptcies and unemployment.The Fed has implemented disastrous policies for decades. Big Wall Street institutions who benefit have created a system to lobby and support policy makers in Washington. Our Congress, Executive Branch, and the Federal Reserve have been all too willing to play right along.

Justice for Balloon Dad

The entire “balloon boy” spectacle was a bit of a waste of time in my opinion. Although, I do admit it was an interesting story. I didn’t know about it until a day later and found the family’s morning interviews to be a bit disturbing. In November, balloon boy father, Richard Heene, plead guilty to falsely influencing authorities (that’s an interesting charge) and began serving his 90-day jail sentence this week. You can read a recent story here from the LA Times.

This story now strikes me as interesting since Heene has come out saying that he only plead guilty to avoid putting his family through a trial and for fear that his wife could be deported. I don’t know all the ins and outs of this particular legal situation. If I tried to research it, I’d probably never get around to writing this. But, it just does not seem right. Heene might be innocent; he might be guilty. If he truly believes that he is not guilty and copped a plea out of convenience, then I think something is wrong with our justice system.

I recognize from the article that the prosecution could choose to go forward now that Heene has made this statement. It seems that they will not. I also heard it suggested that Heene also adopted this strategy to avoid the legal fees that he might incur if he were to fight the court battles for himself and his wife.

It seems unjust to me that the legal system has evolved to a point where anyone avoids litigation or defense due to fees. The Sixth Amendment protects citizens by providing what can basically be described as a fair trial. The right to a fair trial is considered widely to be an essential feature of a modern society. The notion of a fair trial may be considered to include a “sufficient and equal amount of legal counsel for all parties” – this is not in the Sixth Amendment.

I do not believe that all lawyers should be considered a public utility. Clearly, some lawyers are better than others and they should be able to command a higher wage for such talent. However, when it gets to the point that wages and other court costs are so high that the average citizen or small business can’t compete, then something is probably wrong.

I don’t have any solutions on this one. I haven’t thought about it all that much. Just seems like interesting food for thought…

Justice for Balloon Dad

The entire “balloon boy” spectacle was a bit of a waste of time in my opinion. Although, I do admit it was an interesting story. I didn’t know about it until a day later and found the family’s morning interviews to be a bit disturbing. In November, balloon boy father, Richard Heene, plead guilty to falsely influencing authorities (that’s an interesting charge) and began serving his 90-day jail sentence this week. You can read a recent story here from the LA Times.This story now strikes me as interesting since Heene has come out saying that he only plead guilty to avoid putting his family through a trial and for fear that his wife could be deported. I don’t know all the ins and outs of this particular legal situation. If I tried to research it, I’d probably never get around to writing this. But, it just does not seem right. Heene might be innocent; he might be guilty. If he truly believes that he is not guilty and copped a plea out of convenience, then I think something is wrong with our justice system.I recognize from the article that the prosecution could choose to go forward now that Heene has made this statement. It seems that they will not. I also heard it suggested that Heene also adopted this strategy to avoid the legal fees that he might incur if he were to fight the court battles for himself and his wife.It seems unjust to me that the legal system has evolved to a point where anyone avoids litigation or defense due to fees. The Sixth Amendment protects citizens by providing what can basically be described as a fair trial. The right to a fair trial is considered widely to be an essential feature of a modern society. The notion of a fair trial may be considered to include a “sufficient and equal amount of legal counsel for all parties” – this is not in the Sixth Amendment.I do not believe that all lawyers should be considered a public utility. Clearly, some lawyers are better than others and they should be able to command a higher wage for such talent. However, when it gets to the point that wages and other court costs are so high that the average citizen or small business can’t compete, then something is probably wrong.I don’t have any solutions on this one. I haven’t thought about it all that much. Just seems like interesting food for thought…

Tim Geithner Must Resign

It is now long overdue. Treasury Secretary Timothy Geithner must resign his post. A story broke earlier this week on Bloomberg which details what appears to be an attempted cover-up by the Federal Reserve Bank of New York and AIG. Let’s take a quick trip in the time machine.

On September 15, 2008, Lehman Brothers filed for bankruptcy. This triggered a freeze in the credit markets, which, in turn, exacerbated a brewing crisis at insurance giant AIG. The Federal Reserve stepped in the next day with an $85M loan facility which effectively nationalized the company. This was not the end of the government’s largess. Additional credit lines were created by the Federal Reserve and TARP money was used to provide a capital infusion. Tim Geithner was President of the NY Fed during this time.

Two key controversies emerged over the following months. First, AIG awarded large bonuses to employees despite the massive failure of the firm. These retention bonuses were executed despite populist discontent and anti-bonus rhetoric from Obama. However, Geithner effectively shrugged his shoulders and said nothing could be done. Second, AIG settled credit default swap contracts at par (one hundred cents on the dollar). This was controversial since AIG was effectively bankrupt and the counter-parties would likely have received much less in either bankruptcy or any other rigorous renegotiation. Again, Geithner effectively shrugged it off.

It was this second issue which is at the center of the aforementioned Bloomberg article. It has now been reported that the NY Fed suggested that AIG might limit its disclosure in regards to the payouts. Darrell Issa (R-CA) obtained correspondence as part of his investigations on the issue as a member of the House Committee on Oversight and Government Reform. Issa has made the rounds this week on various news shows and penned an op-ed in the Huffington Post. More details and commentary on the story can be read here at Zero Hedge.

The White House has already begun its defense of Geithner (see the press briefing from today). Essentially, the argument is that (so far) none of the emails involve Geithner directly and that he was not aware of the details. However, he was President of the NY Fed. This happened under his watch. He is responsible.

Geithner has used these incidents and the rest of the financial crisis as a call for more government power and control. This should not be a surprise. He is a firm believer in the partnership of government and big business. His first job out of school was with Kissinger Associates. This is a firm founded by former Secretary of State Henry Kissinger, which employs high ranking former government officials and advises large multinational corporations. It is not hard to connect the dots that such a firm is paid big money to use its connections and knowledge to achieve public-private partnerships. Their number one goal is to exploit and expand corporatism. He continued on to serve in various roles in the Treasury Department in the Bush (41) and Clinton years. He then worked for the IMF (where he misreported his taxes) and finally the NY Fed. His entire worldview is based on corporatism and the significant role of the banking elite in world affairs.

Geithner will not change. There are likely more skeletons in the closet. He will continue to defend his actions since he believes that the government and large financial institutions must work together. In times of crisis, this means that the rules don’t matter and taxpayers don’t matter. His rhetoric may state otherwise, but his actions singularly serve the financial system. He embodies corporatism and cannot survive as Democratic populism strengthens while unemployment stays above 10%. Obama will ultimately have to make a choice between Geithner and his base. While I believe that Obama will continue to kowtow to the financial powers-that-be, he can make Geithner a sacrificial lamb to serve the progressives taste for blood. For this reason, my disapproval of his policies, and his reckless arrogance, Geithner should resign immediately.

Tim Geithner Must Resign

It is now long overdue. Treasury Secretary Timothy Geithner must resign his post. A story broke earlier this week on Bloomberg which details what appears to be an attempted cover-up by the Federal Reserve Bank of New York and AIG. Let’s take a quick trip in the time machine.On September 15, 2008, Lehman Brothers filed for bankruptcy. This triggered a freeze in the credit markets, which, in turn, exacerbated a brewing crisis at insurance giant AIG. The Federal Reserve stepped in the next day with an $85M loan facility which effectively nationalized the company. This was not the end of the government’s largess. Additional credit lines were created by the Federal Reserve and TARP money was used to provide a capital infusion. Tim Geithner was President of the NY Fed during this time.Two key controversies emerged over the following months. First, AIG awarded large bonuses to employees despite the massive failure of the firm. These retention bonuses were executed despite populist discontent and anti-bonus rhetoric from Obama. However, Geithner effectively shrugged his shoulders and said nothing could be done. Second, AIG settled credit default swap contracts at par (one hundred cents on the dollar). This was controversial since AIG was effectively bankrupt and the counter-parties would likely have received much less in either bankruptcy or any other rigorous renegotiation. Again, Geithner effectively shrugged it off.It was this second issue which is at the center of the aforementioned Bloomberg article. It has now been reported that the NY Fed suggested that AIG might limit its disclosure in regards to the payouts. Darrell Issa (R-CA) obtained correspondence as part of his investigations on the issue as a member of the House Committee on Oversight and Government Reform. Issa has made the rounds this week on various news shows and penned an op-ed in the Huffington Post. More details and commentary on the story can be read here at Zero Hedge.The White House has already begun its defense of Geithner (see the press briefing from today). Essentially, the argument is that (so far) none of the emails involve Geithner directly and that he was not aware of the details. However, he was President of the NY Fed. This happened under his watch. He is responsible.Geithner has used these incidents and the rest of the financial crisis as a call for more government power and control. This should not be a surprise. He is a firm believer in the partnership of government and big business. His first job out of school was with Kissinger Associates. This is a firm founded by former Secretary of State Henry Kissinger, which employs high ranking former government officials and advises large multinational corporations. It is not hard to connect the dots that such a firm is paid big money to use its connections and knowledge to achieve public-private partnerships. Their number one goal is to exploit and expand corporatism. He continued on to serve in various roles in the Treasury Department in the Bush (41) and Clinton years. He then worked for the IMF (where he misreported his taxes) and finally the NY Fed. His entire worldview is based on corporatism and the significant role of the banking elite in world affairs.Geithner will not change. There are likely more skeletons in the closet. He will continue to defend his actions since he believes that the government and large financial institutions must work together. In times of crisis, this means that the rules don’t matter and taxpayers don’t matter. His rhetoric may state otherwise, but his actions singularly serve the financial system. He embodies corporatism and cannot survive as Democratic populism strengthens while unemployment stays above 10%. Obama will ultimately have to make a choice between Geithner and his base. While I believe that Obama will continue to kowtow to the financial powers-that-be, he can make Geithner a sacrificial lamb to serve the progressives taste for blood. For this reason, my disapproval of his policies, and his reckless arrogance, Geithner should resign immediately.

Housekeeping

I am going to write another entry tonight (or at least start it), but wanted to get some housekeeping out of the way first. I haven’t been writing much lately. I have a myriad of excuses, but it’s time for action instead. So, I’m hoping this will kick off some regularly scheduled writing going forward.

A fair bit has transpired over the last couple of months. Health insurance reform is close to passing, although it is not entirely a forgone conclusion. 2010 is here which means elections for the House and over 1/3 of the Senate. We’ve had an attempted terrorist attack, more frequent Ron Paul sightings in the mainstream media, plenty of news on the economy, and much more.

The Indiana General Assembly is in session where property tax caps and ethics reform will be at the heart of the debate. The Daniels administration has continued to make cuts as revenues have failed to keep pace with the budget.

I’ll cover all this and much more over the coming weeks. Enjoy!

Housekeeping

I am going to write another entry tonight (or at least start it), but wanted to get some housekeeping out of the way first. I haven’t been writing much lately. I have a myriad of excuses, but it’s time for action instead. So, I’m hoping this will kick off some regularly scheduled writing going forward.A fair bit has transpired over the last couple of months. Health insurance reform is close to passing, although it is not entirely a forgone conclusion. 2010 is here which means elections for the House and over 1/3 of the Senate. We’ve had an attempted terrorist attack, more frequent Ron Paul sightings in the mainstream media, plenty of news on the economy, and much more.The Indiana General Assembly is in session where property tax caps and ethics reform will be at the heart of the debate. The Daniels administration has continued to make cuts as revenues have failed to keep pace with the budget.I’ll cover all this and much more over the coming weeks. Enjoy!

Keynesianism in 2009

“We’re all Keynesians now,” stated Milton Friedman in a 1965 article in Time magazine. Friedman, famous for a conservative brand of economic policy, was actually quoted out of context and clarified the record several weeks later. Forty-four years later, Keynesian economic policies have been the subject of much mainstream debate and widely accepted in Washington and on Wall Street.

As the U.S. economy continued to slide at the beginning of 2009 and Barack Obama was set to take office, Nancy Pelosi and Harry Reid set out to craft an economic stimulus package designed to provide a jolt to the economy. The economic orthodoxy was out in full force suggesting that the only way we could stem rising unemployment was to close the output gap by increasing aggregate demand. Paul Krugman, for example, suggested that we could stem unemployment by one percentage point for each $300B of GDP impact.

The debate over the size of the stimulus, the type of “multipliers” that different forms of stimulus would have, and the timing of the stimulus raged on the Sunday shows and in the blogosphere. Meanwhile, the politics of the debate heated up as the GOP solidified their position to vote against the stimulus despite agreeing that stimulus was needed. Meanwhile, post-Keyensians such as Steve Keen and economists of the Austrian school continued to debunk the claims of the mainstream.

The failed pseudo-science of neo-classical economics continues to maintain its mythical status of a robust theory. Multipliers, Okun’s Law, and other such theory extend weak statistical correlations to prescribe public policy. What makes this worse is the stronghold that the neo-classical views have in academia and in the government (see here for a detailed account). All of this enables politicians to use the musings of Ph.D. economists as fodder for pork and political gain.

Alas, the forecasts of the economic policy makers were wrong, and the economic policies of the Federal Reserve and the U.S. Treasury enabled the financial crisis. But, as long as heterodox voices are ignored, those with power will continue to spin data and reality to claim success and maintain their positions of influence. We should all remain as Keynesians at our own peril.

Keynesianism in 2009

“We’re all Keynesians now,” stated Milton Friedman in a 1965 article in Time magazine. Friedman, famous for a conservative brand of economic policy, was actually quoted out of context and clarified the record several weeks later. Forty-four years later, Keynesian economic policies have been the subject of much mainstream debate and widely accepted in Washington and on Wall Street.As the U.S. economy continued to slide at the beginning of 2009 and Barack Obama was set to take office, Nancy Pelosi and Harry Reid set out to craft an economic stimulus package designed to provide a jolt to the economy. The economic orthodoxy was out in full force suggesting that the only way we could stem rising unemployment was to close the output gap by increasing aggregate demand. Paul Krugman, for example, suggested that we could stem unemployment by one percentage point for each $300B of GDP impact.The debate over the size of the stimulus, the type of “multipliers” that different forms of stimulus would have, and the timing of the stimulus raged on the Sunday shows and in the blogosphere. Meanwhile, the politics of the debate heated up as the GOP solidified their position to vote against the stimulus despite agreeing that stimulus was needed. Meanwhile, post-Keyensians such as Steve Keen and economists of the Austrian school continued to debunk the claims of the mainstream.The failed pseudo-science of neo-classical economics continues to maintain its mythical status of a robust theory. Multipliers, Okun’s Law, and other such theory extend weak statistical correlations to prescribe public policy. What makes this worse is the stronghold that the neo-classical views have in academia and in the government (see here for a detailed account). All of this enables politicians to use the musings of Ph.D. economists as fodder for pork and political gain.Alas, the forecasts of the economic policy makers were wrong, and the economic policies of the Federal Reserve and the U.S. Treasury enabled the financial crisis. But, as long as heterodox voices are ignored, those with power will continue to spin data and reality to claim success and maintain their positions of influence. We should all remain as Keynesians at our own peril.

Iranian Government Has No Monopoly On Violence Against Citizens

In considering all of the actions and violence committed against “anti-government protesters” in places like Iran, is it not worth considering whether or not the scenes here are often that much different? At the end of the day, Americans live under a system that steals from them, lies to them, commits fraud, illegally invades other countries, detains people, puts them on lists, sometimes allies itself with dictators and now threatens to make laws at the Federal level that REQUIRE you to buy products from insurance corporations or be threatened with fines and jail time?
G20 protesters get assaulted:
http://www.youtube.com/watch?v=B3CYknz7FCQ
Police make a joke and laugh about shooting a peaceful protester (think about a culture where this is promoted as funny and worthy of reward):
http://www.youtube.com/watch?v=G63FEamhpA0

There is always a worthy discussion about new laws where ultimately, the question should be asked … “Are you willing to shoot someone over this?”
People chuckle and say, “we’re just talking about a fine or a warning or something minor.” BUT, the ultimate enforcement mechanism of any law, no matter how seemingly innocuous, is that it presents additional opportunities for there to be potential armed aggression against citizens.
This puts police officers in the position of not being thought of as “protecting and serving” us, but puts them in adversarial positions with the general public. How many people can say they’ve never been pulled over for something? How many people felt they were posing a clear and present threat of immediate harm to someone else and thereby warranted being detained by someone with a gun, fined and otherwise inconvenienced? Why do we accept this as okay?
Think about tax enforcement. Being required, by threat of potential government force being used against you, to pay for sports stadiums, convention centers, transfers of wealth to private entities, for abortions or stem cell research, billions to foreign dictators or paying for research on the mating habits of butterflies. We must again ask… Are we willing to destroy people’s lives, reputations or families? Are we willing to march armed soldiers to their door steps and even shoot them over their objections to this? Yes, even in America, the political elites are willing to do so.
And this is why we must always remember that “The Law” is there to protect our life, property and rights. It is not supposed to be used to take away our life, transfer our property to others or reduce, limit or undermine our rights.
Live your life as you chose so long as you do no harm to, or violate the rights of, others. There is a foundational principle to live by and one that nobody should have any objection to.

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