Friday, May 22, 2009

Can Obama's Stimulus Plan Rescue The Economy?

Will Obama's stimulus package and the Bush/ama (Bush-Obama) bailouts rescue and stimulate the American economy? Answer, no. (As I wrote earlier, the economy will naturally rebound on its own, in the short-term, but will then collapse in 18 to 24 months under the weight of Democrat policies.)

It is a fundamental error that government spending can stimulate the economy. And the error is this: THE GOVERNMENT DOES NOT HAVE ANY MONEY TO SPEND. The economic theories that analyze government spending's contribution to economic growth fail to consider the fact that the government actually has no money.

If the government truly had a nest egg of billions of dollars socked away under a mattress at the Treasury Department, then obviously spending it would contribute to economic activity. There are sophisticated economic equations analyzing the national economy, and they measure the contribution of government spending.

However, the government must first suck money OUT of the economy through borrowing before the government can put it back in. The net effect is nil. Actually it is worse than zero, because we are then left with the national hangover of national debt we can never repay. Margaret Thatcher explained it like this: "The trouble with socialism is that it eventually runs out of other people's money [to spend]."

An anonymous email making the rounds on the internet does a magnificent job of explaining: An economics professor at a college is asked by a student to explain Obama's stimulus bill. The mythical economics professor replies that he will explain if the student comes to his house on Saturday. On arriving, the student is instructed to help the professor with his swimming pool. "Take this bucket, fill it up at the deep end of the pool, and pour the water back in at the shallow end of the pool." After doing so a few times, the puzzled student protests: "We're not accomplishing anything. We're just pouring the water back in to the same pool. Other than wasted energy, nothing is happening." The professor replies: "AH! NOW you understand Obama's stimulus bill!"

Almost all of the Democrat Party, and certainly Obama, are firm believers in the left-wing economics of John Maynard Keynes. Stating it briefly, and doing him a great (deliberate) disservice, Keynes argues that the hypothetical economics professor really could make the narrow end of the swimming pool higher by pouring water there carried from the deep end of the pool.

Everyone in Washington except a few die-hard conservatives believes in Keynes. Although Keynes was not even born during FDR's New Deal, his theories later emerged as a strong defense of FDR's approach. Keynes advocated interventionist government actions to mitigate the adverse effects of economic recessions, depressions and booms. His theories are the basis for the school of thought known as Keynesian economics. Keynesian economics is basically big-government socialism dressed up in "drag" with capitalist lingo as camouflage.

Almost all of Washington strongly believes in big-government, anti-free market Keynesian economics. Indeed governments around the world adopted Keynes, leading to various economic disasters for decades. President Richard Nixon declared "We are all Keynesians now!" shortly before America started a decade-long slide into crippling recessions and soaring inflation ("stag-flation"). Milton Friedman led the charge exposing Keynes as wrong.

So how did this happen? Obama and liberal leaders in Congress have tried to learn (all the wrong) lessons from FDR and the Great Depression. Unwilling to admit that Roosevelt's monkeying with the economy made the Depression worse and longer, die-hard big-government liberals conclude that FDR made one mistake: He did not spend enough money fast enough. If only FDR had really hit the gas, the Great Depression would have ended sooner.

FDR's Secretary of the Treasury, Henry Morgenthau, admitted near the end of Roosevelt's Presidency that the New Deal was a failure. Morgenthau lamented in testimony to the House Ways and Means Committee: "I say after eight years of this Administration we have just as much unemployment as when we started. ... And an enormous debt to boot!" And: "We have tried spending money. We are spending more than we have ever spent before and it does not work." Morgenthau's testimony is officially published in the Congressional Record for its date May 9, 1939.

Historian Burton W. Folsom Jr. explores the record of the New Deal in his new book: "New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America." Budget and financial experts at The Heritage Foundation recently distributed a chart showing that FDR's programs didn't succeed in pushing unemployment below 20 percent. Heritage plotted New Deal unemployment using widely accepted Census Bureau data (Page 6, Series D, column 10), the "official" numbers that were compiled at the time.

FDR's massive government spending actually made the Great Depression longer and worse. One reason is that the temporary band-aid of government spending actually "freezes out" the private sector. Instead of private companies building up permanent, long-term businesses to fill society's needs, government has invaded those areas with "temporary" government programs. Furthermore, not knowing what the government is going to do next, private businesses are afraid to invest money in building up companies that might be rendered obsolete next month by the latest expansion of the New Deal. Therefore, government spending like the New Deal actually harms the private economy and retards economic recovery. Government spending appears to be working by employing workers. But this simultaneously destroys private sector jobs, driving more and more unemployed toward the government band-aid jobs.

Yet the liberal Congress, with Obama in tow, believe that FDR had the right idea...

but FDR's mistake was waiting too long and spent too little government "investment." Instead of admitting that FDR's "New Deal" really did not work, liberals conclude that FDR simply failed to spend enough borrowed government money.

That is why Obama and his back-up singers in Congress are determined to spend staggering sums of our children's and our grandchildren's money. They believe that this is the magic formula to restarting the economy.

But there was a reason that FDR did not spend more recklessly than he did. Roosevelt understood what the modern Democrats do not. For all the hoped-for stimulus of government spending, there must inevitably follow the hangover of massive debt. The country can spend government funds today, but we must pay the tab tomorrow. FDR and his Treasury Secretary Morgenthau at least tried to balance the short term stimulus against the long-term harm of debt hanging over the economy. Obama, Pelosi, and Reid do not comprehend such fine points.

And yet, strangely, this week President Barack Obama, called current deficit spending “unsustainable.". Obama warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries. “We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, near Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Obama's remarks are most peculiar because Obama plainly does not believe one word of what he said. Obama is trying to give gullible voters and Obamatons who are only half paying attention a false image of himself. The same week the Obama Administration announced that its this year's budget deficit will be a Guiness Book style world record of $1.84 trillion. Obama's Office of Management and Budget also projected next year’s budget will be even larger than this year's -- $3.59 trillion.

Furthermore, the stimulus money -- predictably -- cannot be infused into the economy fast enough to do any good. href="">The New York Times reported this week that nearly three months after President Obama approved a $787 billion economic stimulus package, intended to create or save jobs, the federal government has paid out less than 6 percent of the money, largely in the form of social service payments to states. The Department of Transportation has spent only about $11 million on the promised highway projects. Recall that the $787 billion package (over $1 trillion with interests costs included) was sold to the Congress with the pledge that it would go immediately into "shovel ready" projects such as roads and bridges. As was obvious, government cannot possibly respond that fast. Much of the money will not even be spent until 2010. And the economy does not respond instantly to anything. The effects may not be felt for another 6 to 18 months after that. That is, in 2011 and 2012.

Moreover, there is the added problem that any government spending is inherently ineffective and often harmful. Why? Because government spending is directed by political interests and political choices, rather than economic efficiency. Every dollar spent by the private sector is someone's personal money at risk. Every dollar spent by the government is controlled by a bureaucrat or politician with no personal money at stake. It's not their money! Politically-spent money is diverted to ineffecient and ineffective purposes to serve political agendas.

Furthermore, it is clear that Obama and the liberal Congress will open the borders to not only the estimated 20 million illegal aliens currently stealing jobs from Americans but also to more who follow. As illegal trespassers are given rights to work freely in the USA, they will start to take all sorts of jobs from Americans, cutting deep into salaries and opportunities in many industries. The downward pressure on salaries that has been confined to only certain industries will now spread to the entire economy.

All of this has prompted some to wonder whether Obama is intentionally destroying the US economy. Austin Hill, a columnist for TownHall Magazine, is only one of many observers who believe Obama knows that his actions will destroy the United States. Many say that socialists believe that the existing system of government and our economy must collapse before a truly socialist or even communist 'utopia' can replace it. This is consistent with tactics espoused by Obama's Mentors such as Saul Alinsky and Rahm Emanuel's philosophy 'never let a crisis go to waste."

The U.S. now has a national debt we can never repay. Social security and medicare are going broke. Under current world conditions, we may be unable to borrow the money needed to fuel the nation's government spending. We will hit a wall if the Chinese and other simply say "We can't lend you any more money."

If by next year, the U.S. Treasury tries to borrow yet another trillion dollars, and investors answer “no,” the United States of America could literally be bankrupt in 2010. And not just officially (on paper) but in reality, as in no money. There is no one to bail out the U.S.A. If the U.S. budget is short by another $1 trillion in 2010, that is lacking real money to operate without borrowing $1 trillion, and no one steps up to loan the money, our country could literally collapse next year. We should not forget that all of the State governments are also borrowing massive sums simultaneously.

The total collapse of America's existing system may pave the way for a new, Marxist economy. (Unfortunately, talking about Marxism is problematic for people who do not konw what Marx actually taught. Rather than an insult, it is a precise term. When carefully examined, the class warfare and economic policies of today's Democrats fits neatly into the Marxist theory.)

Alternatively, some suggest that the collapse of the U.S. economy could be intended to open the door to submerge the U.S.A. into a "North American Union" -- a new country consisting of Canada, Mexico, and the U.S.A. Jerry Corsi reported this week on the U.S. government's first steps actually implementing the merging of Canada, Mexico, and the U.S.A. into a "North American Union." Highway signs showing an integrated North America have begun showing up on U.S. Interstate highways. This first small step implements NORPASS, a new electronic system that allows participating truckers in Canada and the U.S. to by-pass roadside weigh stations through the use of a transponder mounted on the windshield. Corsi has reported extensively on massive government planning for and promotion of creating a single North American country, with the "Amero" as its currency, hidden from public knowledge.

Wednesday, May 20, 2009

Conservatives Fumigate Tent To Remove Liberals

The Republican Party certainly does require a "Big Tent" -- the kind of tent we sometimes see covering a house infested with termites. Unless conservatives can rid the GOP of Democrats hiding out in their midst, the Republican Party can never recover. Liberals are sapping the GOP's strength from within.

It now seems that a looming divorce within the GOP has grown inevitable. Unless the Republican Party returns to its conservative principles, a number of conservatives will go on strike. They feel it is no longer acceptable for conservatives to do most of the hard work of winning elections, while the Party leaders promote mainly liberal policies. A new Party could even be the result.

Liberals in the Republican Party (affectionately known as "Moderates" or "Vichy Republicans") severely threaten the existence of the Republican party in four fundamental ways:

(1) "Moderates" lose elections by their failure to understand politics or how to lead a party. Political success requires persuading and inspiring. Conservatives believe that the opinions of the public and the votes of the electorate are fluid and dynamic. A candidate wins votes by persuading the voters that he or she offers a better plan and better leadership. The heart and soul of politics is convincing people that your party's ideas are best.

Yet one of the fundamental errors of "Moderate" Republicans is that they view the electorate as frozen in place. Voters never change their minds. Therefore, "Moderates" approach elections by trying to patch together already-existing, static blocs of opinion. They want to pander to various interest groups in order to cobble together a majority. "Moderates" cannot understand elections in terms of changing minds. Therefore, they do not try to persuade the electorate. And they can't understand anyone else doing so, either. Moderates want to count noses, while conservatives want to change hearts.

The Vichy Republicans propose an "EMPTY TENT" strategy. They want to erect a "Big Tent" -- but offer no reason for anyone to ever actually enter the GOP tent. The GOP "Empty Tent" pales in comparison to the circus next door in the Democrats' tent.

Conservatives strongly believe that voters respond to leadership. They believe that voters actually decide in each election who is the better candidate, based on the policies, records, and qualities a candidate offers. Therefore, conservatives believe that they can win a majority by offering better ideas, plans, and proposals for the country. By contrast, if the GOP fields an awful candidate and runs an awful campaign, people will vote for the Democrat. This does not signal a permanent shift in the nation's politics requiring the Party to abandon its principles. This simply means the GOP nominated a terrible candidate.

Conservatives believe it is a severe threat to allow confusion about what the Party stands for or fail to present clearly why their policies are better. Trying to water down the Party's message to pander to different groups is the path to certain defeat. The voters must be able to understand the difference between the parties. The voters must see why conservative policies are better. If we don't show the voters why our plans are better, no one else will.

"Moderates" take all the wrong lessons from the last two elections. No one will vote for a party that stands for nothing, that will say anything to pander for a vote. And given a choice between a genuine, strong liberal and a pathetic imitation, the voters will choose the genuine liberal. Having a choice only between two bad shows on TV, people will watch the better show. But they will still be wishing the whole time that there was something better on to watch instead.

Conservatives want to lead the country. Since the job description is that of leader, demonstrating qualities of leadership is important for winning votes. But most important is the lost and neglected art of convincing voters which direction is the best for the country.

More than any other issue, "Moderates" have made horrible decisions about how to win on the issue of abortion. Just this week, a Gallup poll found a dramatic change in the nation's views on abortion, with 51% calling themselves Pro-Life, up from 44% only a year ago. "Moderates" base their entire political philosophy on the certainty that no one's views can ever be changed. Yet here is dramatic evidence that people's opinions do change, that Conservatives are right and "Moderates" are wrong. Public opinion is sensitive to what political leaders say and do.

Vichy Republicans are loudly objecting that demands for conservative "purity" result in a narrow, small Republican party. Conservatives respond that electoral success requires purity of the MESSAGE. It is impossible to persuade the electorate with a confusing, contradictory, meaningless message. To conservatives, the issue is not a Party whose membership or participation demands purity, but whose policies must present a clear, understandable message. All persons are welcome in the Republican Party. Liberal policies are not.

The GOP under Newt Gingrich gained 52 seats in the House in 1994 after Bill Clinton's 1992 landslide. Why do "Moderates" ignore such examples of real-world success? As Ronald Reagan explained on March 1, 1975 after the Watergate fiasco, "Our people look for a cause to believe in. Is it a third party we need, or is it a new and revitalized second party, raising a banner of no pale pastels, but bold colors which make it unmistakably clear where we stand on all of the issues troubling the people?" and "A political party cannot be all things to all people."

(2) "Moderates" lose elections because liberal policies do not work for a Republican candidate. A Democrat can run in concert with his liberal base but a Republican cannot run in conflict with his conservative base. (Winning elections requires enthusiasm among volunteers and many months of work, not just counting votes in November.) Also, voters who favor liberal policies will never choose a Republican as a poor imitation of a Democrat. Those who desire liberal policies will choose the real thing, not a cheap knock-off.

(3) "Moderates" use conservative footsoldiers in election campaigns and then stab conservatives in the back in government policies. Conservatives will not continue to endure such persistent betrayal. It is as if the Conservative movement caught "Moderate" Republicans in bed with another woman. And we've got pictures.

(4) "Moderates" have a ferocious determination to sabotage the Republcian party whenever necessary to ensure the defeat of conservatives.

In 2005 and 2006, something snapped. Republicans in Congress and the Bush Administration betrayed and undercut the Republican brand. On CNN on October 6, 2006, one of the conservative movement's founders, Richard Viguerie explained: "For six years, the conservatives have gotten basically lip service from this administration. They've been used and abused." As a fund-raiser for dozens of major conservative groups, Viguerie knows the mind of conservative leaders and their donors.

Massive government spending, vast expansion of government, abuse of power, scandals, and many liberal policies infuriated the right wing of the party. (Sadly too many conservative Republicans were seduced and participated.) After 9/11, plans to give control of U.S. seaports to Abu Dhabi in the United Arab Emirates convinced Americans that Washington had lost its mind. Bush's attempt to squander a Supreme Court nomination on Harriet Myers removed any doubts. The mad rush of the Bush White House and Republican leaders to give amnesty to 20 million illegal aliens, and place them on a path to U.S. citizenship, was too much. And the $700 billion bail-out to Wall Street, for a problem "suddenly" discovered at the last moment, struck Americans as crazy. Bush worked with the most liberal Democrats in Congress, such as on Ted Kennedy's education bill.

Conservative frustration with Republican leaders has been building for decades. One of the founding fathers of the modern conservative movement, Paul Weyrich, wrote LIP SERVICE chronicling the betrayal of conservatives by George Bush Senior. Weyrich's booklet argued that the elder George Bush persistently lied to the voters and conservatives, giving only empty "Lip Service" to conservative beliefs, but then Bush betrayed conservatives at every opporunity. Conservatives believed that Bush the father, like his son after him, hijacked the language of conservativism while governing as a big-government liberal. Bush's famous lie "Read my lips: No new taxes" was but only one example of many.

In 1992, Paul Weyrich and Brent Bozell announced outside the Republican National Convention in Houston that nothing conservatives could do would save George Bush Senior "from defeat since he [Bush] was refusing to advance a conservative agenda." In 2000, Bozell warned that "W" was making the same mistake as his father.

Bush followed Ronald Reagan by promising a "kinder, gentler nation" -- an obvious insult to the Reagan Revolution that positioned him as Vice President and handed him the White House. His son George "W" Bush did exactly the same thing, promising a new brand of "compassionate conservatism." Both father and son rejected conservatives, while demonstrating ignorance of conservative theories and beliefs. Conservatives see their policies as the most compassionate government policies possible. Conservatives seek to help the poor rise out of poverty, while liberals persistently fail. The longest-running war in American history, the crack goes, is the war on poverty, and poverty is winning. Liberal policies keep the poor enslaved as a permanent under-class without hope of progress. For "W" to propose a "compassionate" conservatism proved that "W" had not the slightest clue about conservative principles.

Then in 1994, the Republican Party of Virginia nominated Col. Oliver North as its candidate for the United States Senate from Virginia. A now-familiar pattern became clear: (a) When a liberal is nominated, liberals demand party unity, but (b) when a conservative is nominated, liberals in the GOP will go to any lengths to sabotage the conservative Republican. Liberals would rather destroy the Republican Party than allow a conservative to get elected and gain influence. As an elected member of the Arlington County Republican Committee, this author witnessed the raging debates in the Virginia GOP throughout 1994.

Rather than supporting the Party nominee, liberal Republicans Sen. John Warner and Rep. Tom Davis engineered Oliver North's defeat by sponsoring Marshall Coleman as an independent spoiler candidate in the general election. North received 43% of the vote compared to 46% for Democrat Chuck Robb, a son-in-law of Lyndon Johnson. But Marshall Coleman (a liberal Republican running as an independent) peeled off 11% of the vote. Therefore, if liberal and moderate Republicans had backed the Republican nominee, Col. North would have won with 54% of the vote to Robb's 46%. (Democrats would have voted for Democrat Robb, so most of Coleman's 11% would have gone to North.) Liberal Republicans preferred to elect a Democrat to the U.S. Senate than allow a conservative to hold the seat.

This pattern has been repeated again and again nationwide. Conservatives are expected to support the Party's liberal nominees. Yet Liberals almost never support the Party's conservative nominees. GOP "Moderates" demand a one-way street. Indeed this was attempted against Ronald Reagan in 1980 by Republican Congressman John Anderson, who ran as an Independent spoiler trying to siphon votes away from Reagan so as to re-elect Jimmy Carter instead of conservative Reagan. Liberal Virginia Congressman Tom Davis seems to spend more time sabotaging conservative Republicans than serving as a Congressman.

Without conservatives, the "Moderates" in the Party could not win an election for dog-catcher. Conservatives are the foot soldiers of the Republican Party. Conservatives are the ones who do most of the work to win elections. "Blue blood" liberal Republicans do not often get their hands dirty. Generally speaking, liberal Republicans do not walk the neighborhoods doing literature drops or making phone calls. And conservatives know it. And they are tired of being taken advantage of.

Even when Republican "Moderates" contribute to winning elections, they usually do so as highly-paid campaign consultants, vendors, or staffers. Conservatives are the unpaid volunteers, who give of their time because they care about their country and believe conservative policies will make the nation better.

Heading into the 2006 election, conservatives began to talk openly about boycotting Republican politicians. In conservative publications, in the halls of conservative organizations, and on talk radio, conservatives started debating whether it would be better to let Democrats win. GOP politicians had refused to listen to or care about the rank-and-file. Many started to say that the GOP must start losing elections before its leaders will start listening. Many argue that America had to suffer through Jimmy Carter to realize that liberalism does not work. Jimmy Carter gave us Ronald Reagan, the theory goes.

By 2008, the nomination of the Anti-Republian John McCain crossed the line. Only the prospect of electing far-left candidate Barack Hussein Obama gave conservatives any reason to fight for and vote for John McCain. Conservatives were shamefully guilty of staying silent for too long and allowing Republican "Moderates" to masquerade as conservatives. The fear of liberals like Al Gore or John Kerry winning election scared conservatives into biting their tongues.

But this argument has worn thin. Conservatives now realize that even if they do elect a "Moderate" Republican there probably won't be "a dime's worth of difference" from electing a Democrat. Meanwhile, the public image of Republicans will be smeared by having a Moderate Republican masquerade as a conservative. Ann Coulter promised to campaign for Hillary Clinton against John McCain. Christian leader James Dobson announced that he could never vote for John McCain.

McCain's frequent attacks on conservatives for decades, support for amnesty for illegal aliens, repeated swing votes for liberal policies, and infringement of free speech with the McCain-Feingold campaign finance bill made him completely unacceptable to many conservatives. As a result, some conservatives went "on strike" and stayed home... enough to result in massive election losses for the GOP. Faced with having the nation's first Black President, or a useless liberal McCain, many saw no benefit to voting for McCain. Elections involve more than just election day, but many months of hard work. Elections are decided by thousands of events months or a year before election day.

Since November, a few Republican politicians and self-appointed experts have waged a
high-profile campaign to convince the Republican Party to become more liberal. In fact, every year, no matter what happens, liberals and moderates in the GOP always try to steer the Republican Party even further to the left than it already is. The answer to every news headline is always that the GOP must lurch madly to the left.

Sen. Arlen Specter abandoned the GOP, claiming that the Party had moved too far to the right. In fact, however, the Party has never been more liberal than in the last eight years. John McCain was the most liberal Republican nominee for President since Gerald Ford, possibly more liberal than Ford. The fact that Republicans like Bush and McCain simply want to defend the country shows how far left the Democrats have shifted. National defense used to be a matter of bipartisan agreement. Even on foreign policy, Bush began his term by allowing China to knock an American surveillance plane out of the sky and kidnap the crew in their airplane. While America obviously could not go to war with China, Bush's groveling appeasement of China was humiliating. It was only the attacks of 9/11 that convinced Bush on foreign policy that he had to aggressively defend the country.

Amazingly, we see the peculiar oddity of liberals in the mainstream media and liberals in Congress offering their "advice" on how the Republican Party can best defeat the Democrats. Obviously, such "advice" from the GOP's mortal enemies is calculated to destroy, not assist, the GOP. The only way that the GOP should listen to such continual advice in the media is to do precisely the opposite of what the media and Democrats recommend.

Monday, May 18, 2009

Will Obamnomics Destroy The US Economy?

"Will the economy get better soon?" every household and businessman is urgently wondering. People's fears and hopes are emotionally invested, and people need to plan for whatever lays ahead.

Short-term, the U.S. economy will continue its natural cycle of recovery over the next 18 months. Had Bush and Obama left things alone, the inevitable business cycle would have rebounded on its own. It would have been painful, but the economy inevitably ebbs and flows like the tides. Nothing can hold back the moon-driven tides and nothing can prevent the ripples of unavoidable ups and downs in the economy.

As Frederick Hayek and other scholars have shown us, there is only one thing that the government can do about this repeating "business cycle": Make things worse. Attempts to prevent the economy from rising and falling are always doomed to fail for fundamental reasons. (Fully explored in Hayek's books.)

However, soon America will plunge into the worst recession since the stag-flation of Jimmy Carter, after about 18 months. Indeed, there is a real possibility of a Great Depression or even the complete destruction of the American nation.

This prediction may seem overly bold. Sadly, though, it is based on iron laws of economics that cannot be escaped. This is no more prophetic than predicting that a cannonball dropped out a window will fall to the ground.

Since last September, the Federal Reserve has expanded the money supply more in six months than all of the growth of the U.S. money supply from the founding of the nation in 1789 until 2008. Yet that does not even begin to tell the full story.

The nation has been flooded with so much newly-created money in just six months that it defies description. A dramatic graph released by the US Treasury is shown by Glenn Beck in this Fox News video (click here). The staggering explosion in the money supply by the Treasury and the Federal Reserve requires seeing the graph.

Every American should understand: This has never happened in the 220 year history of the United States. Not on such a gigantic scale, with the astonishing amount of money flooding the system.

However, we have seen real-world, historical experience on a much smaller scale. The crippling stag-flation of the late 1970's and early 1980's was caused by a much smaller expansion of the money supply. Double-digit inflation ravaged the economy. The interest rate (which responds to inflation) soared to 21%. Persistent unemployment resulted.

And we have seen such examples in other countries, such as Argentina, Peru, Brazil, Bolivia, Ecuador, and Zimbawbe. In 2009, Zimbawbe has issued a $100 trillion dollar bill (Zimbawbe dollars) due to its hyperinflation. Inflation there reached 624% in 2004, and 1,730% in 2006. By 2008, Zimbawbe's inflation rate was the inflation rate was 516,000,000,000,000,000,000%.

In 1993,
Yugoslavia printed a 500 BILLION dinar bill
because of hyperinflation. Jovan Jovanovic Zmaj was 'honored' (disgraced?) on the banknote. After WW II, Japan printed a 75 billion Yen bill, because of hyperinflation.

The most famous example was in the Weimar Republic of Germany. The collapse of German society led to the rise of Adolf Hitler. The German Deutschmark became so worthless that people needed a wheelbarrow full of money to buy a loaf of bread. The Germans became so desperate that they were willing to turn to anyone who offered them basic survival.

Such "monetary" changes always take roughly 18 months to work their way through the economy, from one sector to another. The result is a short-term boost, like a bad energy drink, followed by a crash. The economy is stimulated at first. But because the effect is artificial, like a ponzi scheme, it cannot be sustained. As it works its way through the system, inflation begins to erase the short-term gains. (It is true that with weak demand, prices will remain low until the economy rebounds. Prices will then soar.)

Consider this: Suppose there is $100 billion worth of U.S. currency in circulation. Now, the Fed doubles the amount of currency in circulation to $200 billion. Nothing else has changed. The value of a dollar must then fall by 1/2. If the same economy suddenly has twice as much currency in circulation, the currency must become worth 1/2 as much. So, $1.00 suddenly becomes worth 50 cents. Or more precisely, prices must double to cause the currency to come back into balance.

Of course, the creation of new money by the Federal Reserve is mostly electronic, not primarily paper money. Such new electronic money is not "printed" strictly speaking. However, when the government "prints" money, the value of all U.S. currency most fall.

George Bush is greatly to blame for (a) spreading panic and fear last Fall, and (b) kicking off this disaster with a $700 billion bailout of his own. Presidents know that anything they say about the economy can scare the markets to death. The stock markets used to rise or fall depending on whether Alan Greenspan looked happy or grim heading into Federal Reserve Board meetings. And yet Bush went on national television and announced the end of the world, the Apocalypse, total and complete disaster, that we were staring into the abyss. Bush scared the living daylights out of the markets and the business world. And amazingly, all the leaders of the world -- each of whom knows better -- followed suit, shrieking that it was Armageddon, the Earth was falling into an economic black hole. (Most Americans still opposed the bailouts. Conservatives burned up the Congressional phone lines screaming no.)

When businesses and investors believe the economy is in trouble, they stop spending money and pull back their investments. Thus declaring a catastrophe in the economy can actually create one.. Bush and then Obama have spent most of the time since September giving the business world massive heart attacks, day after day. One of the main reasons that such titanic sums of government money had to be poured into the economy is that the world's leaders have been busy frightening the markets half to death.

There was a chance to avoid this, however slim. If the Treasury and Federal Reserve loans had been paid back relatively quickly, the inflation of the money supply might have been reversed. However, Obama is headed in the wrong direction, away from the only exit. We have stepped off the cliff. And all feels fine for the moment. It's not the falling that hurts. It's when you reach the bottom of the canyon that the trouble starts.

Yet inflation is only part of the damage the economy will suffer. The Democrats' wild spending spree will result in the largest annual budget deficit in American history: $1.8 TRILLION. That is 13.1% of the entire national economy. The government is currently borrowing 46 cents for every dollar it spends. Obama's budget projects will increase the national debt by $7.1 trillion from 2010 through 2019.

This massive debt overhang will require enormous increases in taxes and will suck capital out of the private economy. Even more alarming, the recession is world-wide. Very soon, there may simply be no one left to borrow from. Who is willing to put their own $1.8 trillion at risk to loan to Obama this year? And then again next year?

What will happen when the Treasury floats a bond auction, and no one shows up to buy? Even if the Treasury can find enough suckers to borrow $1.8 trillion from this year, what happens when next year the government needs to borrow another $1 trillion or so -- and can't? We could literally be facing national bankruptcy in 2010 or 2011. And of course most State governments are running equally bad debt loads at the same time, competing with the borrowing of the U.S. Treasury.

But the private sector is also under attack by increased regulation and government interference. The President of the United States is "firing" the CEO's of private companies. The Congress plans on regulating how much private workers and executives can get paid by private employers. This creates massive uncertainty, risk, and fear among businesses and investors.

Then there is the myth of global warming. Obama's Environmental Protection Agency recnetly ruled that carbon dioxide is a dangerous pollutant that must be regulated. Carbon dioxide is what plants breathe. All life on Earth depends upon CO2 as the building block of life. Almost all forms of energy produce CO2 into the atmosphere (which is then breathed by plants, and the plants convert it back into oxygen and growing plants).

However, this new regulation triggers staggering consequences. Many types of businesses such as your local dry cleaner and any office building of any size now come under drastic regulatory burdens. Simply the construction of an office building or other large structure would require an environmental impact statement and burdensome compliance. These emit CO2 simply to heat the building. Worse, environmentalists could sue to stop construction of new factories, businesses, and buildings. Lawsuits could expand the regulatory burden even further, often with the award of large attorneys' fees.

Who wants to invest in an industry or a business if the rules of the game might change next month? This is the same reason that FDR's New Deal prolonged and worsened the Great Depression. When government meddles and interferes with the private economy, especially in such an aggressive manner, no one knows what will happen next. Uncertainty is one of investors' greatest fears. Fear of the unknown is the "kryptonite" of the business world. Businesses and investors freeze and pull back, not only because of what government is actually doing but out of fear of whatever the government might do next month.

Therefore, even while the U.S. economy struggles to regain altitude over the next 18 months or so, it will be pulled back down again by massive weights. The economy will be unable to sustain the short-term growth, and will fall apart again over the next 2-3 years. I wish it were not so. But prudent families should be planning for rough waters ahead.

Wednesday, May 6, 2009

The Pakistan Trap And Obama's Afghanistan Follies

There is one way that Osama Bin Laden could still inflict catastropic injury upon the United States... by serving as the bait luring the USA to step into "The Pakistan trap." In fact, if he is still alive, Osama may be plotting exactly this from the hills of Waziristan.

On the campaign trail, Barack Obama ridiculed Bush's record in the war on terror. Those who attacked the United States on 9/11 came from Afghanistan, he argued. Obama claimed that the war in Iraq was a "distraction" from the war on terror. In other words, America should concentrate on chasing Al Qaeda in Afghanistan and Pakistan, not liberating Iraq. Vice President Joe Biden declared in August 2007 that it is U.S. policy to deploy U.S. troops inside Pakistan.

However, liberal analysis of Bin Laden is hopelessly naive. Liberals accused the Bush Administration of failing to pursue Osama Bin Laden. Trouble is... Bin Laden is in Pakistan. And Pakistan is dangerously unstable.

For the United States to invade Pakistan, as Joe Biden suggests, would risk an Iranian-style Islamic revolution. An already troubled society would erupt. If Muslim extremists took control of Pakistan, Islamabad's publicly-announced nuclear weapons would fall into the hands of Osama Bin Laden, Al Qaeda, and his Taliban friends. For Pakistan's military to invade the regions in which Bin Laden is hiding would risk provoking a civil war, with the same possible result.

The Bush Haters, wishing to discredit whatever Bush did, simultaneously tell us that (a) the United States can never win the war in Afghanistan, and the United States is doomed to fail, but (b) Bush should have been fighting in Afghanistan instead of in Iraq, because the war in Afghanistan is so important. Liberals contradict themselves about whether the USA should or shouldn't be fighting in Afghanistan.

In reality, the war on terror has never been exclusively in Afghanistan. Al Qaeda was founded in the Sudan, not Afghanistan. Al Qaeda's war on America probably began with the "Black Hawk Down" battle in Mogadishu, Somalia, in 1993. Some analysts insist that Al Qaeda helped the 1993 bombing of the World Trade Center in New York City, though in deep background. Most politicians and commentators fail to recognize that Al Qaeda ("the base") was meant to be a training organization (enabler) of hundreds of other terrorist groups. Bin Laden's strategy was to equip other groups and set them all loose against the West. Therefore, many terrorist acts are stimulated by Al Qaeda, even though actually performed by other groups. Al Qaeda directly attacked the U.S. Embassies in Kenya and Tanzania in 1998, killing hundreds of African bystanders in the process. And Al Qaeda attacked the U.S.S. Cole in 2000, showing an extensive terrorist presence in Yemen (not Afghanistan).

Al Qaeda moved from the Sudan to Afghanistan when the danger of being captured in the Sudan grew too serious. In Afghanistan, Al Qaeda set up extensive training camps at which thousands of terrorists -- including those who were not "members" of Al Qaeda -- were equipped to make war on the infidels. When the U.S. liberated troubled Afghanistan from the Islamofascists, the Taliban, Al Qaeda moved across the border into Pakistan's wild mountain regions in Pakistan's Waziristan province.

However, once Al Qaeda's leadership escaped into Pakistan, the game became extremely complicated. The only ways that Bush could have pursued Bin Laden inside Pakistan are (1) pressuring Pakistan's troubled, ambivalent government into arresting the hero of much of the Islamic world, or (2) sending US troops in as a full-scale invasion of Pakistan to do the job ourselves. Either possibility risks a political explosion inside exceedingly-fragile Pakistan. That was especially true a few years ago when Bush was faced with this choice.

Pakistan is dangerously unstable because so much of that country is already a hotbed of Taliban-style Islamic revolution. Indeed, the Taliban that conquered Afghanistan originated in Pakistan, and were covertly sponsored by Pakistan's intelligence agency, the ISI. Pakistan's ISI saw a Taliban conquest of Afghanistan as a means for extending Pakistani influence and control over its large neighbor. Beholden to the ISI, the Taliban would cooperate with the Pakistani government. And a Taliban conquest of Afghanistan would eliminate all rival powers that might diverge from Pakistani goals.

The mountanious border regions near Afghanistan are ungoverned wilderness. The Pakistani goverment effectively has no authority there, and is unable to enforce its laws or governance in these wilderness areas. These regions are sometimes called the "tribal regions" indicating that tribal leaders -- not the Pakistani government -- controls the region. This includes the area known as Waziristan and the Swat Valley. The Taliban has increasingly gained power in this area, imposing Sharia law. The Taliban has grown so strong that it now threatens a full-blown civil war with the Pak government.

Pakistan's government is riddled with Islamic extremists who have infiltrated every level and area of Pakistani government in any event. Until polarizing President Musharaf was replaced by President Bilawal Bhutto Zadari, Pakistan's political situation was disturbingly similar to Iran under the Shah, just before the Islamic Revolution in 1979. And yet Pakistan is still deteriorating by the day.

The Sunni Taliban originally was a creation of Pakistan's intelligence services (ISI) as a means of gaining influence in neighboring Afghanistan, first against the then-Soviet Union and to counter traditional Indian and growing Shiite Iranian influence in Afghanistan. Pakistan regards Afghanistan as being rightfully in its sphere of influence. However, it now appears that Pakistan will be taken over by Afghanistan's Taliban, instead. "Pakistan is in the process of being gobbled by a Frankenstein's monster of its own creation," according to B. Raman, security expert with the South Asian Analysis Group.

This is why the Bush Administration -- wielding far more diplomatic wisdom and expertise than the liberal poodles yapping at its heels -- changed tactics regarding Bin Laden. Bush went from promising to capture Osama Bin Laden "dead or alive" to adopting a "wait and see" game. Bush hoped that Musharaff could gradually defeat the forces of Islamic extremism and shift the balance. The hope was that the situation might improve and there would come a time when either Pakistan would go into the tribal areas or the U.S. could do it without sparking a revolution.

Therefore, Bush, with a more thoughtful foreign policy than Obama's or Biden's, realized that it would be better to patient in apprehending Bin Laden rather than handing Al Qaeda and the Taliban the entire country of Pakistan complete with Pakistan's previously-announced nuclear weapons. The Bush Administration conducted a covert war against the terrorists with missile strikes along the border (and across the border) from unmanned aerial vehicles, and with cross-border raids. These have caused an uproar in the Taliban-friendly communities of Pakistan. But it is clear that the Pakistani government has secretly given its permission to the USA to pursue the terrorists into Pakistan's tribal wilderness regions, while officially protesting the attacks.

Meanwhile, there is also great confusion among voters and in Washington about who the players are in this situation. Contrary to common confusion, during the Cold War the USA supported the local Afghan fighters, the Mujahideen. Native Afghans were already fighting the Soviet invasion, and the USA slowly came around to supplying the local Afghans with weapons, money, food, and other supplies. But the USA wanted the money to go to the native Afghans fighting the Soviets, not to Saudis and Yemenis and Egyptians with no knowledge of the terrain in Afghanistan or how to fight there. The native Afghans had more experience fighting the Soviet military than anyone else on Earth, from their direct confrontation with Soviet forces on their own territory.

Al Qaeda did not exist at that time. However, Al Qaeda developed from Saudis, Yemenis, Egyptians, Iraqis, and Iranians foreign to Afghanistan. They had no expertise in fighting inside Afghanistan, unlike the locals. They arrived very late in the game, when the war was already six or seven years old. The USA never supported the foreign fighters now associated with Al Qaeda. Indeed, Bin Laden's only claim to fame at the time was Osama's ability to bring Saudi oil money from Saudi princes. Bin Laden would destroy his only strength if he could not deliver Saudi money. Bin Laden's people were then novices at warfare, and had nothing to offer on the battlefield compared with the local, battle-hardened Afghans. When the Soviet Union pulled out, the local Afghan Mujahideen fought a bloody nine-year war against the foreigners, who were seeking to install the extremist Taliban from Pakistan against the will of the Mujahideen.

So if Al Qaeda already moved once, from the Sudan into Afghanistan, what's to stop Al Qaeda from simply moving again? If Bush had attacked the Taliban and Al Qaeda only in Afghanistan, Al Qaeda could have simply moved to Iraq or Libya. Libya renounced terrorism only after being scared silly by Bush's invasion of Iraq. Libya used to be a prime training ground for a variety of terrorist organizations. If Bush had not invaded Iraq, Al Qaeda and other terrorists would now be thriving in Libya.

Similarly, we are seeing with the Somali pirates how Somalia is an ungoverned area, with essentially no govenrment. Al Qaeda could move there as well. So the war on terror requires attacking the terrorists everywhere, and "draining the swamps" in which the terrorists can hide, as Bush announced. Bush's declared strategy was to eliminate potential hiding places and bases of operations to prevent the spread of Islamic Jihad.

Many say -- as a triump of imagination over reality -- that Saddam Hussein was a secular Muslim and would not get along with Al Qaeda. That is absurd. United in hatred for the United States, Saddam would have gladly helped another group to inflict damage upon his enemy. "The enemy of my enemy is my friend."

Consider the example of the Axis Powers in World War II. Imperial Japan believed that the Japanese were a superior race destined to rule the entire world (indeed the origin of all other races) and that the Emperor should rule the Earth. Nazi Germany, by contrast, believed that the Germans were a superior race destined to rule the entire world. Yet despite this incompatible clash of goals and visions, Japan and Germany were united in their opposition to the United States and European democracies. In fact, at one point despite Hitler's hatred of communists, Hitler entered into a treaty with the Soviet Union. Similarly, the United States cooperated with the Soviet Union despite the hostility between the USA and USSR.