I have been accused of being too harsh on the Tea Party. "They are just a bunch of patriots who have brought the three-cornered hat back into the spotlight," the political commentator Larry Arnstein argues.
Actually, I have been too kind. These people are dangerous subversives seeking to undermine the American system of bipartisan government. They are coming much closer than the groups making Attorney General Tom Clark's famous list of "Totalitarian, Fascist, Communist, Subversive, and Other" organizations inimical to the American way of life. That list, which was first published in 1947, included such threats as the Garibaldi American Fraternal Society, the Hollywood Writers Mobilization for Defense, the Tom Paine School of Social Sciences, the Philadelphia School of Social Science and Art, and the Hungarian-American Council for Democracy, none of which had the clout of the Tea Party.
It has been suggested that, to clarify the threat for the largely befuddled, tolerant, politically free zone that is the American public, the news media might refer to the mugwump Republicans as the T-Party (T for Terrorist).
The T-Party people in Congress remind me of the Somalian pirates. After the election of 2010, they boarded the ship of state and began holding the country hostage. Holding a gun to our head, they have been saying, "It's our way or the highway -- and we don't want it repaved with stimulus money that would increase the deficit."
The ransom demanded by the Gang of 69 is based on their basic principles. If you don't go along with their demands (i.e., balancing the budget by cutting social services spending for middle-class benefits for the 99%, with no tax increases for the 1%), they can hit us where it hurts.
Just recently, we watched the drama of another close shave -- the refusal by T-Party Representatives to pass a compromise payroll tax and unemployment benefits renewal. Suddenly, they wanted a year's extension. Usually, they want a more temporary fix, so they can play T-Party Roulette with the country's future.
Well, it's a free country. If they want to destroy the country, it's their right. But more importantly, the T-Party is wittingly or unwittingly destroying whatever is left of the credibility of the Republican Party.
We Republicans should not be so tolerant of the Trojan horsemen in our midst. The two-party system is based on compromise, which has worked rather well for the last 222 years. Our party's policy toward those who won't compromise should be "If you don't like it, lump it."
On the other hand, I can appreciate the T-Party being uncomfortable with a party containing old fogey, old style Republicans like myself, who believe in a fuddy-duddy two-party system trying to solve common problems like an economic disaster largely caused by our own party.
I always like to end on a positive note. So I am suggesting now that, instead of whining about being saddled with us socialist-leaning Republicans, the folks in the T-Party should form their own party and let us wither on the roadside.
Third parties usually fail. That's why I am suggesting they form a fourth party. Call it the America Fourth party. America Fourthers won't have the usual money problems of new parties, so they won't have to nickel-and-dime the public with begathons. If they play their cards right, this could be the We the Corporate People of America party of choice. In 2016, the America Fourthers could even nominate Michele Bachmann (or whoever is left from the 2012 Republican Debacle) to lead the country off the cliff.
I'm saying that HUNTSman may not be too appealing a name for a President at this time. If there was someone to hunt down & defense was a pressing issue, it might make an interesting tagline but nowadays people want the economy to bounce back.
There were over 250 government failures studied in researching the book. I'm certain that war played a role in producing the debt in some of them and was the result in others. In Portugal, Italy, Ireland, Greece and Spain war has at most played a small role in bringing them to the brink.
The point to take away though is that however it was created, too much debt resulted in the failures. It led to debasement of the currency in all cases, to runaway inflation in some and in a few it marked the end of the government and the sacking of its cities.
In our case you may agree that regardless of how we got here we are here and we must do something about it or suffer the consequences.
*****
Okay, you don't like the word "disassemble," I'm easy, change it to "sharply reduce" and don't forget to add the released personnel into the unemployed.
Bernanke's response to the banking crisis was monetary, not Keynesian. Lord Keynes did, however, expose the flaw in classical economic theory known as the liquidity trap. Lord Keynes' greatest influence was that governments need to act counter-cyclically in fiscal policy (taxation and spending) in order to smooth the business cycle and avert depression.
That's what happens when the demand for money and credit is so reduced that pouring vast amounts of it into an economy has no effect on output or prices. Bernanke is well aware of the limits of monetary policy. Fortunately we have not yet reached those limits, and the Fed is a very powerful institution.
If anything, Bernanke is following the ideas of Professor Milton Friedman.
Most economic thinking nowadays is a synthesis of classical economics and Keynesian theory.
If you are interested in how the crisis of October 2008 could have played out without prompt action by the Fed, I'd suggest reading the chapter called "The Great Contraction" in Professor Friedman's "Monetary History of the United States."
Now, the Fed controls the monetary base. Money, itself, is created by the fractional reserve banking system which exists almost all over the world nowadays. The Fed can expand the monetary base by buying assets and it can contract the base by selling them. The money supply may actually contract despite the Fed's effort to increase the monetary base. It's a bit like rows of dominoes falling one after another. Once it gets started in earnest, it takes herculean effort to stop it, much less turn it around. The Fed can also lower the discount rate it charges borrowers and it has control over the "Fed Funds" rate. Those rates can be raised to choke off inflation and they can be lowered in a liquidity crisis.
The Fed has nothing to do with fiscal policy (which was Keynes' forte) under the law. It can only advise if asked by congress. The law requires the Fed to use its monetary power to promote both price stability and full employment.
It should also be remembered with regard to inflation that if it rears its ugly head, the Fed can take measures to counter it by contracting the monetary base.
As for currencies, we now live in a world of mostly floating exchange rates. Currencies will respond to market forces, primarily interest rates set by central banks. The major exception is China which pegs the Yuan to the US Dollar. It would probably be to the benefit of the Chinese government to float the Yuan. Pegging it needlessly constrains their freedom of action in managing their own economy. The Euro has moved down lately in relation to the Dollar because the European Central Bank had to lower the interest rates it charges in response to the banking crisis there.
My fear is that the Germans will force the ECB to sit on its hands, and by doing next to nothing it will push the Euro Zone into a depression that will hurt the rest of the world.
Fred, a good book, I'm sure, but from what I've gathered, Rogoff and Reinhart fail to answer the question: which came first, the chicken or the egg. In other words, did countries go into these debt spirals and then run off to war, political unrest, etc....or was there threat of war and political unrest beforehand that led to excessive risk taking and debt build-up?
And by the way, it's a bit of an exaggeration to say that Democrats are out to dismantle the military, just as much as it is an exaggeration to say that Ron Paul wants to set the clock back to 1776.)
In a nutshell, Reinhart and Rogoff conclude as in the following paraphrase:
The first thing one must do when finding him- or herself in a hole is to stop digging.
However, here is a quotation from the last page:
"The lesson of history, then, is that even as institutions and policy makers improve, there will always be a temptation to stretch the limits. Just as an individual can go bankrupt no matter how rich she starts out, a financial system can collapse under the pressure of greed, politics, and profits no matter how well regulated it seems to be."
I think that pretty well sums it up since all three are present in spades at the current moment.
The book is very widely quoted and is worth the read to fully grasp the magnitude of the problem we face This Time Is Different, by Reinhart and Rogoff
I'm well-aware of all the analogies of Ben Bernanke the Depression fighter which they publish in Time magazine every month. But the fact is that Ben Bernanke is an academic, and in the end he can't control the market. Markets run markets.
The problem with the Keynesian view that the government must "rescue" markets is that there are always unintended consequences. The government always thinks they "have things under control -- until they don't. Take a look at the Greenspan solution in 2001-2002. It created a bigger mess.
I am a pragmatist and I like commons sense. I do not have a PhD from Princeton, but I do know that creating more debt to fight the greatest debt bubble in history is not a solution. I am not smart enough to known whether deflation will end any time soon and inflation will start soon, but I do know that the current regime we are in is one of global central banks fighting "currency wars" by competitive devaluation. Currency trade is a zero-sum game, you are moving digital money around the world, and you cannot know the consequences. It has had the effect of making markets more volatile and unstable, rather than the reverse.
The recent multi-trillion dollar currency swap will eventually have inflationary impact. Ben Bernanke thinks he has things under control -- until he doesn't. Look at what happened to Europe. Interest rates suddenly spiked on debt concerns. With the USA now approaching historic debt levels in excess of 100% of GDP, the situation here is not getting any better. There is nothing to say that our Treasury bond rates can't suddenly spike and cause all sorts of chaos. This can happen literally overnight. So far they haven't, but I think that's a factor of the US being the last reserve currency on earth. Quite a privilege, but how long will markets grant us that privilege? What happens when that suddenly reverses? The fact of the matter is we can't possible know what the markets will do. I would like to see more of this hubris in our government, rather than the all-knowing people in ivory towers thinking they can solve all problems by printing money.
Print money they will. That is seen as the only solution. It will probably be the way forward.
"Money does not have to come from somewhere. That is a myth. Money is a unit of account."
Ha! I will try that line on my wife...
It does come from somewhere. It comes from the taxpayers. If there were no taxpayers supplying money, the U.S. government would not exist. If the U.S. government issues more money, it is exactly like shares of stock in a corporation, value in the currency is diluted.
I've read a lot about Rogoff and Reinhart but haven't read their books yet. I'm wondering what you think of their proposed solutions ot the economic crisis.
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