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From the Mouth of the Apostate Son of a Hamas Founder

February 24, 2010 Leave a comment

Son of Hamas founder turned Christian Israeli spy says of Hamas: “Hamas cannot make peace with the Israelis…That is against what their God tells them. It is impossible to make peace with infidels, only a cease-fire, and no one knows that better than I. The Hamas leadership is responsible for the killing of Palestinians, not Israelis.”

Speaking by telephone from California, Mr Yousef told Haaretz he worried that the Israeli Government might release some of the prisoners he helped put behind bars in exchange for Gilad Schalit, a young Israeli soldier abducted by Hamas from the Gaza border more than three years ago.

“I wish I were in Gaza now,” he said. “I would put on an army uniform and join Israel’s special forces in order to liberate Gilad Schalit. If I were there, I could help. We wasted so many years with investigations and arrests to capture the very terrorists that they now want to release in return for Schalit. That must not be done.”

How much longer can we go on refusing to listen to the words of the very people that come from the belly of the beast?

Morning Muse: 2.24.10

February 24, 2010 Leave a comment
Categories: Uncategorized

First Few Pieces Over at Big Government

February 24, 2010 Leave a comment

I recently signed on as a contributor for Big Government.  Below are the links to my first three pieces (from oldest to newest):

The Folly of Financial Reform

Our Time for Choosing

The Insignificance of the CPAC Straw Poll

Enjoy!

Categories: Uncategorized

The Lesson of Warren Harding Revisited

February 10, 2010 Leave a comment

Though I have written extensively about the Recession of 1920, it is worth revisiting it per Glenn Beck’s show last night.  Beck rightly pointed out that the policies of decreased taxes and decreased government spending implemented by both Harding and Coolidge paved the way for the dramatic economic growth of the roaring 20s. What Beck didn’t mention was that prior to this period of unprecedented economic expansion, President Warren Harding had inherited one of the worst recessions in American history.   This Recession of 1920-21 is another one of the dirty secrets glossed over in the Progressive history books.

By late 1919, America was facing inflation in prices as measured by CPI of 20%.  Between 1920 and 1921, unemployment doubled from 5.2 to 11.7%.  During this same period, from their peak in June of 1920, prices declined by 15.8% on a year-over-year basis, a 50% greater deflation in prices than during ANY 12-month period during the Great Depression.  So what was Harding’s proposal to deal with this mess? To understand how to get out of recession, Harding looked towards how we got into it in the first place.

For America was coming out of World War I.  Government was controlling huge swaths of the economy, as it had mobilized land, labor and capital towards war production and away from normal commerce as dictated by consumer demand.  In addition to the mass of resources that needed to be reallocated according to market forces, the economy had been further distorted due to the policies of the Federal Reserve which had inflated the money supply by 71% from 1913-1919 (while the physical volume of business had only increased by 9.6%), and whose policies had led to an increase in prices of a staggering 234% between 1914 and 1920.  Prices needed to readjust according to the reallocation of resources.  In addition, not surprisingly, due to the costs of war, the federal budget had grown to $18.5bn.

One will note the parallels to our economic situation today.  Just as war led resources to be allocated away from where an unfettered economy would have directed them, so too did the artificial boom fueled by the Federal Reserve and various government policies lead resources to be misallocated towards assets such as houses and stocks during our most recent boom and bust cycle.  While unsustainable businesses and concomitant rises in prices developed in the private sector, the government too drastically increased.

Harding understood the root cause of recession.  As he noted in his inaugural address:

The economic mechanism is intricate and its parts interdependent, and has suffered the shocks and jars incident to abnormal demands, credit inflations, and price upheavals. The normal balances have been impaired, the channels of distribution have been clogged, the relations of labor and management have been strained. We must seek the readjustment with care and courage…All the penalties will not be light, nor evenly distributed. There is no way of making them so. There is no instant step from disorder to order. We must face a condition of grim reality, charge off our losses and start afresh. It is the oldest lesson of civilization.

And so what was his big Keynesian stimulus plan to bring the economy back from the abyss?  He argued during his Republican nomination speech:

Gross expansion of currency and credit have depreciated the dollar just as expansion and inflation have discredited the coins of the world. We inflated in haste, we must deflate in deliberation. We debased the dollar in reckless finance, we must restore in honesty. Deflation on the one hand and restoration of the 100-cent dollar on the other ought to have begun on the day after the armistice, but plans were lacking or courage failed. The unpreparedness for peace was little less costly than unpreparedness for war. We can promise no one remedy which will cure an ill of such wide proportions, but we do pledge that earnest and consistent attack which the party platform covenants. We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity. We promise that relief which will attend the halting of waste and extravagance, and the renewal of the practice of public economy, not alone because it will relieve tax burdens, but because it will be an example to stimulate thrift and economy in private life.

And so, shockingly Harding practiced what he preached.  Regarding deflation, the Federal Reserve jacked up interest rates from 4.75% in January 1920 to 7% in June 1920, and held this rate through the aforementioned major drop in prices through May of 1921.  Harding slashed the federal budget from $18.5bn in 1919 to $6.4bn in 1920 all the way down to $5.1bn in 1921.  Meanwhile, the government actually ran surpluses during these years, allowing them to pay down the debt by $300mm from 1920-21.  The Chief Economist of Chase National Bank of the era, Benjamin Anderson summed Harding’s philosophy and his attack on the recession as follows:

The idea that a balanced budget with vast pump-priming government expenditure is a necessary means of getting out of a depression received no consideration at all. It was not regarded as the function of the government to provide money to make business activity. It was rather the business of the US Treasury to look after the solvency of the government, and the most important relief that the government felt that it could afford to business was to reduce as much as possible the amount of government expenditure, which had risen to great heights during the war; to reduce taxes—but not much; and to reduce public debt.

Nor did the government increase public employment with a view to taking up idle labor. There was a reduction in the army and navy in the course of these years, and there was a steady decline in the number of civilian employees of the federal government. This policy on the part of the government generated, of course, a great confidence in the credit of the government, and the strength of the gold dollar was taken for granted. The credit of the government and confidence in the currency are basic foundations for general business confidence. The relief to business through reduced taxes was extremely helpful.

According to Anderson, how did the recession end?

…we took our losses, we readjusted our financial structure, we endured our depression and in August 1921 we started up again. The rally in business production and employment that started in August 1921 was soundly based on a drastic cleaning up of credit weakness, a drastic reduction in the costs of production, and on the free play of private enterprise. It was not based on governmental policy designed to make business good.  (See Benjamin Anderson’s Economics and the Public Welfare or his gratisThe Return to Normal“)

Now we can debate fiscal and economic policy all day, but across the spectrum, it should be clear to all that a government that intervened and created the conditions for economic crisis will not be able to solve it.  If government’s can create prosperity when the private sector is imperiled, then why would Americans be against government central planning when all is rosy?  Do the rules of economics not apply during downturns?

If we can agree that recessions are the result of resources being improperly allocated, then we can also agree that the only way to return to economic health is to allow for their reallocation according to the market.  This involves allowing nonproductive business ventures to go belly-up, prices to naturally fall where they have unjustifiably risen and reduction in the size of government allowing resources to be released to entrepreneurs to reverse the ills of the artificial boom and spur growth.  All measures that impede the natural cleansing of an economy will only ensure pain and suffering like that witnessed over the last few decades in Japan.  Harding had things right and it would do our lawmakers good to follow his lesson: central planning and government control creates problems; innovative Americans are the only ones who can solve them.

The Audacity of O

February 10, 2010 Leave a comment

Just another example of Obama administration arrogance — and it’s not as if I’m a Palin fan: 

 Update:

And more…

Categories: Gibbs, Obama, Sarah Palin

Quote of the Day

February 7, 2010 Leave a comment

From George Gilder’s, The Israel Test:

“The envy of excellence leads to perdition, the love of it leads to the light.”

Timothy Geithner’s Famous Last Words?

February 7, 2010 Leave a comment
(thanks to Big Hollywood for this)

From Bloomberg:

Treasury Secretary Timothy F. Geithner said the U.S. is in no danger of losing its Aaa debt rating even though the Obama administration has predicted a $1.6 trillion budget deficit in 2010.

“Absolutely not,” Geithner said, when asked in an ABC News interview broadcast today whether a downgrade is a concern. “That will never happen to this country.”

The U.S. plans to rein in the deficit once the labor market recovers, Geithner said. In the short run, that means focusing on ways to “make sure that this economy is growing again,” he said. The administration says the deficit will shrink over the next four years as more Americans find jobs and the economy accelerates.

“This is within our capacity to do,” Geithner said.

Where to begin?  First off, I have long believed that Tim Geithner is in fact the fall guy for the economy in the Obama administration.  He has been involved with the bailouts from day one including perhaps a criminal one with AIG, come off as smarmy and weaselly in testimony and been perceived as less competent and well-liked than Bernanke in the court of public opinion.  If I had to guess, when it becomes clear that we are stuck in the economic doldrums (probably closer to the 2010 elections), Barack Obama will fire Geithner and trudge out a man with more panache and credibility, likely Paul Volcker.

On the substance of Geithner’s comments, that anyone in this administration can actually believe that the economy is going to accelerate and the deficit will shrink over the next four years is laughable.  Even if you had breakneck economic growth, and there are absolutely no signs of that on the horizon, the deficit is still growing at an exponential rate, and Congress has shown no signs that it is going to take the steps to deal with the most bloated line items — namely entitlements.  The most expensive parts of our budget are considered sacred, and for a politician to touch them would be considered a sin.

How could Geithner be right that we will never lose our rating?  Well, the ratings agencies are US companies, granted an oligopoly by the state, so it is possible that government could threaten them were they to consider downgrading us.  In this scenario we could have a de facto downgrade however if yields spike up in the bond markets on US debt with Treasuries trading effectively as if we have been downgraded.  Another scenario is that the government builds false demand (or an artificial “bid” in trader lingo) to keep the yields on our debt low by either pressuring the primary dealers to continue to gobble up our bonds (and then at times selling them back to the Fed shortly thereafter), threatening foreign nations to prop us up or creating some kind of incentive to get Americans to invest in Treasuries.  Otherwise, I don’t see how America can be considered fiscally Aaa, but then again the ratings agencies rate a lot of junk Aaa.  They can in fact put lipstick on a pig.