Stimflation: Tidal Wave of Debt to Hit America

by Ernest Istook
Human Events

Trickle-down economics are out. The tidal wave is in -- a tidal wave of new spending. And new borrowing.

In his Tuesday night address to Congress and the nation, President Barack Obama blithely ignored the elephant in the room. While outlining his policy dreams, he glossed over the impact of the massive borrowing required to finance them.

The likely consequences of this borrowing include: inflation (and possibly, hyperinflation); the choking off of private sector borrowing (because government soaks up so much available credit); and excessive dependence on foreign money. Nations that lend money to a cash-strapped Uncle Sam will want to dictate terms including not just higher interest rates, but also changes to our foreign policy.

This is “stimflation.” Stimflation is massive inflation created when government spends too much, under the pretext of stimulating the economy.

Not even enormous tax hikes can cover the new spending Obama outlined, much less cover the deficit that he inherited and promptly doubled. Being an excellent salesman, the president never mentioned the price of what he was selling. Those details will trickle out in the next few weeks.

When spending exceeds tax revenues, government must borrow or crank up the printing presses. Or both. Last weekend, Secretary of State Hillary Clinton urged the Chinese to continue lending money to the U.S. government -- a message she’ll likely deliver to other nations also. While China holds $696 billion in Treasury bills, the total amount America owes to all foreign nations now exceeds $3 trillion. Our dependence on foreign oil is nothing compared to our dependence on foreign money.

Like any overextended debtor, we may find it harder and harder to convince other nations to keep lending to us -- especially as they watch our spending and the national debt soar to new heights. International credit is drying up as other nations spend on their own needs -- just at the moment that America must increase its borrowing to pay for the stimulus and the latest round of government bailouts. Interest rates paid for Treasury borrowing have begun to increase as our new borrowing climbs faster than ever before. The stimulus bill authorized Treasury to borrow $12.1 trillion -- a trillion more than the old debt limit. Foreign investors are growing wary of our ability to keep making payments, which last year included $454 billion in interest alone.

As Michael Goodwin wrote in the New York Daily News, “Hillary Clinton must have swallowed hard before setting foot in Beijing this week. More accurately, it was her knee that touched the ground, for Clinton practically begged China to let us get even deeper into hock.”

The Heritage Foundation’s J.D. Foster says, “The China ATM has dispensed over a trillion dollars to the United States in this decade. But now Beijing faces serious troubles at home. How long will it be willing to keep shipping hundreds of billions of dollars a year to an increasingly suspect customer?”

Because most of our debt is short-term, it must be re-borrowed constantly. Our Treasury issued or renewed over $10 trillion in debt during fiscal 2008. This roll-over debt is an ever-hungry beast that must be fed constantly, making us susceptible to sudden swings in what lenders require, including what interest they charge. Lenders must be constantly reassured and persuaded that the U.S. government is the best place to invest. As our Treasury borrows more, especially when it must offer higher interest rates, it dries up the pool of credit available for homes and businesses. Alex Adrianson of the Heritage Foundation writes:

“A tidal wave of deficit spending by the U.S. government is already increasing the costs of borrowing, retarding economic recovery, and confirming again a key contention made repeatedly by critics of Keynesian-style stimulus plans: That government spending, on net, does not add to the economy. The more government borrows to finance its spending, the less capital is available to be invested in the private economy.”

President Obama took note of the private sector credit crunch on Tuesday night. “Credit has stopped flowing the way it should…,” he said. “With so much debt and so little confidence, these banks are now fearful of lending out any more money to households, to businesses, or to each other. When there is no lending, families can’t afford to buy homes or cars. So businesses are forced to make layoffs. Our economy suffers even more, and credit dries up even further.”

What’s missing from Obama’s analysis? Any recognition that excessive government spending has been a prime cause of this credit crunch.

Which brings us to Option B: “With borrowing so problematic, why not just shift the Treasury’s printing presses into overdrive?”

The Wall Street Journal’s George Melloan predicts that, once borrowing becomes too expensive,
“The Obama administration and Congress will call on Ben Bernanke at the Fed to demand that he create more dollars -- lots and lots of them. . . . And what will be the result? Well, the product of this sort of thing is called inflation. . . . We learned that in the late 1970s, when the Fed's deficit financing sent the CPI up to an annual rate of almost 15%. That confounded the Keynesian theorists who believed then, as now, that federal spending "stimulus" would restore economic health….

As the global economy slows and Congress relies more on the Fed to finance a huge deficit, there is a very real danger of a return of stagflation. I wonder why no one in Congress or the Obama administration has thought of that as a potential consequence of their stimulus package.”

Imagine the negative impact on jobs if interest rates climb to the high double-digits of the 1970s.

Melloan and others are describing the impact of spending decisions already made. The bailouts. The stimulus. Yet to come are the bloated $410 billion “omnibus” bill, introduced this week.

The far greater costs of a cap-and-trade tax on most energy. The higher taxes. And the rest of the left wing agenda speeding through Congress and the White House. They will add to the tidal wave of borrowing that is about to inundate us and drown many.

Some will see a silver lining because inflation will push back up the nominal value of houses and stocks. But the buying power diminishes, and mortgages with adjustable rates will re-set to reflect higher interest.

Maybe it’s time that amusement parks should get federal funds, too, because we’re in for a government-sponsored roller coaster ride.

Ernest Istook calls himself a "recovering Congressman" from Oklahoma. He is now a Distinguished Fellow at The Heritage Foundation and chairs the National Advisory Board for Save Our Secret Ballot, www.SOSballot.org

Update from Dave Ramsey on the Economy

I’m tired of hearing all the gloom and doom coming from the media about the economy and unemployment—I bet you are, too! Let’s take a minute to look at the true reality of the situation and what we can do about it.

Yes, many people have lost their jobs and houses. You may be one of them. But guess what? People have lost their jobs and houses even in a bull market. About 93% of people are still employed. That is pretty good! I was alive in the 1970s when unemployment hit double digits, and we’re nowhere near that right now! I’m not making light of the fact that some people are struggling; I’m just putting the situation in the proper perspective.

Even though you may be currently unemployed, that doesn’t mean you have to participate in the recession. People like me who have chosen to not participate acknowledge the reality of a slow economy and suffering people. However, we have decided that we’re not going to form our lives around the negativity coming out of the media and government. We’re intensifying our efforts and going to have the best year of our lives in spite of things slowing down.

Some people who find themselves unemployed will go into new careers or start their own businesses where they have the best year of their lives—professionally, financially and emotionally. Their current job losses are actually blessings in disguise. They believe this and are formulating game plans based on it. I guarantee there are men in their garages right now starting their own mechanic shops. The next Mary Kay Ash is writing up a business plan for new products she’s just created. College students are developing “the next best thing” in their dorm rooms as you are reading this. This is reality!

So think about your skills and interests. How can you leverage those passions into something you enjoy doing every day while earning money for it? If you haven’t lost your job but dread going to work, maybe it’s time to fire your employer and go in a new direction. When you have a game plan for your money and career, you will have a sense of empowerment because you aren’t a slave to the lender (or employer).

When employers start hiring because they believe their businesses will grow, recessions end. Many who have stopped hiring a healthy amount have been paralyzed by fear. They’ve lost hope. People who continue going about their lives in normal ways (without being irresponsible and buying stuff they can't afford) believe in the future. It’s called hope.

You can have fear or hope. It's your choice.

I choose hope.

Seven action steps if you’ve lost your job (or think you might)

My Email to Dave Ramsey concerning VistaPrint

Since Dave Ramsey receives hundreds of emails a day from listeners, I thought I would post my email to daveonair in case he doesn't use it in his radio show.

"Dave:

I just found myself as a victim of the VistaPrint scam and I want to make your listeners aware of.

A friend of mine gave me his business card and let me know that they had a promotional offer for 250 free business cards - you just pay the shipping. Since I am starting up an internet business, I thought it would be something to check into so I went to their site and, sure enough, a promotional offer for 250 free business cars - you just pay the shipping.

I read over the fine print to make sure that I wasn't signing up for any monthly services that I don't need and to make sure there was not a "catch," as I wanted to make sure this was an above-board operation.

Seeing no subscriptions or anything out of the ordinary, I placed the order. A week later I received my 250 business cards and let me tell you - they looked sharp. The $5.45 was deduted from my account and I got what I paid for.

While looking at my bank statement today, I noticed the following: 64059 DDA PURCH AP9*VISTAPRINTRWRD 888-243-6185 CT US 905527000093 with a deduction in the amount of $14.95.

I called the number and cancelled, but then did an internet search to see that others have the same problem.

VistaPrint might be a reputable company for their printing, but the fact that they allowed 3rd parties to harvest bank accounts and have numerous class action lawsuits (including one that I am probably going to join) tells me now to STAY AWAY.

Here is the response that I emailed them: "My account was debited the $5.45 for the order I placed in January. On 25 Feb 2009, I received a $14.95 charge for Vista Reweards which I did not authorize. Please credit my account the $14.95 or I will lodge formal complaints with the Federal Trade Commission, Better Business Bureau and my Attorney General. Furthermore, if there is one more deduction from my account I will contact my attorney."

I will probably not see the $14.95 back and will contact the bank tomorrow to make sure they don't authorize any more debits.

Dave, I just paid a stupid tax for not checking them out further. While the amount is miniscule, VistaPrint is not acting on principle and I encourage your listeners to stay away."

This day in history - the Legal Tender Act

It was 147 years ago today...

The U.S. Congress passes the Legal Tender Act, authorizing the use of paper notes to pay the government's bills. This ended the long-standing policy of using only gold or silver in transactions, and it allowed the government to finance the enormously costly war long after its gold and silver reserves were depleted. The Legal Tender Act allowed the government to print $150 million in paper money that was not backed by a similar amount of gold and silver.

Many bankers and financial experts predicted doom for the economy, as they believed that there would be little confidence in the scheme. There were also misgivings in Congress, as many legislators worried about a complete collapse of the nation's financial infrastructure. These notes, called "greenbacks," worked much better than expected. It allowed the government to pay its bills and, by increasing the money in circulation, greased the wheels of northern commerce. The greenbacks were legal tender, which meant that creditors had to accept them at face value.

The same year, Congress passed an income tax and steep excise taxes, both of which cooled the inflationary pressures created by the greenbacks. Another legal tender act passed in 1863, and by war's end nearly a half-billion dollars in greenbacks had been issued. The Legal Tender Act laid the foundation for the creation of a permanent currency in the decades after the Civil War.

GOP Gov. Jindal calls Obama's plan irresponsible

By CHARLES BABINGTON
Associated Press Writer

WASHINGTON – Republican leaders continued their attacks on President Barack Obama's handling of the economy Tuesday, calling it irresponsible and certain to increase taxes and federal debt.

Responding in advance to Obama's televised speech to a joint session of Congress, top Republicans said the president relies too heavily on spending, and not enough on tax cuts, to try to revive the gasping economy. They said they want to work with Obama, and sometimes blamed congressional Democrats more than him. But their criticisms were sharp and plentiful.

"The way to lead is not to raise taxes and put more money and power in hands of Washington politicians," Louisiana Gov. Bobby Jindal, who gave the Republican Party's official response, said in excerpts released early. The massive economic stimulus bill recently enacted by Obama and congressional Democrats, Jindal said, will expand the government, "increase our taxes down the line, and saddle future generations with debt."

"It's irresponsible," said Jindal, who is eyeing a presidential bid in 2012.

The tone of the Republicans' response was in keeping with their nearly unanimous opposition to the $787 billion economic stimulus bill, which was backed by only three Republicans in the Senate and none in the House. Some Democrats and independents think the Republicans are blundering and misreading most Americans' sentiments about the need for massive government action to help the economy.

In the latest New York Times/CBS News poll, about three-fourths said Obama was trying to be bipartisan, and almost as many faulted the response of Republican officials, which was seen as politically motivated.

Despite such findings, GOP lawmakers say they believe they will be proven right in the long run.
House Republican leader John Boehner of Ohio said Tuesday that Republicans want to help Obama find "responsible solutions to the challenges facing our nation, but thus far congressional leaders in the president's own party have stood in the way."

Boehner, Jindal and other Republicans repeatedly accused Democrats of wanting to raise taxes, but the Obama-backed stimulus package has extensive tax cuts.

Jindal acknowledged that to some degree, Republicans deserved the drubbing they took in the last two national elections.

"Our party got away from its principles," he said. "You elected Republicans to champion limited government, fiscal discipline, and personal responsibility. Instead, Republicans went along with earmarks and big government spending in Washington." But that is changing, he said.

Taking advantage of his moment in the national spotlight, Jindal publicized a Web link Tuesday (http://www.bobbyjindal.com/sotu/) allowing respondents to receive early excerpts of his planned televised response, and to donate to his political organization. Jindal also collected their e-mail and postal addresses, which could prove handy in a presidential race.

After String of Quick Loans, Obama Plans to Shrink National Debt

The following was posted by Belinda Jackson at the personalmoneystore.com. I notice a lot of inaccuracies in it, which I will highlight below each section in red.

President says he’ll cut deficit by two-thirds
After he handed out billions of dollars in quick loans to banks, auto retailers and the nation as a whole, President Barack Obama’s next goal may surprise you. He plans to cut the annual deficit by two-thirds in the next four years.

It is going to be hard to cut the annual deficit by 2/3 in the next four years when you added tons of money to the debt and compound interest kicks in, which shrinks the available funds in the budget each year, as the interest on the National Debt is a mandatory expenditure. Unless severe spending cuts kick in, which I don't believe will happen with this administration, Obama will never be able to achieve that target.

Big plans
At the beginning of Obama’s presidency, the national debt was $1.2 trillion. That amount will rise to $1.5 trillion after initial spending from the quick loans and other programs in the economic stimulus package. However, Obama’s economic projections say that by the end of 2013, the deficit will be down to $533 billion.

At the beginning of Obama's presidency, the national debt was $10,628,881,485,510.23 according to the U.S. Treasury Department's Bureau of the Public Debt (www.treasurydirect.gov). This is a far cry from $1.2 trillion. We haven't had a $1.2 trillion debt since the 1980s. It is unclear as to how much the debt will rise due to compound interest, recurring deficits in the ensuing years, loss of GDP due to the recession and loss of tax revenue due to high levels of unemployment and shrinkage in business output.

How to slash a deficit
The major components of Obama’s plan are Iraq troop withdrawal and higher taxes on the wealthy. Obama says he’ll release his budget outline Thursday. This outline will also make clear how he intends to deliver campaign promises on health care and energy policy, according to the New York Times.

Funding the Iraq war has accounted for a huge percentage of the nation’s spending, and Obama says his troop withdrawal plan will save about $90 billion.

Increasing taxes on the wealthy will not result in a net gain of revenue for the government. Government revenue will actually DECREASE as the "wealthy" create and use tax shelters, park their money in tax free investments (municipal bonds instead of U.S. Treasuries) or just keep it in the bank.

The Iraq War money is a lot less than the interest on the National Debt. Since the beginning of FY 2009, the taxpayers were on the hook for $138,450,208,820.69, which is much larger than the $90 billion savings in his troop withdrawal plan. In FY 2008, taxpayers paid $451,154,049,950.63 in interest on the debt, which will only go up with the Bush-Paulson bank bailout, and Obama's Automotive Bailout and Stimulus packages.

A few new taxes
Obama proposes taxing income from investments in hedge funds and private equity partners at ordinary income tax rates. Right now those types of income are taxed like capital gains, at the rate of 15 percent. His policy would consider those funds income, and thus they could be taxed up to 35 percent, which is what the most wealthy pay in income tax.

See section above regarding taxation on the wealthy.

Fewer tax cuts
During Obama’s campaign, he said he would immediately get rid of the Bush tax cuts on income, dividends and capital gains. However, because of the economy crisis, he plans to instead let them lapse, as scheduled, after 2010 for individuals who make more than $250,000 a year.

Tax cuts stimulate economic growth. Allowing the tax cuts to expire will only make the recession worse due to a further slow-down in growth. That, along with the increased borrowing and spending could help push the current recession into a depression.

Spending cuts
Obama’s proposal will also include spending cuts. One program he proposes spending less money on is Medicare Advantage, which subsidizes insurance companies that cover seniors who could acquire health coverage directly from the government.

He plans to scale back spending on on private contractors. This type of spending went up considerably during the Bush administration. Many of the cuts Obama proposes include cutting spending on private contractors used for defense purposes.

The spending cuts are a starting point but definitely don't go far enough. The pork barrel spending in the stimulus plan would have been a better starting point. Eliminating waste, fraud and abuse from ALL government agencies would go even further. I'll take the spending cuts as long as they are true cuts - not the political definition of a cut being a reduction in the increase in growth of a government program. If indeed, they are true cuts, I'll support them.

Campaign promises
During his campaign Obama said he would double the United States’ spending on foreign aid. However, given the stimulus package and the economic hardship the nation faces, Obama concedes he will have to scale back that promise.

The economy has been in a recession since shortly after he started campaigning. Why make these promises in the first place? I think foreign aid should be slashed until we get government spending under control.

Healthy promises
However, Obama will not scale back his promise to make sure the 46 million Americans who don’t have health insurance will be covered. He says he can achieve this promise without adding to the deficit thanks to cost-saving changes to health care and by raising revenues.

There are better ways that have been pointed out in the public debate, largely by the minority party. All President Obama has to do is embrace them and implement them. Government take over of health care will not solve the problem, it will make it worse. This will add billions more to the National Debt, which will not help his goal of cutting the deficit in half in four years.

Energetic promises
Obama says his energy policy will create new revenue by 2012. He plans to charge companies for permits for greenhouse gas emissions, which would be the main revenue generator. Obama assumes that companies will pass the cost of the permits on to customers, so he says the government will use most of the revenue to offset higher utility bills and related expenses. The remaining revenues would go toward developing alternative energy.

If Obama assume that companies will pass the cost of the permits on to customers, and he will use the government revenue to offset the higher utility bills, then it seems to me it is a waste of time and money. It sure doesn't solve any problems and creates more for both energy producers and consumers. He should leave well enough alone.

Closing arguments
Obama says is strategy is ”investing in what we need, cutting what we don’t, and restoring fiscal discipline.”

“We can’t generate sustained growth without getting our deficits under control,” he added.

After all the quick loans being handed out, it’s nice to see some debt management kicking in.

He's right - we cannot generate sustained growth without getting our deficits under control. That may be his rhetoric right now but his policies, starting with the $35 billion bailout package for the Big 3 automakers, $787 billion in the stimulus bill, further tax increases on the wealthy, increasing the tax on energy companies, and I'm sure he'll think of adding more to the already high 31% corporate income tax, it not getting deficits under control. Add in compound interest and we are going to have even a larger gap. Then what?

In conclusion, we only have to look at Iceland's Bankruptcy, the huge debt Spain incurred with the Spanish Armada, England's near economic collapse, the Weimar Republic in Germany after World War I and Japan's "missing decade" among others to see that these policies will not solve anything but make matters worse. It truly is time for some fiscal sanity.

Obama pledges to slash deficit — after increase

(So just how EXACTLY does this rationale work? You increase borrowing to slash the deficit? I think Congressional Republicans need to hold him at his word if he wants to half the deficit in four years - except they need to go a step further by using CBO pre-inauguration projections which King Banian of SCSU Scholars denotes would have been only 147 billion instead of 555 billion.)

By LIZ SIDOTI
Associated Press

WASHINGTON – Urging strict future restraint even as current spending soars, President Barack Obama pledged on Monday to dramatically slash the skyrocketing annual budget deficit as he started to dole out the record $787 billion economic stimulus package he signed last week.

"If we confront this crisis without also confronting the deficits that helped cause it, we risk sinking into another crisis down the road," the president warned, promising to cut the yearly deficit in half by the end of his four-year term. "We cannot simply spend as we please and defer the consequences."

He said he would reinstitute a pay-as-you-go rule that calls for spending reductions to match increases and would shun what he said were the past few years' "casual dishonesty of hiding irresponsible spending with clever accounting tricks." He called the long-term solvency of Social Security "the single most pressing fiscal challenge we face by far" and said reforming health care, including burgeoning entitlement programs, was a huge priority.

Wall Street seemed unimpressed by all the talk. The Dow Jones industrials dropped 251 points for the day.

Obama goes before Congress and the nation Tuesday night to make the case for his agenda and his budget plans, which the White House is to release in more detail on Thursday.

On Monday, he sought to prepare people for tough choices ahead.

He summoned allies, adversaries and outside experts to what the White House characterized as a summit on the nation's future financial health one week after triumphantly putting his signature on the gargantuan spending-and-tax-cut measure designed to stop the country's economic free fall and, ultimately, reverse the recession now months into its second year.

At the same time, federal regulators announced a revamped program to shore up the nation's banks that could give the government increasing ownership. It was the administration's latest attempt to bolster the severely weakened banking system without nationalizing any institutions, which the White House has said it does not intend to do.

Obama said there would be another summit next week on health care reform. "It's not that I've got summititis here," he added wryly.

By the president's account, the administration inherited a $1.3 trillion deficit for the current fiscal year from the Bush administration — that's the figure Obama says he'll cut in half — and the stimulus law, coupled with rescue efforts for ailing automakers, the financial industry and beleaguered homeowners will raise this year's red ink to $1.5 trillion.

The administration hopes to trim the deficit by scaling back Iraq war spending, raising taxes on the wealthiest and streamlining government.

"We are paying the price for these deficits right now," Obama said, estimating the country spends $250 billion — one in every ten dollars of taxpayer money — in interest on the national debt. "I refuse to leave our children with a debt that they cannot repay."

As an example of a purchasing process "gone amok," the president said he had ordered a thorough review of his new fleet of Marine One helicopters, now far over budget. He was asked about the fleet by former presidential rival John McCain at the end of the White House meeting.

"The helicopter I have now seems perfectly adequate to me," Obama said, to laughter. "Of course, I've never had a helicopter before. So, you know, maybe I've been deprived and I didn't know it."

Earlier, Obama met with Republican and Democratic governors who are poised to benefit from his unprecedented emergency economic package. He told the chief executives, attending a three-day National Governors Association meeting in Washington, that he would begin distributing $15 billion to their states within two days to help them with Medicaid payments to the poor.

The recession has strapped state budgets, in particular in regard to the Medicaid program that is jointly underwritten by states and the federal government. In total, states will eventually receive $90 billion for Medicaid from the new law.

One month into office as the economy continues its downward spiral, Obama is seeking to balance twin priorities: turning around dismal conditions with a huge injection of spending while lowering huge budget deficits. With his re-election race just a few years away, he also has an interest in avoiding being labeled as a big-government, big-spending Democrat.

The White House meetings opened a jam-packed White House week that includes a State-of-the-Union-style address to Congress Tuesday night and the president's first budget proposal on Thursday. A common thread: addressing current economic turmoil while controlling the country's long-term costs.

"This will not be easy," Obama told his White House audience, which included congressional leaders, 2008 GOP presidential nominee McCain, and Republican Sen. Judd Gregg of New Hampshire, who recently backed out as Obama's commerce secretary.

After Obama spoke, attendees broke into five groups to brainstorm how to address costly areas including military weapons, Social Security, health care and tax reform.

During one, Rep. Henry Waxman, D-Calif., said, "Our deficit really cannot be controlled until we figure out how to deal with health care costs." At another, House Republican leader John Boehner of Ohio proposed raising the Social Security retirement age to 70 over a number of years.

Afterward, Obama emphasized areas where he said there was agreement and consensus on moving forward in a bipartisan way, including that the country must ensure people have retirement security, that the tax process must be simplified and that the existing budgeting process isn't working. He also directed his team to pull together a final report from the sessions in 30 days.

Effects of the Pelosi-Reid-Obama Stimulus Plan

Enuff said!

Bail 'em Out?

No additional words are necessary!

Official: Obama wants to halve budget deficit

By LIZ SIDOTI
Associated Press Writer

WASHINGTON – Barack Obama wants to cut the federal deficit in half by the end of his first term, mostly by scaling back Iraq war spending, raising taxes on the wealthiest and streamlining government, an administration official said Saturday as the president worked to finalize his first budget request.

Obama's proposal for the 2010 fiscal year that begins Oct. 1 projects that the estimated $1.3 trillion deficit he has inherited from former President George W. Bush will be halved to $533 billion by 2013. That's a difference of 9.2 percent of the overall economy now vs. 3 percent in four years.

"We can't generate sustained growth without getting our deficits under control," Obama said in his weekly radio and Internet address that seemed to preview his intentions. He said his budget will be "sober in its assessments, honest in its accounting, and lays out in detail my strategy for investing in what we need, cutting what we don't, and restoring fiscal discipline."

He's expected to outline some broad themes of his budget request Monday at a White House summit on fiscal policy and touch on it during his first speech to Congress on Tuesday evening. He is slated to officially send at least a summary of it to Congress on Thursday, barely a week after his $787 billion economic stimulus plan becoming law.

Obama's budget also is expected to take steps toward his campaign promises of establishing universal health care and lessening the country's reliance on foreign oil.

The official, who spoke on the condition of anonymity because the president has not yet released his budget, said Obama hopes to achieve his deficit-reduction goal by generating savings as he follows through on three core campaign promises over the next four years.

He has pledged to wind down the Iraq war by withdrawing most combat troops within 16 months of taking office. He also has said he would let the temporary Bush tax cuts expire in 2011 for people making more than $250,000 a year, effectively raising taxes on those people. And, he has vowed to scale back spending and improve government efficiency by eliminating programs that don't work.

The budget projections suggest that Obama hasn't backed off of any of those priorities, despite relatively little movement on them and at least one misstep in his first month in office as he concentrated on lobbying for the economic stimulus plan and rescuing the housing, auto and financial sectors.

Pentagon officials still are trying to determine exactly how to scale back the U.S. troop commitment in Iraq. The president's sweeping economic plan didn't include any of the tax increases Obama, as a candidate, had said he would impose on wealthy taxpayers. And, Nancy Killefer, his selection for a newly created position charged with eliminating inefficient government programs, withdrew amid personal tax issues.

Cutting the deficit by half in a mere four years is a lofty goal at any time, let alone in such dire economic circumstances. The question is whether Obama can do it while also turning around a recession now well into its second year.

Obama has pledged to make deficit-reduction a priority both as a candidate and a president. But he also has said economic recovery must come first.

In his first month in office, he has overseen enormous amounts of spending aimed at stabilizing the economy, reversing the recession and heading off even more turmoil.

Last week, he signed into law the $787 billion stimulus measure that is meant to create jobs but certainly will add to the nation's skyrocketing national debt. He also is implementing the $700 billion financial sector rescue passed on Bush's watch; about $75 billion of it is being used toward Obama's plan to help homeowners facing foreclosure. At the same time, the administration is weighing requests by General Motors Corp. and Chrysler LLC for an additional $21.6 billion. The ailing automakers already have received a combined $17.4 billion in federal loans.

Yet, even as he's spending a ton of taxpayer money, Obama also is pressing the need for getting "exploding deficits" under control.

The nonpartisan Congressional Budget Office says that this year's budget deficit will be at least a record $1.2 trillion — about two times that of the year before. That total includes financial bailouts and rescue plans Congress approved since last Oct. 1, the start of the government's budget year, but not Obama's hefty stimulus package that's now law.

Some private economists are forecasting that the budget deficit for the current year will hit $1.6 trillion. And, the Treasury Department has said that the recession and massive costs for the $700 billion financial bailout have pushed the federal deficit to an all-time high for the first four months of the budget year.

Obama's budget director, Peter Orszag, told lawmakers recently that even after the economy recovers, annual deficits could reach $750 billion or so and steadily exceed $1 trillion by the end of the next decade. And, Obama himself has said, without decisive action, "trillion-dollar deficits will be a reality for years to come."

The Inconvenient Debt - Glenn Beck on the Valuation of Currency

Another MUST SEE video!

Rick Santelli's Squawk Box 'Chicago Tea Party' Video

This is a MUST SEE clip. Here is the Rick Santelli video calling for a "Chicago Tea Party." If they build it, I will come. Will you?

Inside the Auto Repossession Business

Due to the tough economic times that we are facing, I decided to post this article about the auto repossession business that was written by Ralph Thomas. While his article is about how much money a person could make if they were in the business, I thought it worthy of posting to let you know how the business works in case you find yourself on the short end of a repossession and they are coming after you. I'm not here to offer advice but merely pass on information. The only advice that I can give you is to pay your bills on time every time in order to avoid the repo man. Of course, if you did this, you wouldn't be in the situation where you were looking for repo information now, would you?

If you are facing a repossession - good luck! That's all the advice I can offer you. - Skydancer

By Ralph Thomas
Originally Appeared As A Business Opportunity Syndicated Article

The auto repossession business is a hidden market type of business which the general public knows little about. When we investigated this business we found a very healthy market from banks and loan companies who do not wish to repossess vehicles themselves. It is a billion dollar industry that every bank or loan company will use and most loan companies and banks us them quite often. There are some 5000 firms in the United States who are in the business working out of their homes and small offices. The great majority of them do no advertising and are not even listed in the yellow pages of the telephone book. There is no need. They simply contact every bank, auto dealership and loan agency in their area to obtain the work. There are three basic reasons why this business is such a money maker:

1) The volume of assignments from companies are relatively easy to obtain.

2) The fees charged compared to the amount of time it takes to perform the repossession is very high. A repossession can take anywhere from fifteen minutes to half an hour. However, the fees charged for such a service is between 150 to 250 dollars.

3) Once a client uses your service once, he will use you again and again. Some companies have as many as two or three dozen of such assignments to give out every month. Often times, three or four clients can give you more work than you can do.

In order for you to understand how this business works and how assignments are obtained, it is important to understand the hows and why of repo assignment to an independent agency. First, there are several different markets. They are:

BANKS
Most banks in the United States today do a great deal of business in auto financing. When loans are past due they usually go to the bank collection department. The people who work in this department sit at desks and make telephone calls all day long to people who are past due with their car payments. When problems occur, the account is given to the collection manager who makes a determination on what to do. In a great deal of these cases, the collection manager determines that the best solution is to repossess the car. Depending on how easy he thinks this will be, he might either have one of his collection agents repo the car or call in an outside repo agency. Some banks rely solely on outside agencies to do this kind of work. Other collection departments will attempt to repo a certain percentage of the easy ones and turn the rest over to a professional repo agency. Even a percentage of these usually end up in the hands of an outside repo man.

CAR LOAN COMPANIES
These loan companies work much like the banks do. However, they usually charge a higher interest than most banks and deal with a higher percentage of loans gone bad.

USED CAR LOTS
Thousands of used car lots can be found throughout America that do their own financing. They are usually dealing with people who can not otherwise obtain credit. The way a great deal of these operators make money is to charge the buyer a down payment equal to the what they paid for the car and finance the rest. Payments are usually made weekly by the buyer. A large percentage of loans go bad. The used car lot owner makes money by repoing the car, putting it back on his lot and selling it a second and third time. These used car lots have a great deal of repossessions but usually want a cut rate price.

NEW CAR DEALERSHIPS
People outside of this business would think that a new car dealership would not have that much of a problem with repos. However, they do have some. It generally occurs when something is found to be wrong with the loan papers and the banks or loan companies throw the liability back onto the dealership. This is called recourse. Another thing that happens is someone comes in and puts a down payment on the car. The check is written to the car dealership and the check bounces. Although new car dealerships do not have as many repos as loan companies, banks and buy-here-pay here car lots, they do have their share.

CAR RENTAL AGENCIES
There are independents and chains. When car rentals don't come back in, these agencies have big problems. They will need to jump on these cases right away. Most of the time, this will require a full scale location investigation in order to locate the renter.

PRIVATE CITIZENS
Every once in a while, a private citizen will sell off one of their autos and be paid with a bum check. Their only recourse is to call in a repo man. However, this type of market is usually only targeted by established repo agencies who have been in business several years and list their services in the telephone book.

There are other specialized markets in this business such as semi-truck rentals, semi-truck loans, motor boats, house boats, airplanes, and motorcycles. Usually airplanes and semi-truck repos go for about twice the normal charges.

REPO FEES

Repo fees seem to vary greatly within the United States and vary greatly from one type of market to another. The standard rate for a repo from a bank or loan company is about $200.00. The standard fee for a used car agency is about $100.00. The repo agency usually has a break down in the charges which might look something like this:


REPOSSESSION FEE: $150.00
DRIVER FEE: $45.00
CONDITION REPORT & PHOTO: $15.00
SKIP TRACE: 4 hours @ 25.00 per hour $100.00
INSURANCE: $15.00

But the basic repo fee is 150 dollars plus another 45 dollars for a driver fee. When a repo man picks up a car, he usually has to have someone drive him to the location. That is what this fee is for. He will also be required to produce an inventory and condition report. Some agencies also take a snapshot of the car which is included in the inventory and condition report. A great deal of repo cases require the repo man to first locate the subject although this is not always the case. Usually when you locate the subject, you have also located his car. The above total bill comes to $325.00 and repo specialists report they can do several of these assignments per day.

A great deal of the problems in auto repossession occur in the location of the debtor. There is a prospective technique employed by auto repossessors that is often referred to as backwards tracing. What the repo man does is look for vehicles with out of state or out of county tags on them. When he spots one he jots down the location of the car and the tag number. With the tag number he obtains a vehicle registration from state motor vehicle and does a title trace. What this tells him is, if the vehicle has a lien on it. If it does, it will give the name of the lending company. The lending company is then contacted to see if the vehicle is missing and needs to be repossessed. Many repo men report that they can obtain assignment to a repossession on three out of every twenty leads they perform a title trace on.

Dave Ramsey's thoughts on the Obama Stimulus

For Dave Ramsey's thoughts on the Obama Stimulus package, click here. You will be redirected to the Obama Alert blog for the complete story.

Venezuela Government Bonds Drop as Chavez Scores Voter Victory

By Laura Cochrane and Andrea Jaramillo

Feb. 16 (Bloomberg) -- Venezuela’s bolivar rose the most in a month on speculation President Hugo Chavez will take measures to offset a plunge in oil revenue after winning a referendum yesterday that eliminates term limits.

The bolivar jumped 2.7 percent to 5.65 per dollar in unregulated trading at 3:34 p.m. New York time from 5.80 on Feb. 13, traders said. It had slumped 4.3 percent over the past month amid concern that Chavez was putting off tax increases and spending cuts as he focused on winning the referendum, which allows him to extend his presidency beyond 2013.

“We’re not expecting Chavez to see the light and take a more pragmatic approach, but he will at least now be able to make the necessary adjustments to address the widening deficit,” said Edwin Gutierrez, who manages $5 billion of emerging-market debt, including Venezuelan securities, at Aberdeen Asset Management Plc in London.

Venezuelans turn to the unregulated market when they can’t get government authorization to buy dollars at the official rate of 2.15 per dollar. Chavez, who first took office a decade ago, has restricted currency transactions since 2003.

Barclays Capital Inc. said last week that the measures Chavez may take include the implementation of a financial transaction tax, an increase in the value-added tax rate, a devaluation of the official exchange rate and an increase in domestic gasoline prices.

No Immediate Plans

Finance Minister Ali Rodriguez said yesterday that the government doesn’t have any immediate plans to raise taxes or devalue the currency.

The 75 percent tumble in crude from a July record has throttled revenue in Venezuela, which gets more than 90 percent of its exports from oil. The plunge in oil has pushed the bolivar down from 3.38 per dollar in the parallel market six months ago.

The yield on the government’s benchmark dollar bonds due in 2027 rose 12 basis points to 18.6 percent, according to Bloomberg prices. The bonds’ price fell 0.35 cents to 51.54 cents on the dollar. Bond trading was light with U.S. markets closed, traders said.

The referendum, which allows Chavez to extend his drive to turn the oil-producing country into a socialist state, marked the second time in 14 months he sought to remove the limits that kept him from seeking unlimited re-election. The amendment carried with 54.4 percent of the vote to 45.6 percent, according to preliminary results, said Tibisay Lucena, president of the National Electoral Council.

‘Grey Political Scenario’

“It does present a grey political scenario: that Chavez will be there forever,” said Luis Costa, an emerging-market debt analyst at Commmerzbank AG in London.

The combination of Chavez’s political strategy and the plunge in oil is increasing investor concern about the country’s ability to pay its $46 billion of debt. Venezuela, the biggest oil exporter in the Americas, raised government spending to the equivalent of 36 percent of gross domestic product in 2007 from 23 percent in 1998, according to Standard & Poor’s.

Venezuela’s benchmark securities due in 2027 trade at a price that is about half their value of 99.2 cents a year ago.

“It’s an extremely shaky scenario to go long Venezuela bonds, especially with the prospect of oil trading in the low 30s,” Costa said.

In the first 10 months of the year the government had a 48 million bolivar ($22,354) budget deficit, according to the central bank. The budget report, based on information provided by the Finance Ministry, doesn’t include off-budget spending by the government’s National Development Fund or social spending by state oil company Petroleos de Venezuela SA.

‘Macroeconomic Weakness’

“Because of the macroeconomic weaknesses, social and political tensions could at any moment disrupt governance and oil shipments,” Benito Berber, an economist at RBS Greenwich Capital Markets, wrote in a report today.

The amendment allows Chavez, a former Army lieutenant colonel, to seek re-election as many times as he wants. The next presidential election is slated for 2012. Chavez, whose began his political career after leading a failed coup attempt in 1992, says he needs to rule beyond 2012 to carry out his “socialist revolution.”

Investors demand 18.05 percentage points more in yield on average to hold Venezuela’s dollar bonds rather than comparable- maturity U.S. Treasuries, according to JPMorgan Chase & Co. That’s more than four times the 4.24 percentage-point average yield spread for Brazil’s dollar bonds. Dollar-denominated bonds sold by Argentina, which defaulted on debt in 2001, carry yields on average 16 percentage points more than Treasuries, JPMorgan data show.

S&P’s Negative Outlook

S&P lowered Venezuela’s debt rating outlook to negative from stable on Dec. 10, saying the referendum will cause Chavez to put off “needed adjustments in economic policies.” S&P rates Venezuela’s foreign debt BB-, three levels below investment grade. Moody’s Investors Service, which rates Venezuela’s debt five levels below investment grade at B2, removed it from review for a rating increase on Jan. 15.

“We don’t expect any rating downgrade out of this,” Costa said.

To contact the reporters on this story: Laura Cochrane in London at lcochrane3@bloomberg.netAndrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

Nigeria Increasing National Debt

by Les Leba
All Africa.com

The Senate, on January 21, 2009, brushed aside the initial opposition from its ranks to approve President Yar'Adua's request to borrow the naira equivalent of $500m (in bonds) from the international capital market, to be repaid at the current naira exchange rate in 2019. Indeed, when the proposal was initially tabled inYar'Adua's 2009 budget presentation to the National Assembly (NASS) in December last year, the naira equivalent of this loan was N60bn.

However, in view of the 'deliberate' devaluation of the naira in the last few weeks, the naira equivalent may have increased to N75bn. If the economy continues to be mismanaged and our export earnings are as usual stolen by treasury looters or frittered away on white elephant projects, it would be fair to assume that we may actually be repaying a capital sum of over N150bn in ten years time, if the naira depreciates by about 100% to N300/$1. This may not be an unusual depreciation, if we recognize that the naira was barely N80/$1 up till 1998!

In the event that our government is currently paying about 10 per cent interest on its short-term borrowings with treasury bills, we may assume that the fresh long-term loan would attract a minimum annual servicing cost of over 10 per cent. If the current rate on Federal Government naira bonds is also anything to go by, the cost of borrowing may approach 15 per cent per annum in spite of the availability of international multilateral agency loans, which attract much less for sovereign borrowings! We recall that Nigeria exited its debt burden with the Paris and London Clubs after shelling out over $13bn of reserves and at least two former Finance Ministers (in spite of their IMF antecedents) have described this payout as a simplistic and 'primitive' financial strategy.

Other notable analysts also queried the value of the initial loan burden insisting that the government had never been able to show how the loan was accumulated in the first place, and maintained that the atrocious and heavy penalty charges were inexplicable. Worse still, no one could identify the successful projects, if any, that the loans had funded. It was against this unsavoury background that the Senate Committee on Appropriation, rightly, some would say, objected in December 2008 to Senate approval for a fresh loan application for $500bn by Mr. President. In support of the veracity of this observation, we recall the loans unilaterally consummated by the former President from the Republic of China for the power sector and the reengineering of the Nigerian Railways. On the domestic front, we also recall the rapid accumulation of local debts, particularly through bond issuance by almost N2,000bn within four years, without recourse to NASS approval. There is practically nothing to show for these loans, and it seems that these loans were incurred specifically for non-tangible purposes with dubious and immeasurable yardsticks!

Indeed, the Debt Management Office (DMO) had indicated in earlier offers that the loan objective was to deepen or create a market for government long term borrowings, and also set a benchmark for other medium to long term loans in the capital market. In any case, since both objectives cannot account for the actual spending of the huge sums of monies borrowed, the mind boggles as to what ends the funds were actually applied. It certainly could not be for funding federal budget deficits, as our revenue from all sources exceeded our expenditure for the past four years. One can only imagine that the funds were simply stored idly in CBN vaults or in accounting records in spite of annual interest payments of between 12-17 per cent for such borrowings, just for the joy of creating a benchmark price and creating a market for long term government securities! Not surprisingly, the purposes stated by the Federal Ministry of Finance (FMF) for seeking NASS approval for its $500m or N75bn loan come from the same template for government's domestic bonds in the recent past; after all the former Debt Management Office boss is now the Minister for Finance!

However, the Senate Committee on Appropriation in a spirited attempt to do the right thing noted as follows in its response to the Executive request: "...the ultimate goal for the implementation of any public sector programme or project is to enhance the welfare of the citizenry...A major benefit allegedly derivable from this loan is that it will provide a benchmark for private sector borrowing. In our view, the Federal Government of Nigeria (FGN) needs to prove this assertion beyond any doubt; we should note that the FGN did not specify the beneficiary projects; that important information must be provided. It is also obvious that the loan would be sourced at market rates, which should be higher than for concessionary loans normally preferred for financing of public sector projects. The net benefit of this market-based loan must be convincingly articulated. FGN needs to demonstrate concisely the extent to which the procurement of the loan would reduce the cost of borrowing by Nigerian-based private sector operators from the International Capital Market (ICM). Both official and market sources of fund base their decision mainly on the Country Risk Assessment (CRA) reports. We are yet to decipher how procurement of the sovereign loan as proposed will reduce Nigeria's overall CRA. FGN needs to clarify this relationship."

As noted earlier, the nation has never prudently utilized external loans for the public sector, since the loan procured in 1957 for the construction of the national rail network. FMF should, therefore, demonstrate the fundamental institutional improvements towards achieving the stated benefits of this and other forms of external borrowing. Research evidence has adjudged the debt sustainability criteria being employed by FMF/DMO as misleading and lacking any theoretical underpinning. It is also geared towards a nation's perpetual dependence on loans rather than real development. Recourse to borrowing for development financing should be a stop-gap measure, and not a perpetual life support facility.The National Economic Empowerment and Development Strategy (NEEDS) places much emphasis on Public Private Partnership (PPP) as a major source of development financing. The continued emphasis on (especially) external borrowing by the public sector negates this orientation, and calls to question our real commitment towards evolving a private sector-led market-oriented national economy. Regrettably, in spite of the serious and powerful observations by the Appropriation Committee against the $500m loan, the Senate remained unmoved and never attempted to resolve the fundamental issues raised by its own Committee. Indeed, the Senate took cover for their action by insisting that further debate or evaluations of the loan application had been overtaken by the Senate's hastened approval of the totality of Mr. President 2009 budget within 10 days or so in December 2008, and noted that the budget approval had consequently covered the loan application which was embedded in the budget!

In this same vein, Senate's approval for the 2009 budget may also be seen as a blanket approval for the Federal Executive "to take the extraordinary step of exceeding , in the short term, the deficit target we set for ourselves under the Fiscal Responsibility Act 2007. However, we remain committed to reverting to a more conservative and sustainable fiscal deficit of 3%, or lower, in the medium term, consistent with international best practice." In plain language, what Yar'Adua is asking in the above excerpt from the 2009 budget is permission to borrow more money at his discretion above the acceptable limit of 3% of GDP without further or subsequent application for NASS' approval for such borrowings.

In the event that such further borrowings are not tied to any real application, and the prevailing tradition of waste and corruption, not to mention the self-serving habit of MDAs of shoring up unspent funds for personal gratification, it would be a great disservice to the nation, if the NASS gives Mr. President such an open cheque! Indeed, the lamentation of the Senate Committee with regard to sidetracking by the Executive even in a civilian dispensation from performing its constitutional oversight evaluation and approval for federal loans would have become crocodile tears!

Obama the deficit hawk

Posted by Dan Spencer

http://www.redstate.com/

“We are not going to be able to perpetually finance the levels of debt that the federal government is currently carrying.” — President Obama, February 12, 2009

That was yesterday, before the Congressional Democrats and three Senate Republicans gave President Obama his national debt-busting $787 billion bailout boondoggle, which will actually cost $3.27 trillion.

Now, with his so-called “stimulus” in hand, Obama will morph into a deficit hawk.
Obama’ has scheduled his “fiscal-responsibility summit” for February 23, and according to the Wall Street Journal, three days later, Obama will start to pressure politicians to address the country’s debt crisis.

Oh the irony hypocrisy Obama. How does this president get away with having everything both ways?

Who voted for and against the Stimulus Bill?

Click here to see who voted on Friday Feb. 13th for the President's debt-busting stimulus package. Cross-posted from Obama Alert.

Democrats muscle huge stimulus to brink of passage

WASHINGTON (AP) — In a major victory for President Barack Obama, Democrats muscled a huge, $787 billion stimulus bill to the brink of final passage Friday night in hopes of combating the worst economic crisis since the Great Depression. Republican opposition was nearly unanimous.

The vote in the House was 246-183 for the package of tax cuts and federal spending that Obama made the centerpiece of his plan for economic recovery.

The Senate was following suit in a roll call that was without suspense but extended into the night. That was to allow time for Democratic Sen. Sherrod Brown to fly back from Ohio, where his mother died earlier in the week. His was the decisive 60th vote for the bill.

Obama is expected to sign the bill soon.

Supporters said the measure would save or create 3.5 million jobs. House Majority Leader Steny Hoyer conceded there was no guarantee, but he said that "millions and millions and millions of people will be helped, as they have lost their jobs and can't put food on the table of their families."

Vigorously disagreeing, House Republican leader John Boehner of Ohio dumped a copy of the 1,071-page bill to the floor in a gesture of contempt. "The bill that was about jobs, jobs, jobs has turned into a bill that's about spending, spending, spending," he said. No House Republican voted for the measure.

The legislation, among the costliest ever considered in Congress, provides billions of dollars to aid victims of the recession through unemployment benefits, food stamps, medical care, job retraining and more. Tens of billions are ticketed for the states to offset cuts they might otherwise have to make in aid to schools and local governments, and there is more than $48 billion for transportation projects such as road and bridge construction, mass transit and high-speed rail.

Democrats said the bill's tax cuts would help 95 percent of all Americans, much of the relief in the form of a break of $400 for individuals and $800 for couples. At the insistence of the White House, people who do not earn enough money to owe income taxes are eligible, an attempt to offset the payroll taxes they pay.

In a bow to political reality, lawmakers included $70 billion to shelter upper middle-class and wealthier taxpayers from an income tax increase that would otherwise hit them, a provision that the nonpartisan Congressional Budget Office said would do relatively little to create jobs.

Also included were funds for two of Obama's initiatives, the expansion of computerized information technology in the health care industry and billions to create so-called green jobs the administration says will begin reducing the country's dependence on foreign oil.

Asked for his reaction to House passage of the bill, Obama said "thumbs up" and indeed gave a thumbs-up sign as he left the White House with his family for a long weekend in Chicago.

Congress cast its votes as federal regulators announced the closing of the Sherman County Bank in Loup City, Neb.; Riverside Bank of the Gulf Coast in Florida, based in Cape Coral; Corn Belt Bank and Trust Co. of Pittsfield, Ill.; and Pinnacle Bank of Beaverton, Ore. They raised to 13 the number of failures this year of federally insured banking companies and were the latest reminders of the toll taken by recession and frozen credit markets.

The day's events at the Capitol were scripted to allow Democratic leaders to fulfill their pledge to send Obama legislation by mid-February.

"Barack Obama, in just a few short weeks as president, has passed one of the biggest packages for economic recovery in our nation's history," said House Speaker Nancy Pelosi, anticipating final Senate passage.

The approval also capped an early period of accomplishment for the Democrats, who won control of the White House and expanded their majorities in Congress in last fall's elections.

Since taking office on Jan. 20, the president has signed legislation extending government-financed health care to millions of lower-income children who lack it, a bill that President George W. Bush twice vetoed. He also has placed his signature on a measure making it easier for workers to sue their employers for alleged job discrimination, effectively overturning a ruling by the Supreme Court's conservative majority.

Obama made the stimulus a cornerstone of his economic recovery plan even before he took office, but his calls for bipartisanship were an early casualty.

Republicans complained they had been locked out of the early decisions, and Democrats countered that Boehner had tried to rally opposition even before the president met privately with the GOP rank and file.

In retrospect, said White House chief of staff Rahm Emanuel, the White House wasn't "sharp enough" in emphasizing the benefits of the bill as Republicans began to criticize spending on items such as family planning services, anti-smoking programs and reseeding the National Mall.

Senate Majority Leader Harry Reid faced a different task _ finding enough GOP moderates to give him the 60 votes needed to surmount a variety of procedural hurdles. To do that, he and the White House agreed to trim billions in spending from the original $820 billion House-passed bill, enough to obtain the backing of GOP Sens. Olympia Snowe and Susan Collins of Maine and Arlen Specter of Pennsylvania.

As the final compromise took shape in a frenzied round of bargaining earlier this week, it was trimmed again to hold the support of the moderates, whose opposition to a new program for federal school construction caused anger among House Democrats.

In the end, a compromise was reached that allows states to use funds for modernizing schools. But in a display of displeasure, Pelosi decided to skip the news conference last Wednesday where Reid announced a final agreement.

In addition to tax relief for individuals and businesses who purchase new equipment, lawmakers inserted breaks for first-time homebuyers and consumers purchasing new cars in an attempt to aid two industries particularly hard-hit by the recession. In response to pressure from lawmakers from Pennsylvania, Indiana and elsewhere, the bill was altered at the last minute to permit the buyers of recreational vehicles and motorcycles to claim the same break as those buying cars and light trucks.

In the House, all 246 votes in favor were cast by Democrats. Seven Democrats joined 176 Republicans in opposition.

Democratic group targets Leonard Lance's vote against stimulus

by Jessica Coomes
www.lehighvalleylive.com

Originally published Feb. 2, 2009

Less than a month after U.S. Rep. Leonard Lance, R-Hunterdon, took office, a national Democratic organization is airing ads in his congressional district, criticizing his vote against an $819 billion economic stimulus package.

The radio spots, which debut today and will run for a week, are paid for by the Democratic Congressional Campaign Committee, the same group that provided significant financial support on behalf of Democrat Linda Stender, Lance's opponent in the November election.
The Democratic committee now is targeting ads at 28 Republican House members, all of whom joined their party in voting against a Democratic-sponsored stimulus bill last week. No House Republican supported the package, though the Democratic majority was able to pass it.

On Monday, Lance's chief of staff, Todd Mitchell, reiterated why the congressman voted against the stimulus bill: "The House-passed stimulus legislation is a $1.1 trillion spending package that was not developed in a spirit of bipartisanship. The Democrat leadership should follow the lead of President Barack Obama in being willing to consider Republican ideas that reduce wasteful spending and help create jobs for middle-class families and small businesses."

When Lance voted against the bill, he called the package "wasteful spending," citing provisions that would not stimulate the economy, including $1 billion for the upcoming census, $650 million for digital TV converter boxes, and $600 million for government vehicles.

"I hope the stimulus bill that moves through the Senate contains improvements and suggestions from the Republican side of the aisle," Lance said at the time. "I will review it when it comes back to the House of Representatives to see if it has become a better bill. We can do better."

The Senate this week is taking up its version of the stimulus bill.

Lance is the only Republican in New Jersey or Pennsylvania to be singled out in the Democratic Congressional Campaign Committee's latest ads.

"We will continue to go district by district to hold Republicans who continue to vote in lockstep with party leaders and against the folks in their districts accountable," Brian Wolff, the committee's executive director, said.

The Democratic group released a transcript of the short radio spot: "Did you know Congressman Leonard Lance voted against economic recovery to immediately create and save over 171,000 New Jersey jobs? Times are tough; tell Leonard Lance to put families before politics."

Ryan Rudominer, a spokesman for the Democratic Congressional Campaign Committee, would not say how much the organization spent on the Lance ads.

Rudominer said the committee is choosing not to say which radio station or stations in New Jersey are running the spot.

Despite the Democratic committee's efforts on behalf of Stender during the 2008 election, Lance won the district to replace retired Republican congressman Mike Ferguson.

No alternative to inflation

By: John Kemp
http://www.reuters.com/

-John Kemp is a Reuters columnist. The views expressed are his own –

Every budding economist is taught the distinction between nominal variables (expressed in terms of contemporary cash values) and real variables (adjusted for inflation and expressed in constant-dollars).

An oil price of $50 per barrel in 1980 is not the same as an oil price of $50 a barrel in 2009 because inflation has steadily eroded the purchasing power of the currency in the intervening years. Moreover, economists are taught that real values are more important than nominal ones — because “money is a veil” (to use the phrase of the Austrian economist Joseph Schumpeter).

Prices are important because they perform a signaling and allocating function, encouraging supply and rationing demand. What matter are relative prices not absolute ones.

If all prices and wages double, there is no impact on the distribution or quantity of production and consumption because the relative prices remain unchanged. Money is a veil and focusing on nominal values risks succumbing to money illusion — believing that purchasing power or wealth has increased simply because it is expressed in more units of a devalued currency.

When the US Department of Commerce releases its updated National Income and Product Accounts at the end of each month, investors focus on the real growth rate in GDP, adjusted for inflation. You would be hard pressed to find the nominal GDP growth rate on dealing screens, or for that matter in the Commerce Department’s press release.

But surely that doesn’t matter, because we are only interested in how much output is produced, how many cars, how many homes, not their selling value.

Wrong.

Because one set of important relationships in the economy is almost always expressed in nominal terms, not real ones: debt.

If household incomes double in nominal terms, and the price of a representative basket of goods also doubles, purchasing power has not changed. But the proportion of household income spent servicing and amortizing old debts is halved.

Nominal values become crucially important in a dynamic economy where time as well as price is important, and where debt contracts such as mortgages and firm loans are fixed in nominal terms rather than indexed.

Prices have two functions: a static function allocating resources among producers and consumers; and a dynamic function generating incomes, saving and a flow of payments on debt contracts. For the static function, what matters is real or relative prices. But for the dynamic one, nominal prices are more important because they determine the sustainability of the fixed debt contracts.

NOMINAL GDP GROWTH STALLS

The nominal income or cash flow received by households determines how easily they can repay debt contracts fixed in nominal terms. In the same way, the nominal income or cash flow received by companies determines how easily they can repay debt contracts in fixed currency.

At the most general level, nominal GDP is in some sense the “national cash flow” — and determines how easily the economy as a whole can support an overall debt structure fixed in nominal terms. Nominal GDP growth becomes exceptionally important, especially at times when debts are at a high level.

The attached charts show quarter-on-quarter and year-on-year growth in GDP in both nominal and real terms since 1947.

Chart 10 shows the quarter-on-quarter growth in real GDP (expressed at annualized rates). Real GDP growth is very variable. Declines in real GDP during recessions are common.

Real output has fallen in 37 quarters since 1947 (about 15% of the time) and risen in 207 quarters (about 85% of the time).

But look at Chart 11, which shows the quarter-on-quarter growth in nominal GDP. Nominal output has only fallen 13 times since 1947. The last quarter-on-quarter decline in nominal GDP was in Q3 1982.

Before that, you have to go back to Q4 1960 to find a quarter in which GDP declined in nominal terms. Chart 12 shows nominal GDP growth on a four-quarter or year-on-year basis. Nominal GDP growth has not been negative year-over-year since Q1 1961.

From the late 1960s through until the current decade, relatively high rates of inflation ensured that GDP continued to grow in nominal terms even when it fell in real ones during cyclical recessions. Even during the deep recessions of the 1970s and 1980s, nominal GDP was generally growing because the decline in real output was more than offset by relatively high rates of price and wage inflation.

Payment ability for households which experienced unemployment and firms that experienced a sharp drop in demand for their products was often severely impaired. For these few, homes were often repossessed and individuals and companies could be made bankrupt.

But for the majority of households that remained employed, and for companies that experienced only a moderate decline in demand, wage and price inflation continued largely unabated, continued to raise their nominal cash flows, and make it easier to pay off debts incurred during the previous boom.

The combination of falling output with rising prices (labeled “stagflation” ) is usually seen as the worst possible outcome for the economy. Well, the worst except one: debt-deflation.

Because stagflation in the 1970s and 1980s ensured that, for most people, the real burden of debt remained manageable, or even improved, despite the recessions. The misery was borne by the minority of workers who became unemployed and the minority of firms that became insolvent. For the rest, inflation continued to boost nominal cash flows and increase debt-service capacity.

The strong, consistent growth of nominal GDP between the late 1960s and the late 1990s was mostly the product of persistent inflation. Before the mid 1960s, in the 1940s and 1950s, inflation rates were much lower, and nominal GDP growth was much more variable, turning negative on ten occasions between 1947 and 1960.

But in the current lower inflation world, the risk of nominal GDP turning negative has increased. During Q4 2008, nominal GDP growth turned negative for the first time in 25 years. Inflation (essentially zero) was not enough to offset the decline in output in real terms (-0.9% compared with the previous quarter).

Output looks set to decline further in Q1 and probably Q2 2009, and price inflation will probably turn negative. So at some point during H1 2009, nominal GDP growth will turn negative year-on-year for the first time since 1961.

NEED TO REKINDLE INFLATION

It is the sudden shrinkage of GDP in nominal terms which presents the greatest threat to the solvency of the banking system and the rest of the economy in the coming year. Because if GDP starts shrinking persistently in nominal terms, the already high burden of servicing debt contracts fixed in nominal terms will rise further.

Every job that is lost and every factory that is closed or put on short-time reduces real output. But every wage cut and price reduction is also reducing the cash flows which households and firms need to pay their debts, deepening the crisis.

Governments and central banks are now under intense pressure to sustain nominal GDP, and restart nominal growth, by boosting employment and fueling at least a modest pick up in inflation.

The target is shifting from restarting real growth to restarting nominal growth. Economist Samuel Brittan has written previously in the “Financial Times” about the need for the government and the Bank of England to have a target for nominal GDP growth (rather than a narrow focus on consumer price inflation). But the same is true for the other G20 economies.

Fiscal and monetary policy needs to create enough real demand and inflation; sustain employment and wage levels; raise output and prices.

In some sense, rekindling inflation has become a necessary and inevitable part of the solution to the current crisis.

Newest National Debt Statistics posted February 2009

The following information was compiled through statistics found at www.TreasuryDirect.gov

National Debt (as of Feb. 5, 2009)
Held by the Public: $6,410,020,402,165.47
Intragovernmental: $4,307,977,718,122.23
Total: $10,717,998,123,287.70

Interest:
January 2009: $3,132,139,257.38
Fiscal Year 2009: $138,450,208.820.69

Gifts to reduce the Public Debt
December 2008: $56,102.15
Fiscal Year 2009: $512,826.72

Increase in Debt this fiscal year:
$693,273,226,375.21

Increase in Debt since Obama Adminstration took office:
$89,116,637,777.47

Club for Growth Announces First "Comrade of the Month" Winner

Barney Frank Takes Prize in a Landslide

From a Press Release from "Club for Growth"

Washington – The Club for Growth’s award to the first Comrade of the Month goes to...Democratic Rep. Barney Frank (MA-04).

As Chairman of the House Financial Services Committee, Rep. Frank won the award for his instrumental role in shepherding the $700 billion TARP plan through Congress. This program marked a massive expansion of government and intrusion into the free market. By rewarding irresponsible actors, it sets a dangerous precedent that will have negative effects for years to come. Rep. Frank’s role in this process is all the more offensive, considering his persistent opposition to serious reform of Freddie Mac and Fannie Mae over the past couple of years.
The Comrade of the Month award will be awarded at the end every month to the public official or figure who best lives up to the policies of big government and favors restrictions on economic freedom.

Throughout the month of January, the Club for Growth received nominations from people all across the country. At the end of the month, the Club selected five nominees for Club for Growth members to vote on. Barney Frank won January’s title by an overwhelming margin.
“Barney Frank has certainly done his fair share to grow the size and power of the federal government at the expense of hard-working taxpayers,” said Club for Growth President Pat Toomey. “We hope this award will shine an even brighter light on the most egregious policies that seek to limit economic freedom.”

Minnesota's 4th Congressional District Representative Betty McCollum (D) and Florida Governor Charlie Crist were also nominated.

Club for Growth 'Comrade of the Month' nominations Jan 2009

From the Club for Growth website:

January's 'Comrade of the Month' Finalists

The Club just announced the finalists for our first ever "Comrade of the Month" award. An email was sent to Club members today to let them vote on the overall winner, which will be announced on Monday.

So here are finalists for January:

FLORIDA GOV. CHARLIE CRIST: State Farm Insurance recently announced that it would stop selling property insurance in the Sunshine State due to overly punitive government regulations. In response, Crist was unremorseful. He said, ""Well, they probably charge the highest rates in the state anyway. I think Floridians will be much better off without them." Crist now wants to punish State Farm by kicking their auto insurance business out of Florida as well. Crist tries to pass himself off as a fiscal conservative, but his actions as governor contradict his rhetoric.

REP. BARNEY FRANK (D-MA): As head of the House Financial Services Committee, Frank was instrumental in shepherding the $700 billion TARP plan through Congress. This new program did something that was unthinkable only a few years ago -- government ownership of the nation's largest banks. This has set a dangerous precedent that will have long-lasting negative effects for years to come. What's particularly offensive is that Frank routinely defended Freddie Mac and Fannie Mae when both companies were taking on more and more bad loans, which led to the current economic crisis.

CHICAGO MAYOR RICHARD DALEY: Townhall's Amanda Carpenter recently wrote, "Chicago Mayor Richard Daley has kicked hundreds of families out of their homes and relocated a cemetery full of buried bodies to build a whopping $15 billion airport expansion Chicago residents oppose, airlines don't want and he doesn't have the money to build. The kicker is that Daley stands a solid chance of getting a good chunk of the boondoggle funded in Washington's forthcoming stimulus bill under Barack Obama's pledge to dramatically increase infrastructure spending." It's almost too unbelievable to be true, but it is. Here's the underlying legislation.

REP. BETTY MCCOLLUM (D-MN): From a Club member: "I'd like to nominate Rep. Betty McCollum of Minnesota's 4th District. Fortunately she's not my Congressman, but last week she introduced H.J. Res. 4, which proposes a Constitutional Amendment decreeing health care is a Constitutional right" It's clear that McCollum doesn't understand economic liberty. Nothing can be considered a "right" when obtaining that right strips the rights from someone else. The text of her resolution can be found here.

BOB BECKEL: This nominee actually makes his own case for the award. The liberal pundit (and former manager for the Mondale campaign) asked a conservative pundit on TV, "What's wrong with some form of socialism in certain areas?" You can watch the video here (at 3m50s mark).

Crist, McCollum up for 'Comrade of the Month' award

Charlie Crist up for supply-siders’ ‘Comrade of the Month’ award
by Wayne Garcia

The Club for Growth, Grover Norquist’s supply-side neocon outpost, puts a boot into Florida’s governor this week as it institutes its first Comrade of the Month award:

FLORIDA GOV. CHARLIE CRIST: State Farm Insurance recently announced that it would stop selling property insurance in the Sunshine State due to overly punitive government regulations. In response, Crist was unremorseful.

He said, “”Well, they probably charge the highest rates in the state anyway. I think Floridians will be much better off without them.” Crist now wants to punish State Farm by kicking their auto insurance business out of Florida as well. Crist tries to pass himself off as a fiscal conservative, but his actions as governor contradict his rhetoric.

Crist is up against Congressman Barney Frank, Chicago Mayor Richard Daley, Congresswoman Betty McCollum and liberal pundit Bob Beckel. All Democrats

Iceland Economy Ahead of the Pack, for Better and Worse

By Greg Palkot
FoxNews

Shockwaves still are being felt around the world from the global financial crisis, and nowhere is the impact more direct or more destructive than in the small isolated island nation of Iceland.

This week, outgoing center right Prime Minister Geir Haarde tendered his resignation following weeks of regular protests by Iceland citizens angry about the government's inability to handle the country's economic troubles. Protests that resulted in a violent clash with police for the first time in Iceland since 1949.

Haarde now likely will now be replaced by a center-left politician.

What's significant is that for the first time a national government has collapsed due to the economic crisis. What's surprising is that it happened in usually low-key Iceland.

But then again, Iceland has been the scene of a lot of "first's" during this economic crisis. It has been called a "leading indicator" of what was to come in this financial maelstrom, a sort of "canary in the coal mine" of our economic woes.

It took on this role because Iceland's banks were overleveraged with more debt than others as it kept bankrolling entrepreneurs going on a buying spree abroad — banks which, when the chits started to be called in and the subprime market froze up, were more vulnerable than most. This was compounded by the fact that Iceland is a tiny country which doesn't have the financial resources to bail the banks out.

If you look at the history of Iceland's troubles recently it's always a bit ahead of the U.S. and other European countries on many points: The banks failed and got nationalized earlier; the stock market crashed earlier and harder, and now unemployment and inflation numbers are rising fast. They even protested before anyone else did, which resulted in a whole new government.

That's why, once again, Iceland holds a lot of prominence as a bellwether. Experts told FOX News that this country is not the only one that will "kick the rascals" out over the financial crisis, but is the first. They particularly note young democracies on the periphery of Europe, such as Bulgaria and the Baltic countries, have also seen violent protests recently related to the economy.

And even more mainstream European nations like Greece have been hit with unrest. Looking at weak economies and soaring unemployment rolls, experts say that in countries like Italy and Spain protests can't be far behind.

The parallels are now being drawn not just with the nasty protests in Europe of 1968, but — much more tellingly — to the demonstrations that broke out during the Great Depression.
Today, populist politicians are beginning to gain favor in this tumultuous period, and that is not necessarily a good thing for the countries involved, or for U.S. relations.

Case in point is Iceland, once again. The most favored political party right now in Iceland is the Left-Green's, which will be a principal member of the interim coalition government here. It doesn't fully support possible European Union membership for Iceland, but more significantly for the US, it would like to pull Iceland out of NATO.

Iceland was a founding member of North Atlantic Alliance. Due to its utterly strategic location just under the Arctic Circle it played a crucial role for the U.S. during the Cold War. There was a U.S. air base on the island up until 2006. It is no coincidence that former President Reagan knocked heads together here with his Soviet counterpart. The image Wednesday of a NATO flag being burned by protestors in front of a meeting held by the Alliance cannot be too pleasing to the U.S.

All of sudden this global financial crisis looks like it could spread, not just in geographical and monetary terms, but in substance as well. And just as the experts can't define when the downward spiral of financial woes will stop, they also can't say how severe the political collateral damage will be. But many predict that there may be more dangerous days ahead.

Greg Palkot is FOX News' foreign correspondent reporting from Iceland's capital, Reykjavík.

House passes economic stimulus bill

By David Jackson and Richard Wolf
USA TODAY

WASHINGTON — The Democratic-controlled House of Representatives quickly approved President Obama's $819 billion economic recovery plan Wednesday.

The vote was 244-188, mostly along party lines.

"We don't have a moment to spare," the president said earlier in the day.

The vote sent the bill to the Senate, where debate is expected to begin as early as this week on a companion measure already taking shape. Democratic leaders have pledged to have legislation ready for Obama's signature by mid-February.

A mere eight days after Inauguration Day, House Speaker Nancy Pelosi, D-Calif., said the events heralded a new era. "The ship of state is difficult to turn," she said. "But that is what we must do. That is what President Obama called us to do in his inaugural address."

No Republicans supported the measure. Eleven Democrats opposed it. The vote was Obama's first test of the bipartisanship he pledged in his campaign.

After a meeting with executives, which Obama described as "sober" because of the tough times, the president said the group was "confident that we can turn our economy around."

Obama visited Capitol Hill on Tuesday to address GOP criticism that the package has too much spending and not enough tax cuts. He won compliments but few converts.

"I don't expect 100% agreement from my Republican colleagues," Obama said between meetings with House and Senate Republicans. Citing a recent round of layoffs among large U.S. companies, he said, "I do hope that we can all put politics aside and do the American people's business right now."

Senate Republicans hope to make changes before it reaches Obama — possibly by adding small business tax cuts or road and bridge spending.

Though GOP lawmakers said they appreciated Obama's visit Tuesday, their leaders urged a "no" vote because of the bill's price tag. "All it does is burden our kids and their kids with more debt," said House Republican leader John Boehner of Ohio, citing a non-partisan Congressional Budget Office estimate that the plan would add $347 billion in interest on the national debt over 10 years.

Two-thirds of the House bill, or $550 billion, is new spending. That includes money to states and localities, increases in unemployment benefits and other aid to Americans hard hit by the recession, as well as construction projects designed to create jobs. The remaining $275 billion is tax cuts to encourage new spending.

Obama promised to consider Republicans' ideas, but many said they will wait and see. "Reaching out is one thing," said Sen. Jon Kyl, R-Ariz. "Actually taking action to include Republican ideas is another."

Contributing: The Associated Press

Show us the money

www.thespectrum.com
St. George, Utah

The debate is raging on Capitol Hill about what should be done to stimulate the economy. The recession continues to hit new depths, and the one thing that there is agreement on with many lawmakers is that something must be done.

The questions, however, relate to what should be done and at what cost.

Estimates put a stimulus package backed by the Barack Obama administration at almost $1 trillion. Such a move could push the federal budget deficit to more than $1.5 trillion and the overall national debt to more than $10 trillion.

It's an obscene amount of money and a crushing debt that will have to be shouldered by our children, grandchildren and - at this rate - great-grandchildren and beyond. While some form of intervention by the federal government may be needed, closer scrutiny of what will be spent also is needed.

Take, for example, the $700 billion stimulus plan passed by the Democratic Congress and signed by former President George W. Bush. The way the money has been used was so poorly monitored that there is almost no way to know how much of the taxpayers' money was wasted. We simply can't afford a repeat.

Congress must turn a much more watchful eye toward monitoring the spending of any taxpayers' money. One group that could play a significant role in that effort is the Blue Dog Coalition - a group comprised mostly of Democrats who push for more conservative measures in the realm of economics. This group has grown to 47 members by sticking to the message that our practices today shouldn't create obstacles for future generations. A growing deficit and corresponding national debt do both.

The Blue Dogs could be the people's watchdogs. To do so, they will have to be more vocal than ever and will have to make some public statements in committee hearings and from the House floor if there is ever going to be a change.

The reality is that stimulus packages have become the "pork-barrel" spending of the 21st century. Everyone wants a piece of the action. Even Utah is asking for billions of dollars in stimulus money.

In some cases, that money is going to be spent wisely to save jobs and to keep communities intact. In some cases, the money could be squandered or go toward projects that benefit only a few when it could be used to assist many.

There's no doubt that this is a large task. Admittedly, the nation is in uncharted territory with this economic downturn. Now is a time for fresh ideas and for a willingness to learn from past mistakes.

It's a time for leadership.

Whether it's the Blue Dogs, Republicans or elected officials of some other ilk, we need to see our lawmakers scrutinizing any further spending they way they research and criticize campaign opponents. They need to show the public that they are working to find the best solution that costs the least amount of money.

A bad decision now could cost our nation even more down the road.