All I Want For Christmas Is A (Real) Government Shutdown

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The political class breathed a sigh of relief Saturday when the US Senate averted a government shutdown by passing the $1.1 trillion omnibus spending bill. This year’s omnibus resembles omnibuses of Christmas past in that it was drafted in secret, was full of special interest deals and disguised spending increases, and was voted on before most members could read it.

The debate over the omnibus may have made for entertaining political theater, but the outcome was never in doubt. Most House and Senate members are so terrified of another government shutdown that they would rather vote for a 1,774-page bill they have not read than risk even a one or two-day government shutdown.

Those who voted for the omnibus to avoid a shutdown fail to grasp that the consequences of blindly expanding government are far worse than the consequences of a temporary government shutdown. A short or even long-term government shutdown is a small price to pay to avoid an economic calamity caused by Congress’ failure to reduce spending and debt.

The political class’ shutdown phobia is particularly puzzling because a shutdown only closes 20 percent of the federal government. As the American people learned during the government shutdown of 2013, the country can survive with 20 percent less government.

Instead of panicking over a limited shutdown, a true pro-liberty Congress would be eagerly drawing up plans to permanently close most of the federal government, staring with the Federal Reserve. The Federal Reserve’s inflationary policies not only degrade the average American’s standard of living; they also allow Congress to run up huge deficits. Congress should take the first step toward restoring a sound monetary policy by passing the Audit the Fed bill, so the American people can finally learn the truth about the Fed’s operations.

Second on the chopping block should be the Internal Revenue Service. The federal government is perfectly capable of performing its constitutional functions without imposing a tyrannical income tax system on the American people.

America’s militaristic foreign policy should certainly be high on the shutdown list. The troops should be brought home, all foreign aid should be ended, and America should pursue a policy of peace and free trade with all nations. Ending the foreign policy of hyper-interventionism that causes so many to resent and even hate America will increase our national security.

All programs that spy on or otherwise interfere with the private lives of American citizens should be shutdown. This means no more TSA, NSA, or CIA, as well as an end to all federal programs that promote police militarization. The unconstitutional war on drugs should also end, along with the war on raw milk.

All forms of welfare should be shut down, starting with those welfare programs that benefit the wealthy and the politically well connected. Corporate welfare, including welfare for the military-industrial complex that masquerades as “defense spending,” should be first on the chopping block. Welfare for those with lower incomes could be more slowly phased out to protect those who have become dependent on those programs.

The Department of Education should be permanently padlocked. This would free American schoolchildren from the dumbed-down education imposed by Common Core and No Child Left Behind. Of course, Obamacare, and similar programs, must be shut down so we can finally have free-market health care.

Congress could not have picked a worse Christmas gift for the American people than the 1,774-page omnibus spending bill. Unfortunately, we cannot return this gift. But hopefully someday Congress, will give us the gift of peace, prosperity, and liberty by shutting down the welfare-warfare state.

Photo credit: Lewis Tse Pui Lung / Shutterstock.com

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by WesternJournalism.com.

This post originally appeared on Western Journalism – Informing And Equipping Americans Who Love Freedom

Currency Wars Lead To Real Wars

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“Beggar-thy-neighbor” is a term coined by Adam Smith long ago.  It describes efforts by countries to use protectionist trade and other economic policies to solve their internal economic problems. In short, it means we’ll cheat the other guy and pass the savings on to you.

This type of strategy can manifest itself in many ways. Governments can levy import duties, use adversarial regulatory tactics to protect their own industry, or the good-ole favorite, a competitive currency devaluation to make their exports cheaper.

The problem with currency devaluation is that your neighbor can play that game also. In the early part of the twentieth century, competitive currency devaluations were a large part of the cause of the horrific violence the world saw during the two world wars.

After World War II, the Bretton-Woods agreement attempted to prevent countries from using a devaluation to solve their internal problems. This worked for a while. However, with President Nixon taking the United States off the gold standard in the early 1970’s, the global economic consensus that followed the second world war has been largely eroded.

Today competitive currency devaluations are common, even encouraged and cheered. Governments now have no problem manipulating markets to their advantage, no matter the effect on their neighbors. The United States has been the largest player in this strategy.

In an effort to keep borrowing money and keep interest rates low, so the federal government can service the debt, the Fed has actively intervened in the bond market, printing upwards of five trillion dollars. This is a different form of a currency devaluation. By printing all this money, the Fed has attempted to make the USD worth less, in order to stimulate growth in exports as well.

Japan is the king of quantitative easing, or printing barrels full of money. Japan has printed so much money that now as the government prints even more, it’s like pushing on an economic string.

All of the bang for the buck is gone. Just ask the average person in Japan how Abenomics is working.

China is playing this game in different forms as well, and now the European Central Bank wants to get into the act in a grander fashion.

The problem is that no country has ever devalued its way to prosperity. On the contrary, all of this market manipulation at the expense of other nations will not end well. This is the way wars get started because at the end of the day, economic manipulation runs out of bullets; and the only thing a country has left are real ones.

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The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by WesternJournalism.com.

This post originally appeared on Western Journalism – Informing And Equipping Americans Who Love Freedom

The Federal Reserve Operates Open-Ended. Stop It!

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Why should the Fed have to follow rule of law?  

The dollar is on track for a severe impact. The world’s confidence in the Federal Reserve’s ability to make good on its obligations is shrinking. Why? It’s because the world is coming to recognize that the Fed is actually insolvent. “Insolvent” means that it no longer has sufficient income to repay even the interest on its obligations, now totaling over 17 trillion dollars.

It’s really not complex at all! Americans are smarter than the Fed estimates.

Information about the Federal Reserve’s management of our currency and economy is presented to the public in mystical and magical ways, but the smoke screen cannot last forever. The public is told that a central bank cannot afford to be restrained by principle, and that the manipulation of the economy is a complex and necessary operation which none but the financial elite are capable of understanding. But it’s actually simple.

Government finances work exactly like individual finances.

We all know what happens to individuals when they spend more than their income can bear. They become insolvent. When an individual’s credit limit is raised beyond levels that should be reasonably risked, a point of no return can be reached. When income becomes insufficient to pay obligations, something has to give. The individual must either find a way to settle up, or be excused from the whole mess by going bankrupt. Of course, bankruptcy is not really fair to creditors, but in the big picture the effects of a few cases of bankruptcy aren’t big enough to make a dent in the banking or small business economy.

Why should central banks behave differently from individuals?

They should NOT! What makes the financial rules that apply to a central bank any different from the financial rules that apply to an individual? Nothing does! A properly managed central bank would operate under principled guidelines for self regulation. After all, individuals are obliged to do so in order to avoid personal bankruptcy.

But listen to what former Fed chairman Alan Greenspan had to say about that in a 2008 interview: When asked if Treasury Bonds were still a safe investment, he said, “This is not an issue of credit rating. The United States can always pay any debt it has because …we can always print money.” See the video here (and watch for the camera panning to the incredulous look on the face of one of the participants in this Meet the Press discussion!).

The Federal Reserve puts itself above financial regulation and law. No system is in place to check their actions. The only system of credit rating the Fed has to deal with is a foggy one – namely, the willingness of investors to buy T-bills and bonds. Until recently, the Fed enjoyed an artificially high credit rating which enabled it to continue growing its obligations through the worldwide sale of Treasury bonds. This has enabled the injection of currency from other markets into the US system. But investors are no longer as trusting as they were seven years ago. Decreasing confidence has translated into a lower Federal Reserve Bank credit rating.

Putting this into context.

Even though the Fed is in a condition of insolvency, its ability to sell more bonds and T-bills is restricted only by market conditions. It’s insolvent, yet nothing prevents it from simply borrowing as much money as it can get its hands on to pay its obligations.

An individual in a state of insolvency gets his credit cut off, no questions asked. An insolvent individual cannot further compound his own financial problems by simply borrowing more to pay his debts.

The Fed is in a condition of insolvency, so when it needs more cash it fires up the money printing presses. In theory, there is some link between the amount of cash that’s printed and the amount of new currency that’s injected into the system through bond sales. But there are no hard and fast rules. The Fed can do whatever it wishes.

An individual in a state of insolvency who has to make a mortgage payment is in trouble. He can’t go to the garage and fire up his money printing press to pay his debts. If he does, he might find himself under arrest. The Fed, however, exercises this counterfeiting option freely.  The only real difference between the Fed and a criminal counterfeiter is that the Fed’s counterfeiting activity is sanctioned by the government. In both cases, the currency is backed by nothing.

It’s really not hard to understand.

Smokescreens of excuses painting the financial mismanagement of our currency system as necessary to ensure monetary stability are pure politics. It’s never too late for the Fed to change bad habits, but with interest obligations too far out of control, a solution is no longer going to result from spending cutbacks alone.

Because the concept of bankruptcy is a pill larger than any central bank is willing to swallow, the United States WILL make good on its obligations, period. Unfortunately, after the dollar takes its last breath, payment of US debt is most likely going to end up coming from the creation of even more fiat currency coming from the world’s super central bank known as the International Monetary Fund (IMF).

At this time, the Fed’s biggest problem is saving face. Stopping its enormous borrowing and spending methods would, at the very least, be unpopular. However, informed Americans understand that a central bank that directs the economy of perhaps the most influential nation in the world must operate under a principled and responsible rule of law.

It’s time to end the Fed’s operation as we know it.

 

Photo Credit: Justin Ruckman (Flickr)

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by WesternJournalism.com.

This post originally appeared on Western Journalism – Informing And Equipping Americans Who Love Freedom

There Is More Pain To Come…

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Today, we had a relief rally, but not much of one.

You see, the market had already factored in a Republican takeover of the Senate. The cake is already baked.

What matters now is the actions this Congress takes.  If they institute pro-growth policies, then the market will rally further–but not immediately.

There will be a wait-and-see period.  This is where the danger comes in.

We are at new highs in the market. Yes, a Republican Congress is good for the economy.  But there is another side to this story.

The Republicans will most likely not be willing to extend the fiscal sugar-high that the Obama administration has been hellbent on giving the American people–throwing billions of borrowed dollars at the economy, trying to get something to stick.  The Republicans realize we have to tighten our belts. They realize there needs to be some pain.

We have to stop spending money we don’t have. Hopefully, they will find someone to tell this truth to the American people.  This will have a short-term negative effect on the market.

In the long-run, though, the market will explode!  The stock market, that is.

Stay away from the bond market! Don’t get near it!

Interest rates are going to rise. They have to!  There is nowhere else to go in a growing economy.

There is one more consequence of the election that could impact the economy and the markets.  The Republican Congress will very likely attempt to reign in the Federal Reserve Bank of the United States. The Fed has gone way past any reasonable limits when it comes to printing money and micromanaging the economy.

I expect Congress will attempt to audit the Fed and very possibly even change its charter. The legislature that wrote the law that established this institution never imagined it would print five trillion dollars.

The Fed has jumped the shark. Now they will have to pay the piper.

This will mean uncertainty and less liquidity for the markets, two things the market doesn’t like.  So watch out–there could be more pain to come in the short run.  

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The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by WesternJournalism.com.

This post originally appeared on Western Journalism – Informing And Equipping Americans Who Love Freedom

The Fed Could Ruin The Country With Their $4.5 Trillion Magic Trick

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Here, we call it quantitative easing.

Wow, that’s a really tortured way of saying printing money.  Everyone knows printing money is bad.  Every politician and economist, deep in their hearts, knows there is no free lunch–that is unless you are a member of the Paul Krugman fanclub.

There WILL be consequences to the Fed making up $4.5 trillion out of thin air.  There always are consequences.  The problem is that you just always can’t foresee in what form they will materialize.

So the Federal Open Market Committee minutes of their recent meeting are going to be released today.  This is the group of wizards who look into the crystal ball every month and decide how to financially engineer the U.S. economy.  Over the last decade, they have decided that in order to save us from our free-market principles, they would print almost five trillion dollars and distort the U.S. bond market by acting as a buyer and keeping interest rates low.

Of course, there was no collusion between the White House and the Fed on this effort.  The fact that if interest rates rise we can’t service our debt (and social spending would be obliterated) is not the point.  The point is the Fed says they did this in order to achieve full employment.

And they have succeeded!  Unemployment is way down in the six percent handle. The fact that one-hundred million Americans have given up looking for work and left the workforce is not to be uttered in the hallowed halls of the Federal Reserve.

In any event, most likely today, we will be given the wonderful news that the Fed has decided to stop easing quantitatively.  I feel much better, don’t you?  They still are keeping short term rates at zero, and they still have to pull five trillion dollars back out of the economy at some point; but Obama will be out of office by then (at least I think), and he won’t have to worry about it.

Whew, I feel better knowing he won’t have to face the consequences of his actions.  But when has he faced any consequences?  (That’s another column.)

The market will have to face this modicum of financial responsibility. And the markets are not going to like it.

Markets never like rising rates. It’s not different this time.

America can’t get away from the fact that we have been living on a QE sugar-high, an irrational bond market, and debt.  At some point, we will have to pay the piper.

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The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by WesternJournalism.com.

This post originally appeared on Western Journalism – Informing And Equipping Americans Who Love Freedom