$200 Millions to Host Terror Trials!

The President's budget proposal includes nearly $200 million to help pay for the security services required to host 9/11 terror trials in U.S. courts rather than military tribunals at Gitmo. Obama recently proposed freezing most federal spending other than defense. It seems to me he is using this as a license to spend recklessly on defense. Not only is his he allowing these terrorists the full protections of our constitution (which was intended by our founding fathers for only citizens) but he is also sending our government into even greater debt!

Obama Defends Health Care Reform

Obama defends his health care reform to Republicans at their issues gathering...sounds a little desperate to me! The President is struggling to stem the public wrath over this enormous entitlement program that will almost certainly balloon the national debt. The end of this bill is in sight all we have to do is stick to our convictions.

War Strategy

Bernanke's Confimation Woes

The chairman of the Federal Reserve Board of Governors is up for re-confirmation in the Senate. Public support for Bernanke has eroded as voters associate him with the bailouts of major banks. Many Democrats are hesitant to publicly support him since they want to appear concerned about voters in an election year. The White House however desperately needs a win for Obama's nomination because many see it as a referendum on Obama's economic policies. Obama is applying all the pressure he can to Senate democrats. This could be another embarrassing failure for Obama if he fails to sway enough Senators to secure the necessary votes.

This vote could have dramatic consequences for the economy as the current easy money policies of the fed run the risk of re-igniting inflation. This could damage the fragile recovery because inflation is notoriously hard to kill once it starts climbing. Bernanke has shown too much concern for preventing a depression and too much willingness to lend money to any institution that comes calling to have any credibility as an inflation fighter. In the game of inflation fighting credibility is often as important (maybe more important) than actual efforts to curb inflation. We can only hope our elected officials will listen to public opinion - but of course they almost never do.

Economic Freedom Index

The US declined significantly on the Economic Freedom Index this year. Thanks to government intervention in our financial lives the US is no longer in top 7, the so called "Economically Free" nations. We have been in the top 7 fro the last 16 years, but just one year under Obama (though Bush did some damage too) and we are out.

Brown Wins - The Tide Is Turning!

Republican Scott Brown won the former Senate seat of Ted Kennedy. This is the first time Massachusetts has sent a Republican to the Senate since 1972. Angst over the policies of the current administration is now starting to show in the polls. This race may have been a good bellwether for the upcoming November elections.

This loss seems to have shaken Democratic resolve with at least two Democrats calling for a halt on the health care vote until Brown is seated!

Scott Brown Rally

The 60 Vote Majority On Life Support

The democrats' crucial 60-vote majority in the Senate may be slipping away in Massachusetts. The battle for Ted Kennedy's vacant Senate seat originally looked like a no-brainer for democratic candidate Croakley. Angst over the pending health care legislation and a poorly run campaign by Croakley have left her fighting to the bitter end with her Republican challenger Brown. The latest reports show Brown just slightly ahead...the race is on!

If Massachusetts Republicans can come together and close this thing the health care bill may not clear the Senate. It could be now or never folks!

The Fed - Part 2 (Monetary Policy)

The second major responsibility of the Fed is to conduct monetary policy and control inflation. Monetary policy is at its most basic level the manipulation of the money supply to control interest rates and ultimately inflation. The execution of monetary policy and the organization of our monetary system is the only remaining sector of the economy where total monopoly government control is supported by most economists.

The Fed seeks to control inflation by controlling the supply of money available to lend by banks. Interest rates are basically just the price of using someone else’s money – that price like all others moves inversely (opposite) of supply. If the Fed reduces the supply of money available to banks for lending it raises the cost, interest rate, of that money. If it adds money (also known as creating money) the cost declines. Inflation is the rate of decline of the value of money or the rate of increase of prices. Inflation exists because of the recognition by the public that if the money supply increases are not matched by increases in output of our economy then the only way to balance the economy is for the value of a unit of money (dollar) to decline – inflation increases/prices rise. Interest rates affect inflation because if it costs more to borrow money people borrow less and money can only affect the prices of goods/services if it enters the economy not sitting on banks’ books. It is through this intricate web of banks, money, prices, and interest that the Fed exercises monetary policy to control inflation. Interestingly, inflation’s risks to the economy come in no small way from the very existence of the Fed and the government’s spending addiction.

One reason for the need of monetary policy is the existence of the Fed as the lender-of-last-resort. This occurs because if banks are lending too much money the extra currency can lead to inflation. This happens because if the amount of money in the system grows without proportional increase in economic output then people do not have more things to buy with that money so they use the extra money to bid up the prices of goods/services in an attempt to purchase a larger portion of the goods/services. This of course doesn’t work since others are doing the same thing – everyone ends up paying more for the same goods/services as before. The long-term damage comes from the fact that prices don’t tend to decline once they have gone up so we end up paying more forever. This begs the questions why might banks lend too much? They have the Fed as their lender-of-last-resort to backstop them so they can take the risks associated with excess lending.

The Fed’s ability to manipulate interest rates and pump money into the economy also supports the government’s deficit spending habits and ability to interfere with the economy. Since the Fed can lower interest rates by pumping money into the economy it can induce people to borrow money. This was a factor in the housing bubble, which the Fed ended up bailing out many of these institutions. The Fed supports the government’s deficit spending because it can create money for the government to use to its debts and can induce banks to buy treasuries to meet capital requirements. This only works because the Fed has a monopoly on the printing of money in the U.S. This monopoly means the economy cannot escape the impact of the Fed’s actions because there is no currency to use if the Fed messes with the dollar. The monetary policies of the Fed put our economy at the mercy of a weakly regulated arm of the government.

Sir Patrick

Patrick Stewart will soon be a knight...