Thursday, August 27, 2015

The Fed and Free Markets



Once again The Federal Reserve is stuck in the unenviable position of taking candy from the spoiled brat it created.  They've been jawboning about raising interest rates for so long I've lost track, yet they never fail to find excuses for postponing.  Meanwhile the spoiled brat keeps getting fatter, closer to type II diabetes, and more ill tempered with every passing quarter.

This reminds me of the similarly irresponsible Fed actions of 2005 - 2006.  In that case the Fed didn't just take candy from the brat, they went on to stomp on it's windpipe!  Forgotten in the blur of deceptive history is how the housing bubble, which the Fed helped create, came to collapse so violently and led to the financial crisis of 2008.

From 2005 - 2006 the Fed raised interest rates from 1% to 5.25%.  That was an increase of 425%! Housing prices, being inversely related to mortgage rates, promptly crashed.   It need not have happened that way.  The fed acted irresponsibly.

Now they are being overly cautious and inflating bubbles in equities, real estate, mergers, debt, etc. Much of the risk is once again concentrated in the federal government.  Fannie and Freddie own just about every mortgage written since 2008.  The Federal Reserve now owns over four trillion dollars of interest rate sensitive securities.  Plus, the rising dollar is squeezing exporters which would only get worse if the Fed normalizes.

We've seen what happens when the Fed helps distort and then crushes a big sector of the economy. Now we are seeing what happens when the Fed just keeps distorting.

Remind me again how we've got a free market economy in the U.S.?  







Wednesday, August 26, 2015

Big Surprise - Stern likes Trump!

Howard Stern has endorsed Donald Trump.   This will not come as a surprise to readers of undiepundit.com.  Here's what I wrote over a month ago:  

Donald Trump is the Howard Stern of politics.  He’s a shock jock in a field of politicians who sound like boring newsreaders.  He opens his mouth and out comes ego, shameless self-promotion, outrageousness, braggadocio, and downright meanness towards his detractors.   
But there are other things too which endear him to his audience.   He’s fearless, confident, unapologetic, and says things no one else has the cojones to say.   And he's entertaining.  Very entertaining.  In other words, he’s exactly like Howard Stern!  His fans are the same too.  Listen to them talk and you'll find yourself expecting them to blurt out “Baba Booey!” any second.  
Donald Trump is a serious candidate for President the same way Howard Stern was a serious candidate when he ran for Governor of New York in 1994.  Stern didn’t win.  Neither will Trump.       
That said, I really want Donald Trump to be the next President.  Allow me to explain. 
President Trump could accomplish from within the government what could never be accomplished from without:  namely the destruction and de-legitimization of the federal leviathan.  
Donald Trump could be the virus that infects and ultimately kills the progressive idea that government can and should micro-manage every aspect of your life.  Sure it sounds appealing when a silver-tongued community organizer gives you a one sided utopian vision to cling to.   But how many want to sign up for that same program when the guy who says “you’re fired!” becomes boss?  
Donald Trump holds people accountable.  That alone would stop totalitarianism in its tracks.  The only way the progressive takeover can continue is if a majority stays convinced they are getting a free ride in exchange for others losing their freedoms.  Trump will give no one a free ride, and everyone will be his subject.   
Make Donald Trump President and inside of four years the electorate will be clamoring for limited government once again in America.  
So yes, Donald Trump for President.  And while we’re at it, Robin Quivers for VP.    Oh, and Baba Booey, Baba Booey, Baba Boooeeey! 

Friday, August 14, 2015

Why Socialism is Chic, and Capitalism is Not


Socialism is chic in 2015.   But, just a few short years ago, Obama voters would mock and charge racism when anyone likened his ideology to socialism.  Now, Bernie Sanders, an openly socialist candidate, is leading in some key polls of those very same voters!

Why is this happening in a country which enjoys the highest standard of living of any large diverse country, and one which uniquely earned it's place due to its historic reliance on free markets and constitutionally limited government?  Part of this is a triumph of deliberate indoctrination which has been going on for at least half a century.  Another part, and the most recent part, is a deliberate deception regarding the financial crisis of 2008.

Pop quiz:   
  1. Who is the father of modern socialism/communism?  
  2. Who is the father of modern capitalism? 
Odds are you will be able to answer the first question correctly, and can name Karl Marx as the father of modern socialism/communism.  You probably can do a decent job of explaining Marxism without even looking it up on Wikipedia.  You may even be familiar with the Marxist slogan, "from each according to his ability, to each according to his need".

Conversely, if you are asked who the father of modern capitalism is, odds are you'd either draw a blank or be mostly wrong.

You may not realize it, but socialists have been influencing you your whole life. Prior to the 1960's there were prohibitions on government workers joining organized labor.  That's because there was an obvious conflict of interest; organized labor and socialism have been synonymous throughout their shared history in the U.S..  But that changed in the 1960's under Democrat John F. Kennedy, and since then, government workers, including school teachers, have flooded into organized labor.   Most likely every teacher who taught you in a U.S. public school was a member of organized labor.  Of course, not all teachers nor members of organized labor are socialists, but the politics of organized labor in the U.S. leans undeniably in that direction.  Today, Karl Marx is the most assigned economist in U.S. college classes.  


So how did you answer the second question?  In one sense the answer to that one is again... Karl Marx.  Yes, Karl Marx is both the father of modern socialism AND the father of modern capitalism. Karl Marx was the person who defined capitalism for the masses in his scathing critique of 1860s capitalism, called "Das Kapital".  He constructed a convenient dichotomy between socialism and capitalism based on his own definitions to support his theories .  Of course Marx's preferred ideology, socialism, was defined in the most glowing light, while capitalism was defined in the most sinister.

Many scholars credit a Scotsman named Adam Smith as the person whose ideas most influenced our economic system.  Adam Smith’s book, “An Inquiry into the Nature and Causes of the Wealth of Nations”, was actually published in 1776.  (That date rings a bell, no?)  But the word capitalism didn't exist in Adam Smith’s day.  He never used it.  We mistakenly call our economic system capitalism because that's what Marx and the critics called it.  The name unfortunately stuck. 

If everyone knows what Marxism is, why doesn't everyone know what "Smithism" is?  Because it’s not taught, except to economics majors.  "Smithism" never became a word.  Marxism is taught everywhere all the time, and not just to economics majors.  If you want to learn about Adam Smith, you most likely have to do it on your own.  You can go through K-12 and well beyond in schools in the U.S., and never hear the name Adam Smith, never learn about his ideas, and never understand the influence those ideas had on the founding of our country.  If you go to Wikipedia and look up Marxism, you’ll find plenty.  If you go to Wikipedia and look up Smithism, you’ll get crickets. 

How about a more modern term, like Supply Side Economics?  You are probably familiar with that term, but can you accurately define it?  Can you define its opposite, Demand Side Economics?


·         Supply side economics is the theory that people will SUPPLY (create) more value if they are allowed to function in a free market.
   
·         Demand side economics is the theory that people will DEMAND (consume) more value if wealth is redistributed to them.
    
These are opposite approaches for achieving different economic goals.  Supply Side seeks to optimize overall economic vitality (Smithism).  Demand Side at times seeks to stimulate consumption (Keynesianism), or at times to achieve egalitarianism (Marxism).

If you look up supply side economics on Wikipedia, you’ll find a thorough entry along with plenty of criticisms.  If you look up demand side economics, you’ll get zip.  The language in this case does not favor the socialist demand side ideology.   Hence, it is not even defined.

No event has had a more profound impact on this country's recent tilt towards socialism than the financial crisis of 2008.  It is said that history is written by the victors.  That has never been more true than in the wake of the financial crisis.  Democrats controlled the government commission that wrote the post-mortem.  Barack Obama won the presidency.  Democrats had both houses of congress.  And liberals made the movies and wrote the books explaining the crisis to the masses. Unfortunately, everything they told you was a deliberate deception designed to exonerate socialism, and scapegoat capitalism.   

The fact is the financial crisis of 2008 was a perfect demonstration of the failures of socialism. Redistribution of wealth, in this case redistribution of mortgage credit, was at the heart of the financial crisis.  At times, the support for this redistribution was bi-partisan, but the ideology behind it was socialist regardless of who was advocating.

It all began with the affordable housing goals promoted by Democrats in the early 1990s, which lowered mortgage requirements.  It accelerated in the mid 1990s under Democrat Bill Clinton with further loosening of mortgage standards, pressure on banks to write loose loans, and mandates for government backed companies FNMA (Fannie Mae) and FHLMC (Freddie Mac) to buy all the new mortgages.  It finally reached it’s apex in 2007 under Republican George W. Bush, while Democrats, including Senator Barack Obama, ran both houses of congress.

All the risk from this socialist redistribution was supposed to be assumed by the federal government in the form of the afore mentioned government backed companies.  Fannie and Freddie were ground zero for the financial crisis.  No government official took more money from these two companies, and at a faster rate, than the junior Senator from Illinois named Barack Obama.  His closest competitors in that money grab included Barney Frank, Chris Dodd, and Hillary Clinton.  If this is news to you,  it's because they wrote the history.

What they told you was that it was a perfect storm involving greedy bankers, deregulation, and the natural flaws of capitalism.  It was a plausible argument designed to deceive.  Bankers today are no greedier than their banking forebears.  So why did they suddenly engage in subprime lending for the first time in history in such large numbers? Because they were coerced to do so by their government.

Deregulation also had nothing to do with it.  Canadian banks are lightly regulated compared to their U.S. counterparts, and none of them failed.  Are U.S. bankers so much greedier than their Canadian counterparts that they drove their banks into insolvency while their less regulated neighbors to the north did not?  No, it was U.S. government regulation in the form of a socialist housing policy that caused the financial crisis.  Unfortunately, when the scheme went bad, the damage spread to the private banking and investment sector, bringing the entire global financial system to its knees.

The deceptions about this animated the Occupy Wall Street movement, got Barack Obama elected twice, and are responsible for the acceptance of openly socialist candidate Bernie Sanders today.   They are also part of the continuing campaign that has mischaracterized the mortgage market as an example of failed capitalism.

The frightening thing about this is, if history is written by the victors and they engage in deception, aren't we doomed to repeat it?  We are.  Fannie and Freddie own just about every new mortgage written since 2008, and the socialist policies promoting home ownership and borrowing have accelerated under Barack Obama.  We are in the process of building a second real estate bubble. Adding to that scenario is a socialist national debt bubble, student loan bubble, auto loan bubble, and equity bubble.

You might be saying, "OK, big deal, I'm a socialist.  Lots of countries are socialist, and some of them seem to be doing just fine. Britain and much of Europe are pretty socialist.  Why can't we have what they have?  Free healthcare, free college, and lots of benefits sounds pretty good to me!".  Well, we can have those things too.  But it won't last.  Seen Europe lately?  It ain't pretty.  Socialist Europe is dying.

Here's the thing:  National socialism has never produced anything long term other than misery, starvation, poverty, and authoritarianism.  That's at the national level.  And long term.  At the local level, socialism can survive a bit longer.  Local socialism does not eliminate the incentive killing aspects of socialism, but it does delay the inevitable monetary collapse.  That's because local governments cannot create money. State and local governments must be more disciplined or risk imminent collapse.  Therefore, they tend to be more fiscally responsible.  National governments can hide their insolvency much longer, plunder future generations, devalue currencies, manipulate interest rates, and cause much bigger problems down the road.

This is an important point that deserves repeating;  socialism cannot work long term at the national level.  The national level is where money is usually created and controlled.  The Euro countries are a recent exception now that money is no longer controlled by the individual countries.  The Euro is controlled by the European Central Bank, which is a consortium of 19 Eurozone countries .  It's almost like they recognized the fatal flaw and are trying to work around it.

But in the U.S. we have no such arrangement.  We borrow and print money at the federal level. Our system was never designed to be a socialist system.  The constitution implied that the states were the proper place for redistributive experimentation.  At the national level, the conflict of interest is just too great for elected officials.  National politicians will eventually destroy the currency, borrow too heavily, undermine the work ethic, and undermine national defense in an attempt to gain and maintain power today.  The founders knew that.  It's happening today. We have doubled our national debt in just the last seven years.  Interest rates have been artificially held near zero for that entire time.  If and when rates normalize to historical levels, the debt service alone will cause the kind of pain socialist nations have felt throughout history. We are not immune.
  
In summary: You were indoctrinated to be a socialist. You were indoctrinated to call our system capitalism.  You've been deceived about the benefits of socialism.  You've been deceived about the evils of free markets.  And you've been deceived about the perils of national socialism.  If you still think socialism is chic after all that, that is your right.  Just keep it local, and maybe - just maybe, it won't collapse until after your kids inherit the mess.

Saturday, August 8, 2015

Trump to GOP: "Baba Booey!"



Donald Trump is the Howard Stern of politics.  He’s a shock jock in a field of politicians who sound like boring newsreaders.  He opens his mouth and out comes ego, shameless self-promotion, outrageousness, braggadocio, and downright meanness towards his detractors.  But there are other things too which endear him to his audience.   He’s fearless, confident, unapologetic, and says things no one else has the cojones to say.   And he's entertaining.  In other words, he’s exactly like Howard Stern.  His fans are the same too.  Listen to them talk and you'll find yourself expecting them to blurt out “Baba Booey!” any second. 

Donald Trump is a serious candidate for President the same way Howard Stern was a serious candidate when he ran for Governor of New York in 1994.  Stern didn’t win.  Neither will Trump.      

That said, I really want Donald Trump to be the next President.  Allow me to explain.  

President Trump could accomplish from within the government what could never be accomplished from without:  namely the destruction and de-legitimization of the federal leviathan. 

Donald Trump could be the virus that infects and ultimately kills the progressive idea that government can and should micro-manage every aspect of your life.  Sure it sounds appealing when a silver-tongued community organizer gives you a one sided utopian vision to cling to.   But how many want to sign up for that same program when the guy who says “you’re fired!” becomes boss? 

Donald Trump holds people accountable.  That alone would stop totalitarianism in its tracks.  The only way the progressive takeover can continue is if a majority stays convinced they are getting a free ride in exchange for others losing their freedoms.  Trump will give no one a free ride, and everyone will be his subject.  Make Donald Trump President and inside of four years the electorate will be clamoring for limited government once again in America. 

So yes, Donald Trump for President.  And while we’re at it, Robin Quivers for VP.    Oh, and Baba Booey, Baba Booey, Baba Boooeeey! 


(I posted this originally on 7/21, and in light of everything since, including the debates,  it holds-up pretty well.  Lately Trump has been taking on Megyn Kelly with his characteristic meanness, and Carly Fiorina is having none of it.  I can't think of two women I'd rather not cross more than those two.  Nevertheless The Donald Trump Show will continue and we will all be diminished by it.  Everyone that is except the Clintons who more and more appear to be the architects and beneficiaries of this risible show.)