Have nothing to do with the [evil] things that people do, things that belong to the darkness. Instead, bring them out to the light... [For] when all things are brought out into the light, then their true nature is clearly revealed...

-Ephesians 5:11-13

Category Archives: Economics

Financial Reform: Expanding Hubris, Limiting Freedom

Chris Dodd

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When the House passed the 2,319-page Dodd-Frank financial reform bill by a vote of 237-192, all it did was confirm for many the extraordinary hubris of legislators believing they could in fact “fix” the problems they themselves created which resulted in the Great Recession of 2008.

John B. Taylor,  professor of economics at Stanford University says, “The main problem with the bill is that is based on a misdiagnosis of the causes of the financial crisis…the presumption that the government did not [already] have enough power to avoid the crisis.”

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Double Dip Evidence Piling Up

Double Dipped Cones

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When John Hussman, in his Weekly Market Comment, noted that the Economic Cycle Research Institute’s (ECRI) Index “has slumped to the lowest level in 44 weeks and has now gone to a negative reading,” he was confirming other recent signals that the economy was giving off, notably here and here, that the possibility of a double dip recession continues to increase.

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New York’s Plan: Kick the Can

An empty tin can.

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New York Governor David Paterson said in a radio interview on June 10 that his state might have to issue IOUs to pay its bills, or else face “anarchy in the streets.” The state faces a $9.2 billion deficit, and the legislature is two months late in voting on the budget.  An actual shutdown of state services has been avoided, temporarily, by enacting temporary emergency spending bills.  Even if the government shuts down, there is serious question about whether police, firefighters, prison guards and emergency and healthcare workers could continue to work without pay. “You could have anarchy literally in the streets if the government shuts down,” Paterson said.

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50-year-old Book is Amazon Bestseller

Cover of "The Road to Serfdom: Text and D...

Cover via Amazon

When Glenn Beck urged his listeners, “Please, pick it up. The Road to Serfdom. Make it part of your essential library,” sales of Austrian Economist Frederick von Hayek’s book at Amazon.com pushed it to Number 1 the next day. Prior to the election of President Obama, “The book sold respectably at a clip of about 600 copies a month,” according to Bruce Caldwell, editor at the University of Chicago Press. “But then, in November 2008, sales more than quadrupled, and they haven’t slowed down since.”

When John Stossel, host of Fox Business, featured the book on his show on February 21, sales jumped again.

Opinions as to the remarkable interest in a book published in 1944 by an obscure economist vary, but most center on the book’s uncanny prediction that is now being fulfilled in the United States:

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National Debt at Tipping Point?

Tea Party

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The Wall Street Journal took another look at the $13 trillion national debt written about here last week and announced that, according to a study by economists Carmen Reinhart and Kenneth Rogoff, the economy has now reached the tipping point, the Reinhart-Rogoff Line, better known as the point of no return.

“Once a developed nation’s debt crosses it, its annual growth [tends to be much] lower.” The best estimate is that, once that point is reached, the GDP will be reduced by one-third, with little chance of regaining normal economic output for the foreseeable future.

In their book, This Time Is Different, Reinhart and Rogoff state:

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Mortgage Defaults Increasing

Luigi Zingales

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According to the New York Times, “A growing number of the people whose homes are in foreclosure are refusing to slink away in shame.” They are just refusing to make their mortgage payments but continue to live in their home until the bank evicts them. LPS Applied Analytics says the average borrower in foreclosure “has been delinquent for 438 days before actually being evicted.” This means that the homeowner essentially lives rent-free for nearly 15 months, and can use his mortgage payment to make other payments such as car loans and credit cards.

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Jobs? What Jobs?

Henry Hazlitt

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When CNBC announced that the number of workers filing new claims for unemployment benefits fell last week while private employers added new jobs in May, this was “further evidence [that] the labor market was improving.” In more muted fashion, the Associated Press called it a “slow-motion recovery,” but a recovery nevertheless.

This was in line with Vice President Joe Biden’s prediction back in April that the economy would be adding between 250,000 and 500,000 jobs “in the next couple of months.” Similar sentiments were echoed by President Obama on Wednesday in a speech at Carnegie Mellon University:

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Economic Forecast: Summer of Discontent

Frowny

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After six straight months of gains in consumer spending the April numbers showed no change from March, according to the Commerce Department. This was a surprise to some who have been tracking such things as the University of Michigan’s index of consumer confidence (higher), consumers’ expectations on the economy over the next 12 months (higher), moderate real job creation (higher), savings rate (higher) and manufacturing activity (higher).

Others remained sanguine, holding that “We do not expect household spending to flatline in the coming months,” according to Michelle Girard, senior economist at RBS in Stamford, Connecticut.

Consumers themselves, however, are not a happy lot. According to Rasmussen Reports, only 35 percent of Americans are planning to take a summer vacation this year, and those who are, aren’t planning on spending as much as they have in the past.

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$13 Trillion and Counting

Tax Day Debt Protest 2009

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When former Comptroller General Bill Walker, who headed the U.S. Government Accountability Office, said two years ago that the “official” debt of the United States “is only around $10 trillion,” he wryly suggested that since this number was produced by “government accounting, which…allows one to ignore Social Security, Medicare and the new prescription drug benefit [it was like] ignoring rent, food and utilities in your household budget [and] it will lead to a few bounced checks.” However, he added, “Our real debt is about ten times higher,” or about $100 trillion.

At the time this was a breath-taking number, but Walker was just repeating what Richard Fisher, President of the Dallas Federal Reserve, had said just a couple of months earlier.

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Biden Predicts Job Growth—but Where’s the Evidence?

Vice President Joe Biden takes the oath of off...

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Vice President Joe Biden predicted job growth of 250,000 to 500,000 jobs a month in the next two months, according to CNBC on Monday. Biden was speaking at a political fundraiser in Pittsburgh, where he said, “We caught a lot of bad breaks on the way down. We’re going to catch a few good breaks because of good planning on the way up…All in all, we’re going to be creating somewhere between 100,000 and 200,000 jobs next month.”  Even though some have cautioned Biden about his excessive and premature enthusiasm, Biden continued:  “I’m here to tell you some time in the next couple of months we’re going to be creating between 250,000 jobs a month and 500,000 jobs a month.”

However, the evidence and logic backing up Biden’s prediction are clearly lacking.

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Dow Theory’s Russell Says Major Crash Coming

Charles Dow -an American journalist who co-fou...

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The day after the “flash crash” in the stock market on May 6th, Richard Russell, the octogenarian author of the Dow Theory Letterssaid:

Something dramatic lies ahead…Most players believe that yesterday’s “sell-off” was a direct result of the mess in Greece…but that seems too simple and obvious to me. The far more important question is whether the entire advance from the March 2009 low is fated to be wiped out…my suspicion is that the stock market is back in the grip of the bear.

Russell founded the Dow Theory Letters in 1958 and has a remarkable record of calling tops and bottoms in the markets ever since.  He believes in the basic tenets of Dow Theory which were first discovered, refined, and then explained by Charles Dow who began publishing a little newspaper in 1889 called The Wall Street Journal.

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10,000 Commandments—The Hidden Tax

Moses with the tablets of the Ten Commandments...

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When the Competitive Enterprise Institute (CEI) announced the conclusions of its annual “Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State” earlier this week, it came as no surprise to learn that the rules and regulations placed on the economy by illicit agencies of the “fourth branch of government” constitute an enormous burden that is largely uncounted.

What was surprising was the horrendous cost of that burden which constitutes an additional tax on the economy.

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The Income Tax and Sovereignty

Portrait of John Locke, by Sir Godfrey Kneller...

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April 15th is the day when American taxpayers must file their income tax returns, and Tea Partiers are protesting those taxes all across the country. One question not being raised is: If these citizens are sovereign over their government, who can explain the income tax? How did this happen? Are the citizens not sovereign after all?

When Thomas Jefferson wrote the Declaration of Independence, he clearly relied on the thinking of his mentors, especially including John Locke. According to Jim Powell,writing for The Freeman, Locke “expressed the radical view [at the time] that government was morally obligated to serve people, namely by protecting life, liberty, and property. He explained the principle of checks and balances to limit government power. He favored representative government and a rule of law.”

Locke published two treatises on government in 1689 in which he said:

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47 Percent Pay No Taxes? Actually, No.

Seal of the Internal Revenue Service

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In a recent article here about the VAT (Value-Added Tax) being floated as another way to raise taxes, the author stated that a VAT “would force the 50 percent of people in the poor and middle classes who pay no income taxes at present to start to contribute to the ever-increasing costs of the nanny state.” Fortunately, the New York Times published a correction and a clarification.

According to the Times, which took a closer look at the data from the Tax Policy Center, “The stimulus programs of the last two years [under the Bush and Obama administrations] have increased the number of households that receive enough of a tax credit to wipe out their federal income tax liability…but income taxes aren’t the only kind of federal taxes that people pay.”

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Will America Get a Value Added Tax (VAT)?

President's Advisory Panel for Federal Tax Reform

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Former Federal Reserve Chairman Paul Volcker sent up a trial balloon at the New York Historical Society April 6 when he said that a Value-Added Tax (VAT) needed to be considered in light of the huge deficits facing the country. According to Volcker, the VAT is “not as toxic an idea” as many have considered it to be in the past, and “if at the end of the day we need to raise taxes, we should raise taxes.”

He wasn’t the first one to float this recently. Charles Krauthammer wrote late last month that “as the night follows the day, the VAT cometh” and that “a national sales tax near-universal in Europe is inevitable.” Because of the huge deficits facing the nation, exacerbated by the newly passed ObamaCare bill, there is no way out except to raise taxes, according to Krauthammer.

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Strategic Defaults: Morality vs. Reality

Stuffed

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According to RealtyTrac, nearly 3 million foreclosures were filed in 2009. And with almost 10 percent of all mortgages now delinquent nationally, those homeowners are faced with a painful decision: continue to make payments even if they are underwater, or do a “strategic default.”

In January, 2006, a young professional couple with two children bought a three-bedroom home in Salinas, California, for $585,000.  With excellent credit, they signed the papers for a no-money-down, 30-year, fixed-rate mortgage, with payments of $4,300 a month. Today, the balance they owe is $560,000, but the present market value of their home is estimated to be about $187,000. Here is their dilemma: They made a promise, and signed on the dotted line, fully expecting to make timely payments over the term of the loan. But there is a home for rent just down the street with payments of just $1,000 a month.

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Fed Ends MBS Intervention

The Federal Reserve: The Biggest Scam In History

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The Federal Reserve ended its largest intervention in the housing market on April 1, ceasing its purchase of Mortgage-Backed Securities (MBS) that began in September of 2008 in order to keep the housing market from imploding.

According to the New York Times, the program succeeded in keeping “mortgage interest rates at near-record lows and slowing the nationwide decline in home prices.” Professor Susan Wachter at the Wharton School explained: “We were in a deflationary spiral, causing mortgages to go underwater, more foreclosures and a further decline in housing prices. The potential maelstrom of destruction was out there, bringing down not only the housing market but the overall economy. That’s what [this program] stopped.” She added that this Fed program was “the single most important move to stabilize the economy and to prevent a debacle.”

Wachter’s statements reveal many errors in her thinking, but especially her belief in interventionism as a cure for the inevitable effects of previous inflationary policies.

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Citigroup Bailout Retrospective

Citigroup

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In the announcement that the U.S.Treasury was likely to make a profit selling its stock in Citigroup, much was made about the great returns that sale would generate, and very little was said about how it all happened in the first place.

The potential profit was estimated to be about $7.5 billion assuming that the price of Citigroup’s stock stays at its current level through the end of the year. The article joyfully announced that “it’s a 14 percent rate of return on the $165 billion invested in the biggest banks. Hundreds of smaller banks also received [TARP] money and have been paying the government a steady stream of dividends and interest.” Banking analyst Bert Ely said, “Overall, TARP may cost taxpayers money. But the banking part of it is going to be a moneymaker.”

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Housing: Washington Only Delaying Inevitable

Foreclosure Sign, Mortgage Crisis

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Friday’s announcement of more intervention in the housing mortgage market will result in a deeper, longer, and more painful delay in the inevitable decline in housing prices that are necessary to clear the market. According to the Obama administration, the “broad new initiatives” will help troubled homeowners to refinance their existing mortgages with more favorable affordable ones provided directly by the government. Part of the new program is “meant to temporarily reduce the payments of [those] borrowers who are unemployed [but are] seeking a job.” In addition, the enhancements include inducements to “encourage lenders to write down the value of loans [already] held by borrowers in modification programs.”

In simple English, HAMP (the Home Affordable Modification Program), announced with great fanfare and high expectations early on in the Obama administration, isn’t working, and so more of the same is required.

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ObamaCare: The Final Nail, or the Last Straw?

Barack Obama addressing a joint session of Con...

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In responding to House Speaker Nancy Pelosi’s (D-Calif.) incredulous “Are you serious?” about the constitutionality of Obamacare, many have written persuasively that the healthcare law is in fact unconstitutional.

Michelle Morin in her blog reminded her readers that Article 1, Section 8 limits the federal government to specific and enumerated powers, with all other unenumerated powers being left to the states or to the people. Michael Boldin of the Tenth Amendment Center analyzed the purpose of the Constitution and the Bill of Rights as limitations and restrictions on the power of the federal government. He concludes his analysis with these words:

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Many of the articles on Light from the Right first appeared on either The New American or the McAlvany Intelligence Advisor.