Tidbits Quotations on August 20, 2010
To Accompany the August 20, 2010 edition of Tidbits
Bob Jensen at Trinity University


This is not a forwarded politically-biased message since David Walker is leading a very bipartisan effort to save the United States from economic disaster. Former Andersen Partner David Walker was appointed U.S. Comptroller General by President Bill Clinton and retained in the same position under President Bush ---

In his government position David Walker became staggered by the pending economic doom of the United States.

At the American Accounting Association 2010 annual meetings in San Francisco in August, David Walker will be the only person inducted this year into the Accounting Hall of Fame. Since leaving government service, David became the CEO of the Peterson Foundation that is trying to aid our government in saving the United States from entitlements bankruptcy. (By the way, as I read it, the Peterson Foundation supported the latest health care legislation that, in theory, will reduce deficit spending, although I personally think it should’ve been a full-fledged national health plan).

President Obama has appointed a joint task force to find ways of preventing total economic disaster of the United States that exists not so much because of current trillion dollar deficits as the threat of unfunded future entitlements obligations, with Medicare being the biggest unfunded entitlement as baby boomers retire.

Before viewing the Town Hall video, you might want to view the following earlier video:

You can watch a 30-minute version at
http://www.pgpf.org/newsroom/press/IOUSA-Solutions-Premiers-on-CNN/   (Scroll Down a bit)
Note that great efforts were made to keep this a bipartisan panel along with the occasional video clips of President Obama discussing the debt crisis. The problem is a build up over spending for most of our nation’s history, It landed at the feet of President Obama, but he’s certainly not the cause nor is his the recent expansion of health care coverage the real cause.

One take home from the CNN show was that over 60% of the booked National Debt increases are funded off shore (largely in Asia and the Middle East).  

 This going to greatly constrain the global influence and economic choices of the United States.

By 2016 the interest payments on the National Debt will be the biggest single item in the Federal Budget, more than national defense or social security. And an enormous portion of this interest cash flow will be flowing to foreign nations that may begin to put all sorts of strings on their decisions  to roll over funding our National Debt.

The unbooked entitlement obligations that are not part of the National Debt are over $60 trillion and exploding exponentially. The Medicare D entitlements to retirees like me added over $8 trillion of entitlements under the Bush Presidency.

Most of the problems are solvable except for the Number 1 entitlements problem --- Medicare.
Drastic measures must be taken to keep Medicare sustainable.



Watch National Town Meetings


Video on IOUSA Bipartisan Solutions to Saving the USA

If you missed Sunday afternoon CNN’s two-hour IOUSA Solutions broadcast, you can watch a 30-minute version at
http://www.pgpf.org/newsroom/press/IOUSA-Solutions-Premiers-on-CNN/   (Scroll Down a bit)
Note that great efforts were made to keep this a bipartisan panel along with the occasional video clips of President Obama discussing the debt crisis. The problem is a build up over spending for most of our nation’s history, It landed at the feet of President Obama, but he’s certainly not the cause nor is his the recent expansion of health care coverage the real cause.

One take home from the CNN show was that over 60% of the booked National Debt increases are funded off shore (largely in Asia and the Middle East).
This going to greatly constrain the global influence and economic choices of the United States.

By 2016 the interest payments on the National Debt will be the biggest single item in the Federal Budget, more than national defense or social security. And an enormous portion of this interest cash flow will be flowing to foreign nations that may begin to put all sorts of strings on their decisions  to roll over funding our National Debt.

The unbooked entitlement obligations that are not part of the National Debt are over $60 trillion and exploding exponentially. The Medicare D entitlements to retirees like me added over $8 trillion of entitlements under the Bush Presidency.

Most of the problems are solvable except for the Number 1 entitlements problem --- Medicare.
Drastic measures must be taken to keep Medicare sustainable.


I thought the show was pretty balanced from a bipartisan standpoint and from the standpoint of possible solutions.

Many of the possible “solutions” are really too small to really make a dent in the problem. For example, medical costs can be reduced by one of my favorite solutions of limiting (like they do in Texas) punitive damage recoveries in malpractice lawsuits. However, the cost savings are a mere drop in the bucket. Another drop in the bucket will be the achievable increased savings from decreasing medical and disability-claim frauds. These are important solutions, but they are not solutions that will save the USA.

The big possible solutions to save the USA are as follows (you and I won’t particularly like these solutions):



Watch for the other possible solutions in the 30-minute summary video ---
(Scroll Down a bit)


Here is the original (and somewhat dated video that does not delve into solutions very much)
IOUSA (the most frightening movie in American history) ---
(see a 30-minute version of the documentary at www.iousathemovie.com )

If you missed Sunday afternoon CNN’s two-hour IOUSA Solutions broadcast, you can watch a 30-minute version at
http://www.pgpf.org/newsroom/press/IOUSA-Solutions-Premiers-on-CNN/   (Scroll Down a bit)
Note that great efforts were made to keep this a bipartisan panel along with the occasional video clips of President Obama discussing the debt crisis. The problem is a build up over spending for most of our nation’s history, It landed at the feet of President Obama, but he’s certainly not the cause nor is his the recent expansion of health care coverage the real cause.

Watch the World Premiere of I.O.U.S.A.: Solutions on CNN
Saturday, April 10, 1:00-3:00 p.m. EST or Sunday, April 11, 3:00-5:00 p.m. EST

Featured Panelists Include:

  • Peter G. Peterson, Founder and Chairman, Peter G. Peterson Foundation
  • David Walker, President & CEO, Peter G. Peterson Foundation
  • Sen. Bill Bradley
  • Maya MacGuineas, President of the Committee for a Responsible Federal Budget
  • Amy Holmes, political contributor for CNN
  • Joe Johns, CNN Congressional Correspondent
  • Diane Lim Rodgers, Chief Economist, Concord Coalition
  • Jeanne Sahadi, senior writer and columnist for CNNMoney.com

Watch for the other possible solutions in the 30-minute summary video ---
(Scroll Down a bit)


CBS Sixty minutes has a great video on the enormous cost of keeping dying people artificially alive:
High Cost of Dying --- http://www.cbsnews.com/video/watch/?id=5737437n&tag=mncol;lst;3
(wait for the commercials to play out)

U.S. Debt/Deficit Clock --- http://www.usdebtclock.org/

"The Looming Entitlement Fiscal Burden," by Gary Becker, The Becker-Posner Blog, April 11, 2010 ---

"The Entitlement Quandary," by Richard Posner, The Becker-Posner Blog, April 11, 2010 ---

David Walker --- http://en.wikipedia.org/wiki/David_M._Walker_(U.S._Comptroller_General)

Niall Ferguson --- http://en.wikipedia.org/wiki/Niall_Ferguson

Call it the fatal arithmetic of imperial decline. Without radical fiscal reform, it could apply to America next.
Niall Ferguson, "An Empire at Risk:  How Great Powers Fail," Newsweek Magazine Cover Story, November 26, 2009 --- http://www.newsweek.com/id/224694/page/1
Please note that this is NBC’s liberal Newsweek Magazine and not Fox News or The Wall Street Journal.

. . .

In other words, there is no end in sight to the borrowing binge. Unless entitlements are cut or taxes are raised, there will never be another balanced budget. Let's assume I live another 30 years and follow my grandfathers to the grave at about 75. By 2039, when I shuffle off this mortal coil, the federal debt held by the public will have reached 91 percent of GDP, according to the CBO's extended baseline projections. Nothing to worry about, retort -deficit-loving economists like Paul Krugman.

. . .

Another way of doing this kind of exercise is to calculate the net present value of the unfunded liabilities of the Social Security and Medicare systems. One recent estimate puts them at about $104 trillion, 10 times the stated federal debt.

Continued in article --- http://www.newsweek.com/id/224694/page/1


Niall Ferguson is the Laurence A. Tisch professor of history at Harvard University and the author of The Ascent of Money. In late 2009 he puts forth an unbooked discounted present value liability of $104 trillion for Social Security plus Medicare. In late 2008, the former Chief Accountant of the United States Government, placed this estimate at$43 trillion. We can hardly attribute the $104-$43=$61 trillion difference to President Obama's first year in office. We must accordingly attribute the $61 trillion to margin of error and most economists would probably put a present value of unbooked (off-balance-sheet) present value of Social Security and Medicare debt to be somewhere between $43 trillion and $107 trillion To this we must add other unbooked present value of entitlement debt estimates which range from $13 trillion to $40 trillion. If Obamacare passes it will add untold trillions to trillions more because our legislators are not looking at entitlements beyond 2019.


The Meaning of "Unbooked" versus "Booked" National Debt
By "unbooked" we mean that the debt is not included in the current "booked" National Debt of $12 trillion. The booked debt is debt of the United States for which interest is now being paid daily at slightly under a million dollars a minute. Cash must be raised daily for interest payments. Cash is raised from taxes, borrowing, and/or (shudder) the current Fed approach to simply printing money. Interest is not yet being paid on the unbooked debt for which retirement and medical bills have not yet arrived in Washington DC for payment. The unbooked debt is by far the most frightening because our leaders keep adding to this debt without realizing how it may bring down the entire American Dream to say nothing of reducing the U.S. Military to almost nothing.

Niall Ferguson,
"An Empire at Risk:  How Great Powers Fail," Newsweek Magazine Cover Story, November 26, 2009 --- http://www.newsweek.com/id/224694/page/1

This matters more for a superpower than for a small Atlantic island for one very simple reason. As interest payments eat into the budget, something has to give—and that something is nearly always defense expenditure. According to the CBO, a significant decline in the relative share of national security in the federal budget is already baked into the cake. On the Pentagon's present plan, defense spending is set to fall from above 4 percent now to 3.2 percent of GDP in 2015 and to 2.6 percent of GDP by 2028.

Over the longer run, to my own estimated departure date of 2039, spending on health care rises from 16 percent to 33 percent of GDP (some of the money presumably is going to keep me from expiring even sooner). But spending on everything other than health, Social Security, and interest payments drops from 12 percent to 8.4 percent.

This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in the resources available for the Army, Navy, and Air Force. Which is why voters are right to worry about America's debt crisis. According to a recent Rasmussen report, 42 percent of Americans now say that cutting the deficit in half by the end of the president's first term should be the administration's most important task—significantly more than the 24 percent who see health-care reform as the No. 1 priority. But cutting the deficit in half is simply not enough. If the United States doesn't come up soon with a credible plan to restore the federal budget to balance over the next five to 10 years, the danger is very real that a debt crisis could lead to a major weakening of American power.


Entitlements Warnings --- http://www.cs.trinity.edu/~rjensen/temp/Entitlements7-21-10%20-%20EOTM%20-%20Twilight.pdf
Thank you for giving me permission to post this Michael Cembalest [michael.cembalest@jpmorgan.com]
Michael Cembalest, Chief Investment Officer, J.P. Morgan Private Banking

"Peter G. Peterson: Tax Aversion Syndrome and Our Deficit Future:  We've run out of painless options. Higher taxes and reduced entitlement benefits for the well-off are the only solutions," The Wall Street Journal, July 24, 2010 ---

People fret about the current public debt rising to 60% of GDP, which many economists believe should be the maximum debt level. But they ignore Congressional Budget Office (CBO) projections that, under current policies, the public debt will reach a staggering 233% of GDP in 30 years and nearly 500% in 50 years.

This is an unthinkable and unsustainable path. In less than 50 years, for example, the CBO projects that interest payments on the national debt alone will represent nearly 20% of the entire U.S. economy and consume 100% of government revenues. This leaves not a penny for any government programs, including critically needed education, R&D and infrastructure. With plummeting savings rates, already 47% of the public debt is held by foreign nations. Borrowing trillions more from China, the Middle East and elsewhere will leave us more beholden to lenders whose interests may not align with our own. Given the growing concerns about the global debt crisis, we need to build confidence we are getting our fiscal house in order. This added confidence will help our recovery.

Continued in article


Blessed are the young, for they shall inherit the national debt.
Herbert Hoover --- http://www.brainyquote.com/quotes/quotes/h/herberthoo110353.html

Historic Political Humor --- http://myloc.gov/exhibitions/hopeforamerica/Pages/default.aspx

"Unfunded Public Pensions—the Next Quagmire A federal bailout would cost trillions and prevent necessary reforms. But there are several ways states can rationalize their workers' retirement benefits," by R. Eden, Martin, The Wall Street Journal, August 19, 2010 ---

The next big issue on the national political horizon may be whether the federal government should bail out the many budget-strapped states and municipalities across the country, especially their overly generous and badly underfunded pension plans.

My home state of Illinois is in the deepest quagmire of all. We are essentially broke and getting by in the near term by borrowing and not paying our bills. Our longer-term problem is even more serious, as some of our pension plans may run out of money within about 10 years. Our unfunded pension obligations approach $80 billion, and our unfunded retiree health obligations add approximately $40 billion more.

The troubles in Illinois and other states may soon force the federal government to choose among three options. The first is to do nothing—in which case some pension plans will go bankrupt, retirees will suffer, and many local governments will face emergency cost-cutting and taxing scenarios that will drive out businesses and jobs.

The second option is to yield to the pressures, especially from state officials and organized labor, for condition-free bailouts and loans. Finally, the feds could choose to pressure ("incentivize") states and cities to straighten out their own affairs through loans to which they attach stringent conditions.

The consequences of doing nothing would be painful. But they would be far less harmful than the consequences of an unconditioned federal bailout, which would mean massive new fiscal commitments at the federal level.

Unfortunately, leaders in Illinois and elsewhere are now talking quietly about the possibility of a federal bailout. Such speculation undermines state and local efforts to reform pension systems or make other hard choices. Why agonize over unpopular budget cuts or tax increases if the feds will ride to the rescue?

Bailing out state pensions would be astronomically expensive. According to a Pew Foundation estimate this year, the total unfunded liabilities of the 50 states' pension funds amounted to about $1 trillion in 2008. Another recent study, by Josh Rauh of Northwestern and Robert Novy-Marx of the Chicago Booth School of Business, estimated that the unfunded liability was closer to $3 trillion. Adding the liabilities of municipal pension funds makes the total even larger.

The downside consequences of such expensive bailouts would be governmental as well as financial. Among other things, bailouts would seriously corrode one of the relief valves within our federal structure. Today, when a state manages its affairs in a particularly ineffective or costly way, its citizens can move to other states. If Washington were to take responsibility for state and local pensions, all taxpayers—in all states—would bear the burden.

A better approach would be for Washington to offer states support coupled with sustained pressure over the next decade. Participation by each state would be voluntary.

One form of support could be low-interest federal loans. An alternative could be federal authorization to issue tax-subsidized bonds, as suggested in June by Messrs. Rauh and Novy-Marx in The Economists' Voice electronic journal. Either way, federal support should be conditioned along the following lines:

• State and local pension funds—and not the federal government or state and local governments (except where state or municipal guarantees have already been made)—would be responsible for pension obligations already incurred for past service.

• Current defined benefit pension plans would be "frozen," meaning no new benefits would be accrued under those plans.

• Participating states could set up new retirement programs for both current and new employees in the form of defined contribution plans such as 401(k)s. Under this approach, the money contributed by employers and employees would be used solely to generate savings for those employees; it would not be used, Ponzi-style, to pay pension benefits to current retirees under the old underfunded plans.

With defined contribution plans, states and cities would not bear the risks associated with underfunding or the underperformance of fund assets. Most state and municipal workers would be able to start taking their money out of the plans at the same age as private-sector employees (police and firemen could retire earlier, e.g., at age 60). As an alternative to a defined contribution plan, states could adopt new, lower-cost defined benefit programs, subject to the requirement that funding be adequate to cover the costs.

These reforms would still leave the state plans with their current underfunded, defined benefit pension liabilities. Though state laws vary, many states and cities may be able to take the legal position that they are not liable as guarantors if and when a pension fund goes under. In Illinois, a retiree's contract claim would be against the pension fund, not the state. In any event, practically speaking, it is not likely that retirees would be able to recover tens of billions of dollars in past pension claims against their states.

Where do they go? The federal Pension Benefit Guaranty Corporation (PBGC) covers only private-sector plans, not state or other public-service plans. These could not easily be brought under the PBGC umbrella, and indeed, the last thing we need would be another, separate PBGC-type federal guarantee program for state and municipal pensions.

But when a major state pension fund runs out of money, there will be no good choices. Saddling states with billions in pension-fund debt is unattractive, but so is leaving retirees who are not under Social Security (like Illinois teachers and most Chicago workers) with busted pensions and no relief.

States might consider adopting one element of the federal PBGC plan. When a troubled private pension plan is administered by the PBGC, the agency pays less than 100% of what pensioners would receive if their plan were solvent. These reduced amounts vary with the retirement age: the earlier the retirement, the lower the maximum payment. In Illinois, where state employees can retire at 55 with enough years of service (and Chicago employees can retire at 50), such an approach would lead to significant haircuts.

Retirees and employees would not be happy with any amount less than the full annuity owed by their plans. But when plans are headed toward bankruptcy, such PBGC-type protection would be better than nothing, which is what they would get from a bankrupt fund.

Public pension funds are in dire need of change, but state and local hopes for a federal bailout now stand in the way of change. Quashing that hope—which the Obama administration could do with an explicit statement that it will not bail out state and local pension funds—would spur the reforms we need.


"Go To the Back of the CLASS," by Ed Feulner, Townhall, August 17, 2010 ---

In Washington, politicians often give their bills clever names designed more to obscure than to reveal.

Consider the CLASS Act. It sounds like yet another federal attempt to meddle in local schools. Instead, it stands for “Community Living Assistance Services and Support.”

CLASS was a little-noticed part of the massive Obamacare bill that the president signed in March. It’s supposed to provide affordable long-term care insurance to American workers. In reality, it creates another entitlement likely to increase our exploding federal deficit.

Starting next year CLASS is scheduled to begin enrolling people and collecting premiums. If CLASS was a normal insurance program, it would invest these premiums to build reserves. These reserves would later be tapped to provide benefits for those individuals in need of long-term care services.

But CLASS doesn’t work that way.

Similar to Social Security, all premiums that CLASS collects will be spent immediately. Its trust fund will be filled with government IOUs. Since participants need to pay five years of premiums before they’re eligible to collect any benefits, a sizeable amount of short-term revenue will be raised from CLASS. This aspect was especially useful when lawmakers were trying to find tricks to reduce the projected cost of Obamacare. By including the revenues from CLASS, politicians were able to pretend they’d reduced the cost of the bill by $70 billion.

But even Uncle Sam can’t spend your money twice. It’s impossible to spend the money today on government programs and invest the money to fund eventual benefits.

Eventually 2017 will arrive. That’s when CLASS starts paying benefits. It’s difficult to predict how soon after that the program would dive into the red and pay out more in benefits than it collects in premiums. Actuaries at the Centers for Medicare & Medicaid Services estimate it could be as soon as 2025.

Continued in article

Sophie's Dreaded Choice

"This is a bitter pill to swallow. As you can imagine, for me personally, it's like 'Sophie's Choice.'"

That's how Representative Rosa DeLauro (D., Conn.) summed up her decision to vote for this week's new spending bill, which sent $26.1 billion to states for Medicaid and to prevent layoffs of public employees. The new spending was fine with Ms. DeLauro. The cause of her angst was that it was partly offset by cutting $12 billion from expected outlays in the food stamp program, starting in 2014.

In the movie "Sophie's Choice" based on the William Styron book, Nazis force the character played by Meryl Streep to decide which of her two children will live. Yes, the analogy is overwrought, but Ms. DeLauro's comments are useful for illuminating the dilemmas that modern liberal governance presents to modern liberal priorities.

Democrats have so expanded entitlements like Medicaid that they are threatening to squeeze out other liberal programs—in this case, food stamps. More pointedly at the human level, the bill hands $10 billion to mainly unionized public employees, paid for by cutting benefits for the poor. Rosa's choice was to help the unions first. Readers can decide what that says about Ms. DeLauro's moral priorities.

Democrats say they'll restore the food stamp funding once they can find another $12 billion in tax hikes or (less likely) spending cuts to serve as offsets. They'd better hope they keep the House in November. Ms. DeLauro and her colleagues have clearly put at risk the additional funds they wanted to devote to feeding the poor, at a time when record numbers of Americans are now receiving such assistance.

The Obama Democrats have hugely expanded a middle-class entitlement machine—ObamaCare and student loans, added to Medicaid, Medicare and Social Security—that is now on course to swallow most federal spending and an ever-growing share of national wealth. Liberals will face many more "Rosa's choices" of their own making in the years to come.


Video:  Steve Wynn Takes On Washington  --- http://www.infowars.com/steve-wynn-takes-on-washington/

"The High Costs of Very Low Interest Rates:  Money that should be invested to create jobs is instead funding government debt, while worried consumers sit on the sidelines," by John C. Michaelson, The Wall Street Journal, August 11, 2010 ---

The prevailing view among economists, policy makers and Federal Reserve Board governors is that a zero or near-zero short-term interest rate stimulates the economy—the lower the rate, the better. It is time to re-examine this conventional wisdom. In fact, lowering interest rates too much may not stimulate recovery, but actually slow it. Yes, there are benefits from zero rates, but not nearly enough to outweigh their pernicious consequences.

In the first place, the Fed's policy of zero or near-zero interest rates means negligible returns on savings. Consumers thus have less to spend and those nearing retirement need to save more. The owners or managers of pension plans, foundations, trusts and the like must also make higher contributions to make up for lower investment earnings in order to meet their obligations. In the case of public pension plans, these higher contributions contribute to local and state fiscal crises.

Meanwhile, banks are able to make adequate returns by borrowing at near-zero rates and investing almost risk free and without effort in longer-term government debt, federal government-guaranteed debt, or in relatively riskless investment-grade debt—all at 3% to 4%. They have little incentive to go out and make loans to job-creating businesses that might have a higher yield but entail significant risk and effort.

In human terms, the Fed's policy means emergency room nurses in Texas work longer hours to make up for low yields on CDs, dairy farmers in Iowa forgo equipment purchases to save more for retirement, charities for the homeless in Manhattan reduce services as foundations cut grants, and local governments from Albany to Sacramento close libraries to fund pension plan deficits.

The Fed and the U.S. Treasury are unable for many reasons to directly inject sufficient capital into the banking system to restore it to health. Thus the primary goal of the Fed's policy is to provide nearly free capital to banks as a backdoor way of recapitalizing them. Secondarily, the low interest rate policy is intended to stimulate consumption, increase lending and spur investments to create jobs.

But the beneficiaries of the Fed's wealth transfer are not following the playbook. Overleveraged consumers are not spending or buying homes, and financial institutions are not increasing job-creating lending. Many companies are generating record returns for shareholders (and repaying TARP funds to lessen government oversight), but they are not investing.

True enough, large, creditworthy or too-big-to-fail companies are able to borrow at very low rates. But this is not leading to materially increased investment. Almost every large company chief financial officer will tell you that slightly cheaper credit has little impact on most investment decisions. Increased demand and growth prospects are far more important. Meanwhile, U.S. corporations are sitting on nearly $2 trillion in cash.

What is especially frustrating is that supporters of 0% interest rates have a stark example of the policy's failure staring them in the face: Japan. Following the bursting of its credit bubble in 1990, Japan eventually brought its equivalent of the Fed rate down to a then-unprecedented 0.25%. The nation proceeded to suffer a "Lost Decade" of economic stagnation that has never really ended.

It is accepted wisdom among economists that this happened despite the stimulative benefit of 0% rates, and that the Bank of Japan's colossal mistake was not bringing them down fast enough. Fed Chairman Ben Bernanke has studied the Japanese crash and believes this interpretation. He does not question whether 0% rates contributed to the Lost Decade.

In fact, Japan got caught in a cycle in which 0% interest rates led to anemic private consumption and investment. The Japanese government then made up for this private-sector shortfall by borrowing and spending. National debt ballooned, eventually making it perilous to raise rates because of the higher costs of servicing the debt—thus trapping Japan in a cycle of depressed consumption and investment, prompting yet more spending and borrowing to keep the economy afloat.

The U.S. is not Japan; our economy is far more resilient and remains the most dynamic in the world. But the U.S. is in danger of entering the same cycle as Japan as the economy falters and pressure builds for another round of stimulus spending financed by more government borrowing. To avoid this trap, and to encourage private-sector demand growth to stimulate productive lending, the Fed should begin to raise short-term rates.

From a public policy perspective, rising short-term rates means that more funds will flow to borrowers who will invest them in job-creating activities and increase consumption. And from a recovery perspective, increased returns on cash will cause Americans to feel more confident about their economic future.

Paying higher rates to attract deposits will force banks to look for lending opportunities beyond government type credits. Investors, companies and banks will also become less tolerant of underperforming assets and seek to move those assets more swiftly to superior owners and operators, creating additional efficiencies and job-creating growth.

Yes, there are risks. But first of all, I am recommending raising short-term rates only—and only from near zero to a reasonably low level. Second, the current policy is not working. Contrary to conventional wisdom, raising short-term interest rates from current levels would increase consumption, productive lending and job-creating investment, helping to restore confidence and get the long-awaited recovery going.


"No Bad Idea Left Behind Congress turns even a border security bill into a job killer," The Wall Street Journal, August 12, 2010 ---

Leave it to the current crew on Capitol Hill to turn legislation trumpeted as a border security measure into another American job killer. A bill that passed the Senate last week and the House on Tuesday funds stepped-up policing along the Mexican frontier by—wait for it—making it thousands of dollars more expensive for Indian companies to employ skilled immigrants in their U.S. offices.

The bill nearly doubles skilled-worker H-1B and L visa fees, to as high as $4,500 per applicant, for any company with at least 50 employees in which foreigners are more than 50% of its U.S. work force. In practice, that means the new charge would apply mainly to four Indian IT service giants that specialize in consulting and, yes, outsourcing. These firms have opened offices in the U.S. but still rely on the ability to import skilled foreigners to fully staff those operations.

Led by New York Senator and chief sponsor Charles Schumer, Democrats claim this new tax on labor would merely penalize companies that "outsource" jobs that otherwise would go to Americans. Mr. Schumer also says this is a better way to fund border security than dipping into unused stimulus funds as Republicans had proposed, though in the end Republicans went along with this nutty idea, too.

In reality, the higher visa fees would discourage these Indian firms from "insourcing" investment into America. While the majority of their employees on U.S. soil may be foreign today, it doesn't have to be so forever. One of the targeted companies, Infosys, says it's in the middle of a recruiting drive to hire 1,000 more Americans. Another, Wipro Technologies, this year won an award from the Metro Atlanta Chamber of Commerce for creating 650 new jobs at its office in that city (bringing the total there to about 1,000), the majority of them Americans.

The danger is that if it's too expensive to seed a new office with foreign workers in the beginning, companies might not open those offices at all. That would cut future employment opportunities for Americans.

Measured by the companies, workers and money involved, this isn't the biggest anti-investment whopper Democrats have engineered in the past 18 months. For that prize, readers can take their pick from ObamaCare, the looming January tax hike when the 2003 cuts expire, the Dodd-Frank financial regulation and so much more. But this story is instructive nonetheless. It turns out no bad idea is too small for this Congress to embrace. They can't help themselves when it comes to discouraging growth and job creation.

In the wild west it was easier for bandits to cover their tracks than it is today in these Tor(rible) times
"The Hunt for the Wikileaks:  Whistle-blower Digital encoding could catch future informants," by David Talbot, MIT's Technology Review, July 28, 2010 --- http://www.technologyreview.com/web/25892/?nlid=3307

Attorney General Eric Holder's new probe into Wikileaks's posting of 91,000 war documents will likely find that tracing the path of the documents back through the Internet is next to impossible. But watermarks--if they were embedded in the files--could reveal the whistle-blower.

Wikileaks relies on a networking technology called Tor, which obscures the source of uploaded data. While Tor doesn't encrypt the underlying data--that's up to the user--it does bounce the data through multiple nodes. At each step, it encrypts the network address. The source of data can be traced to the last node (the so-called "exit node"), but that node won't bear any relationship to the original sender.

Ethan Zuckerman, cofounder of the blogging advocacy organization Global Voices, says he doubts investigators can crack Tor to find the computer from which the documents were originally sent. "There's been an enormous amount of research done on the security of the Tor network and on the basic security of encryption protocols," he says. "There are theoretical attacks on Tor that have been demonstrated to work in the lab, but no credible field reports of Tor being broken."

And while Tor's profile has been raised by its association with Wikileaks, Andrew Lewman, Tor's executive director, says he has no insights into the source of the purloined documents. "I don't know how Wikileaks got any of the information," he says. While Wikileaks gets technical help from Tor staffers, "they don't tell us anything, other than 'Did we set up the hidden service correctly?' which we'd answer for anyone," Lewman adds.

"People assume that Wikileaks is a Tor project, but I can tell you definitely there is no official relationship."

Lewman points out that many law-enforcement agencies, such as the U.S. Drug Enforcement Agency, also use Tor to protect their operations.

Jensen Comment
I wonder if Wikileaks, in the name of peace, would post whistleblower messages that name names of Taliban fighters and informants. Somehow I doubt it since vengeance is the master policy of the Taliban. Wikileaks will probably only pick on combatants that won't send suicide bombers in search of Wikileaks employees.

Tor also makes it difficult to trace thieves of credit card numbers, social security numbers, child pornography, and malicious rumors.

"Memo to Alan Greenspan: Keep Quiet," by John Stossel, Townhall, August 11, 2010 ---

I'm getting tired of Alan Greenspan. First, the former Federal Reserve chairman blamed an allegedly unregulated free market for the housing and financial debacle. Now he favors repealing the Bush-era tax cuts.

This has a certain sad irony. Recall that Greenspan once was an associate of Ayn Rand, the philosophical novelist who provided a moral defense of the free market, or as she put it, the separation of state and economy. Greenspan even contributed three essays to Rand's book "Capitalism: The Unknown Ideal" -- one for the gold standard, one against antitrust laws, and one against government consumer protection.

It was slightly bizarre when Greenspan accepted President Reagan's appointment to run the Fed -- maybe he thought that as long as the Fed exists, better someone like him run it rather than one who really believes government should centrally plan money and banking. Be that as it may, Greenspan went on to pursue an easy-money policy in the early 2000s that is widely credited, along with the government's easy-mortgage policy, for the boom and bust that followed.

During a congressional hearing two years ago, Greenspan shocked me by blaming the free market -- not Fed and housing policies -- for the financial collapse. As The New York Times gleefully reported, "(A) humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets."

He said he favored regulation of big banks, as if the banking industry weren't already a heavily regulated cartel run for the benefit of bankers. Bush-era deregulation is a myth perpetrated by those who would have government control the economy.

We libertarians were distressed by Greenspan's apparent abandonment of his free-market philosophy and his neglect of the government's decisive role in the crisis.

But at least he took a shot at the new controls Congress coveted: "Whatever regulatory changes are made, they will pale in comparison to the change already evident.... (M)arkets for an indefinite future will be far more restrained than would any currently contemplated new regulatory regime."

But now Greenspan, going beyond what even President Obama favors, calls on Congress to let the 2001 and 2003 Bush tax cuts expire -- not just for upper-income people but for everyone. "I'm in favor of tax cuts, but not with borrowed money. Our choices right now are not between good and better; they're between bad and worse. The problem we now face is the most extraordinary financial crisis that I have ever seen or read about," he told the Times.

He says he supported the 2001 cuts because of pending budget surpluses, but now that huge deficits loom, new revenues are needed.

Why? Brian Riedl of the Heritage Foundation says that since the cuts, "The rich are now shouldering even more of the income tax burden" (). The deficit has grown not because we are undertaxed but because government overspends. "Tax revenues are above the historical average, even after the tax cuts," Riedl writes.

Given the stagnant economy, this is the worst possible time for tax increases. (Is there ever a good time?) Taking money out of the economy will stifle investment and recovery, and it's unlikely to raise substantial revenue, even if that were a good thing.

Finally, the stupidest thing said about tax cuts is the often-repeated claim that "they ought to be paid for." How absurd! Tax cuts merely let people keep money they rightfully own. It's government programs, not tax cuts, that must be paid for. The tax-hungry politicians' demand that cuts be "paid for" implies the federal budget isn't $3 trillion, but $15 trillion -- the whole GDP -- with anything mercifully left in our pockets being some form of government spending. How monstrous!

If cutting taxes leaves less money for government programs, the answer is simple: Ax the programs!

"The Left's Special Interest Human Shields," by Michelle Malkin, Townhall, August 11, 2010 ---

House Speaker Nancy Pelosi deserves a swift rap on the knuckles for hiding underneath the desk of the American schoolteacher. In a cynical ploy to evade accountability for the Democrats' continued fiscal recklessness, Pelosi accused opponents of the $26 billion public employee union bailout bill of "demeaning" teachers -- and nurses, police officers and firefighters. Pelosi took great offense at Republican leaders who called out the Big Labor special interests pushing the emergency summer rescue. But if they walk, talk, spend and lobby like special interests, let's call them what they are.

I have nothing against public school teachers. My mother was one. My children are taught by some of the best in the nation. And over the years, I've reported on valiant battles between rank-and-file educators in government schools and their fat, bloated union leaders who've transformed their professional organizations into wholly owned Democratic subsidiaries. My opposition to the so-called "Edujobs" bill (more accurately: the BigGovJobs bill) stems not from meanness, but from compassion for millions of dues-paying school employees being used as special interest human shields.

According to the Washington, D.C.-based Labor Union Report, the National Education Association in 2009 "raked in a whopping $355,334,165 in 'dues and agency fees' from (mostly) teachers around the country." It spent close to $11 million more than it took in -- $50 million of which union leaders poured into "political activities and lobbying" for exclusively left-wing and Democratic partisan causes and candidates.

Its primary mission? No, not educational excellence. Not "the children." Political self-preservation. The "Edujobs" bill will essentially redistribute tax dollars to teachers unions to the tune of $36 million for the National Education Association and $14 million for the American Federation of Teachers, according to the Grand Rapids (Mich.) Press. School officials said they have no idea what strings would be attached to the money, whether state legislatures would approve the cash as part of special supplemental budgets, how long the money would last, and how they would pay for stop-gap measures while waiting for the taxpayer funds to flow.

As for the "emergency" invoked by Pelosi at the behest of Big Labor, as Republican critics point out, states and the feds still have more than $30 billion in unspent stimulus funds sitting in government coffers. And school districts are already in the midst of rehiring school workers laid off earlier this year -- absent the latest "Edujobs" initiative.

Continued in article



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