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  1. #1
    Senior Member AirborneSapper7's Avatar
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    The keynesian spending spree is over

    THE KEYNESIAN SPENDING SPREE IS OVER
    PART 1


    By Attorney Steve Grow
    April
    13, 2012
    NewsWithViews.com

    John Maynard Keynes taught that it helps our economy when the government borrows so it can spend more than it is taking in. Generations of spendthrift politicians, economists, and ordinary citizens, who enjoyed government benefits beyond the means of the present generation, funded by borrowed money, have been very eager to believe in it. Many have questioned this view. If Keynes were right, then the massive deficit spending represented in the $10 Trillion plus in new official US debt since Bill Clinton left office early in 2001 ($5 trillion during Bush IIs 8-year watch, and another $5 trillion in just over 3 years of Obama’s watch), not to mention all the off budget promising, should have produced massive improvement in the economy. It hasn’t. QED: Keynes is wrong. See my previous article “The Central Fallacy of Keynes and Our Politicians.”

    Even for Keynesians, however, the party has to end when people will no longer loan to the government by purchasing US Government debt. Recent news reports make clear that that day arrived some time ago, but that the government and Fed are doing everything they can to disguise the fact.

    As reported by Lawrence Goodman in his March 27, 2012 Wall Street Journal article, the recently released Federal Reserve Flow of Funds report for all of 2011, reveals that the Fed (not real buyers) purchased a stunning 61% of all new US Debt issued during 2011, up from negligible amounts prior to the 2008 financial crisis. This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits.

    This is a crucial fact.

    Real buyers willing to buy US Treasuries have already headed for the exits, and have been out of the market for some time. This includes foreign and domestic governments and private buyers (the Chinese, for example, have been reducing their holdings of dollars and US Debt, according to several reports in recent months). See Lawrence Goodman’s article, “Demand for US Debt is Not Limitless,” in Wall Street Journal Online (April 27, 2012).

    I would not assume that the Fed’s source of money for these bond purchases was anything more tangible than issuing it electronically, then carrying the newly purchased bonds, for which it paid too much, at face value on its books as an asset. I don’t know that their shenanigans were that brazen, but I certainly don’t know that they weren’t. I leave them where I find them.

    Two other recent articles make clear that the politicians and central bankers, here and in Europe, are running out of tricks to keep the game going. Two recent articles report that the disappointing Spanish bond sales during early April, coupled with the decline of the market for Spanish government bonds generally, have more than wiped out all the bailout measures that European Central banks provided to the Spanish government recently. See Tommy Stubbington and Neelabh Lhaturvedi’s article, “Spain’s Borrowing Costs Soar,” in Wall Street Journal Online (April 5, 2012). Also, the Fed has indicated that it may not continue to purchase US Government bonds to stimulate the economy, and European Central banks have given similar indications with regard to stimulus measures there. See Jonathan Cheng and Charles Forelle’s article, Markets Fear End of Stimulus,” in Wall Street Journal Online (April 5, 2012). In both cases, I assume, until proven otherwise, that the central banks cannot do much anymore more to prop things up—even though they seem to be pretending that they could, but just don’t want to. If I remember my Winnie-the- Pooh, I believe Roo once asked Tigger if Tiggers can fly, and Tigger said they were wonderful flyers, but they don’t want to.

    The Fed purchases tend to deceive people who are loaning money to the government into expecting a lower interest rate than the government’s rapidly declining creditworthiness merits. It deceives people into overvaluing US Government securities they already hold.

    The manipulating of the US Government Bond market through the purchases of US Debt also keeps interests rates down (both on government and private borrowing), and affects rates at which ordinary loans such as real estate loans are made. It probably also enables banks to pay bank customers less interest on their deposits than they would have to in an unmanipulated free market.

    As a related matter, the Fed’s purchases of mortgage-backed securities over the last several years, through the TARP program and otherwise, have also been artificially propping up a market in those, while making various institutions seem sounder than they are. Indirectly (not too indirectly) this props up real estate prices at artificially high levels. This, too, artificially props up the real estate market.

    Only a free and unmanipulated market can clear and cause prices to settle to economically sensible levels. Once the manipulation stops, look for the government to have to pay more interest on new borrowing than it has been.

    Both the present Fed chairman, and his immediate predecessor, have been fond of half truths and evasions. (“Half-truth” is an unnecessarily polite term for a kind of lie.) But, of course, that’s what the politicians who put them into those positions wanted of them—and what many of us citizens wanted of both our politicians and their appointees. So, in the end we have only ourselves to blame, and should not be unduly harsh with our recent Fed chairmen.

    I also assume that at least some of the 39% of 2011 borrowings by the US government debt in 2011 that was not purchased by the Fed itself, was forced (or allowed), through financial institution “oversight” and “regulation”, to be purchased and held by banks and other financial institutions as part of their reserves. Now these reserves help back your bank deposits, to assure that you can get your money out of the bank when you want it. Some was probably purchased by the Social Security Trust Fund – which I think holds only US Government securities. More was undoubtedly sold to hapless members of the public, here and overseas, who still believe US Government debt is safe (as it once was).

    Due to the manipulations, those items are probably overvalued on bank books. If they had to be marked to an free, unmanipulated market price, haircuts will be necessary.

    If you think the shenanigans of Enron Corporation, or of Nixon Administration officials in Watergate, represented major scandals, you are right. But what has been going on in plain view before us this last several years dwarfs Enron and Watergate—and the damage already done, and likely to ensue, is enormous. This is Enron to the nth power, Watergate promoted to Niagara Falls levels, if I may put it that way. But we have all been in on it.

    Before we can solve our problems, we must quit pretending, and also quit pretending that we, and those we pretend to rely on for information and oversight, are not pretending.

    During the real estate bubble, the scope and depth of what I regard as gross political, real estate industry, banking and investment banker malpractice, by citizens, consumers, businesses, experts and officials, that deservedly brought to their knees many of the self-described financial wizards and the investment banks and regular banks that they headed or staffed, was almost unbelievable. Even the bailout measures implemented after the fan was hit, just allowed the pretending to continue, while further weakening us. People should have been allowed to bear the consequences of their foolishness. Bailing people out just encourages further risky behavior by people not having to bear the full consequences of the risks they are taking.

    In the real estate bubble, all sorts of people put together trillions of dollars of very risky real-estate based investments and touted them to people wanting safety as good investments--extracting huge fees in the process. They also tricked lots of buyers into paying way to much for houses, and borrowing way beyond their means to pay for them. In some politicians minds, this was helping ordinary citizens to become homeowners. Making me the owner of an overpriced home with an underwater mortgage is hardly doing me a favor. God protect me from such benefactors!!!

    That is exactly what the Fed’s recent actions with regard to the government bond market and US government borrowing and financial institution “regulation” are doing to US Government bonds, and (not too indirectly) to bank and other financial institution stocks.

    Rating agencies failed utterly during the real estate bubble, but some have at least downgraded US government debt (probably not enough, though).


    Way too many of the politicians and economists in Washington, in both parties, from Presidents Bush and Obama to the Fed to Capitol Hill (especially the leaders of the most relevant financial services oversight committees and the House and Senate leaders), functioned during the real estate bubble as if no one with any common sense was home or gave a darn. The most gross acts of political malpractice have been committed, both during (and since) the real estate bubble.

    Fortunately, there now are some Congressional leaders, particularly in the House of Representatives, with sense and authority to help things get better. Congressman Paul Ryan of Wisconsin, for example, has for many years been the Winston Churchill of this entire mess. He, and those working with him, have seen and studied in depth the gathering mess—and has considered means and measures we can take to improve things, and keep them from deteriorating even further, as soon as enough people wake up and realize that major, painful changes must be made. He, and those working with him, have already done us a great service. For part two of this article, click below.

    Click here for part -----> 2,

    © 2012 Steve Grow - All Rights Reserved

    Steve Grow holds degrees in physics, law and philosophy. He is a retired lawyer who practiced business law for many years. He studied philosophy and cognitive psychology at the graduate level, including working with one of the world’s leading scholars on the work of Aristotle. He was co-editor in chief of his college newspaper. He has observed and wondered about history, psychology, religion, politics, journalism and good (and bad) government since childhood.


    He believes that, now and always, the central problem in politics is monitoring and governing those in political positions—so that ordinary people are the ultimate governors and can hold those in office fully accountable. Ordinary people deserve, and need, full legal protection of their privacy. In contrast, all activities of those in government should be open to full scrutiny at all times. In a certain sense, ordinary people should be “ungovernable” and accorded a broad measure of privacy – on the other hand, politicians and their actions should be open to monitoring, closely watched and constrained. Anyone with a contrary view, he believes, is an enemy of freedom—wittingly or unwittingly.


    E-Mail: grow736-nwv@yahoo.com


    Attorney Steve Grow -- The Keynesian Spending Spree is Over, Part 1

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  2. #2
    Senior Member AirborneSapper7's Avatar
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    THE KEYNESIAN SPENDING SPREE IS OVER
    PART 2


    By Attorney Steve Grow
    April
    13, 2012
    NewsWithViews.com

    In the few really important matters in life, one must become one’s own expert. This does not require one to master and know every detail of the type of matter involved.

    Do not be even slightly surprised if average Americans and the rest of the world recognize and act in light of some pretty obvious facts.

    First, American bankers (investment and otherwise) either don’t know (or don’t care) what they are doing so long as they can get lots of fees or commissions.

    Second, way too many in the American political establishment, a rather self-satisfied bunch of economists and politicians and media owners (both parties, not without exceptions), do not have enough common sense collectively or individually, to recognize a problem and provide sensible regulations.

    Third, the educational institutions who these folks, and and the rest of us, have not exactly covered themselves with glory. Reconsider whether our public schools are doing an adequate job. Think thrice before wasting a third of a million dollars to send one of your kids to one of the “elite” schools that our easily misled and misleading “leaders” (in many important fields) attended and send their children to. We must learn how to turn out intelligent people, with common sense and ethics still intact. After years in our schools, all too many become hypnotized zombies prepared to swallow their honest doubts if only their commissions or bonuses are large enough, their government or business position is prestigious enough, or they get reassurances from someon who claims to understand it all--so they don't have to.

    We must make sure that never again in any large area of economic activity (including government spending on any programs whatever), can people play exclusively, or almost so, with borrowed or other people's money—such as the money of future generations.

    Never again should we assume that enough people in the media understand business, politics or the economy well--so that alarm bells will ring in all leading newspapers and electronic outlets if there is really anything to be concerned about. Journalism schools need marked improvements. Newspaper and other media outlet owners are, all too often, interested in becoming power brokers, not in informing the public even of facts that might undermine their personal ambitions. They tend to find people to work for them as reporters and columnists and commentators who will play along and not rock the boat they want to sail. There are exceptions, but we could use more.

    The only experts and leaders who ever say “leave it to us and don’t even check up on us,” prove by doing so that they are unworthy of trust. All trust should be accompanied by verification. The truly trustworthy want you to check up on them, so something they might be missing, or doing wrong, can be brought to their attention and addressed.

    We must all quite pretending that we have not been pretending. We have all ignored genuine misgivings. We have swallowed too many things that are too good to be true--and aren't true. Because of our guilt for hiding from the truth, we have become more and more unwilling to face any of the truth about our own contribution to this mess.

    One of the first things that an immature person does when wrenched back to reality is to find someone to blame (never wanting to shoulder any of the blame himself). “It’s entirely someone else's fault!!!!” (If only that were even usually true. It isn't, though.) Many of us gather and share news and information in this unhelpful spirit. See my previous article “How Do You Gather and Share News?W.C. Fields expressed a core truth about people when he said, “You can’t cheat an honest man.” You might be able to fool him once or twice, but he is honest enough face the fact that he has been fooled, rather than continue to hide. For more on the dynamics of this, see my previous article “Are You Running from the Truth?.

    So, what do we do now? My next article will address that in more detail. But here are three crucial things.

    First, we must not panic or resent realizing what our situation is and the need to face it and figure out how to address it. This generation of Americans has a rendezvous with destiny, as all generations of American have. As Franklin Roosevelt admonished in his first Inaugural Address in 1933, in the depths of the Depression,
    This is preeminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory.
    Recall the many severe economic and political crises in our history.

    It was not easy to escape the grip of Britain and other European powers. It has always been difficult to contain and frustrate would-be domestic tyrants, local and global, like Al Capone, Aaron Burr, and those who ran company towns where they could treat their employees unjustly. The problem of slavery and racial discrimination has presented us with enormous difficulties and trials. The confrontation of Hitler and the Soviet Empire and other tyrants and committees of tyrants will be remembered well by many now alive. The era centered on the Civil War was a very frightening time in which many fought and died, to help America move closer to being able to live in accordance with its ideals.

    That battle is not altogether over yet, but thanks to Martin Luther King, Jr. and his inspired, nonresentful leadership of the civil movement of his era (as well as to our Supreme Court which, in 1954, unanimously overruled Plessey v. Ferguson and rejected the notion that “separate but equal” accords with our Constitution. “Separate is inherently unequal,” they said, in Brown v Board of Education. (By the way, Supreme Court that decided that case consisted of 9 white men, including some from the South who had previously supported or not opposed segregation but who were able to move to a higher plane and transcend their pasts. People can do that. It is what makes sound progress possible. Your past and present need not define your future.)

    The Brown decision gave a significant boost to the Civil Rights movement for racial equality. Just look at the PBS documentary series “Eyes on the Prize” if you doubt that black people and others wanting American to live up to its founding creed, took considerable encouragement from it.

    These have all been very difficult struggles, and people of all races and backgrounds have made the sacrifices, and provided the resourcefulness necessary, to continue America’s unending journey to make itself a better and better land of the free--albeit imperfect, as all things human can't help but be.Secondly, we will have to curtail spending. (If there is no money to borrow, there will be no money to spend beyond what is being taken in taxes and fees!) So we can all acquaint ourselves with how money has been and is being spent, at all levels of government. Technology makes it easy to do that—by creating websites with all the details available for anyone to look at. The state of Nebraska has done this for years and Missouri implemented something like it a few years ago. My recommendation that a database be established so (almost) all amounts spent can be seen and checked by anyone, will help “We the People” to oversee this painful transition and argue out what needs to be argued out to do the best we can. See my proposal for doing this. “Quit Trusting the Trust-Us Politicians.”

    Finally, we need not, and must not, ever surrender any essential American freedoms. In tough times, at least as tough what we face now, the American people have always managed to work through the problems and survive and thrive in the end. So, as many times before, we need a reaffirmation and rebirth of freedom, and the full use of it, not the surrender of any of our essential freedoms.


    Anyone who insists that you surrender your freedom, or give up your effective power to protect it, before he will help you, wants you weak so he can help himself to you when you have no teeth to resist. No exceptions. None. You can arm yourself against fallacious arguments people use to trick you into this by reading my article "The Rot at the Heart of Statism."


    We can and will get through this--as a free people, with even greater assurance that our freedom is the key to our well-being. We need not, and must not, surrender any of our basic individual freedoms or our inalienable rights, as human individuals, to govern our governments. Nor must we give up any of the teeth that enable us to defend those rights against usurpers.

    We must realize that we, each of us, can cope, survive and overcome the problems that our pretending has created. The strength, resourcefulness and self-reliance of free individuals is amazing to behold. It has astounded the world wherever it has been let loose. For part one click below.

    Click here for part -----> 1,

    © 2012 Steve Grow - All Rights Reserved

    Steve Grow holds degrees in physics, law and philosophy. He is a retired lawyer who practiced business law for many years. He studied philosophy and cognitive psychology at the graduate level, including working with one of the world’s leading scholars on the work of Aristotle. He was co-editor in chief of his college newspaper. He has observed and wondered about history, psychology, religion, politics, journalism and good (and bad) government since childhood.


    He believes that, now and always, the central problem in politics is monitoring and governing those in political positions—so that ordinary people are the ultimate governors and can hold those in office fully accountable. Ordinary people deserve, and need, full legal protection of their privacy. In contrast, all activities of those in government should be open to full scrutiny at all times. In a certain sense, ordinary people should be “ungovernable” and accorded a broad measure of privacy – on the other hand, politicians and their actions should be open to monitoring, closely watched and constrained. Anyone with a contrary view, he believes, is an enemy of freedom—wittingly or unwittingly.


    E-Mail: grow736-nwv@yahoo.com


    Attorney Steve Grow -- The Keynesian Spending Spree is Over, Part 2



    Join our efforts to Secure America's Borders and End Illegal Immigration by Joining ALIPAC's E-Mail Alerts network (CLICK HERE)

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