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Open Thread — State of the Union


If you plan to tune in tonight to the State of the Union, I’ll be running an Open Thread over at Bearing Drift, Virginia’s premier conservative media group. Join me over there at 8:45 to discuss Obama’s proposals.

The main theme of the evening is “middle class economics”. These include:

–raising “$320 billion over the next 10 years in new taxes targeting wealthy individuals and big financial institutions to pay for new programs designed to help lower- and middle-income families”.

–raising the capital gains and dividend tax rates to 28% on some higher earners

–creating a “fee on the liabilities of about 100 big financial institutions”

–tax credits to small businesses to help “cover costs” of requiring “employers without 401(k) plans to make it easier for full-time and part-time workers to save in individual retirement accounts”

–expanding tax credits for child child care

expanding paid sick leave and “to fund Labor Department feasibility studies on paid leave”

providing two years free of community college tuition for up to 9 million students

You can join in tonight as I comment and engage with other like-minded folks. See you there!

Obama’s Keystone Absurdity


Obama increasingly keeps blathering about the Keystone pipeline in an increasingly negative way, such as how it isn’t economically sound or how it won’t do much for the US soil industry, and so forth. But does he have any idea how ridiculous his protests are, especially considering how both the House, and now the Senate, have given bipartisan approval for the pipeline?

The most egregious aspect of this whole situation is that Obama makes it sound like Keystone is some sort of government project or a part of some government infrastructure or action and therefore needs his blessing. Remember folks; this is private. There are exceedingly high hurdles to cross when it come to private sector projects — and Obama knows this. Keystone has met them. And yet, for six years, Obama has been “reviewing” the project; even the latest cautionary “pause” in the review process was just given a green light a few days ago by the courts (probably much to Obama’s chagrin).

Everyone recently seems to have lost sight of the fact that this isn’t a government project and no government funds will be spent to build it (except those currently being spent to carry out the six year “review”). Obama just needs to get out of the way, and let the private sector project — supported by Congress and 60% of the people — bring some much needed prosperity and opportunity.

Massive Federal Debt, Cost Per Full Time Worker Soars

Thank goodness for CNS News. They continuously number crunch federal numbers so that we can keep apace with the ever-growing national debt. The bottom line? Debt has increased $7.5 trillion since Obama took office.

“The federal government drove $789,473,350,613.20 deeper into debt in calendar year 2014, an increase that equaled $6,875 per household, $7,458 per full-time year-round worker, and $8,853 per full-time year-round private-sector worker.

According to the Treasury, the debt started calendar year 2014 at $17,351,970,784,950.10 and ended it at $18,141,444,135,563.30.

When Obama took office on Jan. 20, 2009, the debt was $10,626,877,048,913.08. Since then, it has increased $7,514,567,086,650.22–which is $65,443 per household, $70,985 per full-time worker and $84,266 per full-time private-sector worker.

In 2013, according to the Census Bureau there were 105,862,000 full-time year-round workers in the United States. The $789,473,350,613.20 increase in the federal debt during 2014 worked out to $7,457.57 for each of those full-time year-round workers.

Those 105,862,000 full-time year-round workers included 16,685,000 federal, state and local government workers and 89,177,000 private-sector workers.

The $789,473,350,613.20 in new federal debt in 2014 equaled $8,852.88 for each of the 89,177,000 full-time private-sector workers in the country.

As of December 2013, there were 114,826,000 households in the country, according to the Census Bureau. The $789,473,350,613.20 in new debt equaled $6,875.39 per household.

Ten years ago, at the end of 2004, the federal debt was $7,596,142,802,424.14. Since then, it has grown by $10,545,301,333,139.16—an average pace of $1,054,530,133,313.92 per year.”

It Doesn’t Matter If You Are Keynesian Or Not — You Still Have To Pay It Back

Everyone knows that Greece is so far in debt that it is actually impossible for them to ever repay it all. France, Spain, Portugal, Italy, and most of the rest of the EU is not much better. Even worse than Greece is Japan’s debt; at over 200% of GDP — and growing — it seems hopeless, despite some reputable economists thoughts that since a large portion of the debt is owed by one branch of their government to another, it is somehow not all that bad.

The U.S. debt is now $18 trillion and still growing at a rate higher than it ever was before Obama took office (Obama and Democrat protestations being wrong). We recently issued $1 trillion in new debt just to pay off old debt, despite bringing in record revenues. And when unfunded promises to pay for Social Security and Medicare benefits are factored into our liabilities, this debt becomes more than $100 trillion – an amount that has no more likelihood of being paid than Greece’s debt.

Yet all of these countries are fighting over the same issue. Every country knows that its debt was honorably borrowed, and needs to be repaid. One would think that, like an individual or family that incurred too much debt, government spending needs to be reduced to below the level of income, with the excess going to pay down debt. A program to stabilize must present itself as fiscally sustainable so businesses, citizens, and creditors can have renewed confidence.

But the Keynesian mentality – which would argue that such austerity measures would contract the size of the economy, thereby making it even more difficult to pay down debt – is unfortunately winning the day.

I do not believe that many honorable and intelligent people actually believe in this Keynesianism. It is just so much easier politically to tell your constituents that government handouts don’t need to be cut — because in doing so, you risk losing reelection. And populist leaders have a great time casting their (responsible) opponents as scrooges, taking advantage of the lesser educated and poorer individuals who will ultimately be hurt most by these irresponsible, spendthrift policies.

Why do I believe that the Keynesian theory is wrong? Not because of some sophisticated economic theory, but rather some simple history and logic, in no particular order:

1) Government spending wholeheartedly crowds out private spending, substituting inefficient political and crony-based spending for free-market, give-the-public-what-they want spending.

2) After World War II, government spending (military, etc.) dried up overnight. But a free-market, non-coercive environment at the time, allowed private investment to flourish and more than make up for the decline in government spending.

3) The outrageous level of U.S. spending in the last six years has resulted in the poorest recovery since the New Deal; FDR’s meddling only prolonged America’s anemic recovery. But the current sluggish economy should not be surprising either, since Obama’s policies are taken directly from FDR – raising taxes, bad mouthing as well as over-regulating businesses, giving organized labor excessive power, instituting policies that discourage people from working, and hurting international trade.

4) There is no evidence, in the last 50 years, that Keynesian theory worked in the real world. On the contrary, one need not look too far to Northern Europe vs Southern Europe — Latvia compared to Greece — to see the results of strict austerity measures vs fiscal tepidness, and each government’s current level of sustainability. Keynes fails wholeheartedly.

The bottom line is, if you borrow money, you have to pay it back. Just because you irresponsibly spent the money does not give you an out. Just because you can think of reasons to delay repayment, doesn’t mean that you should. Just because you are a government doesn’t mean you are exempt from your fiduciary responsibilities. Historically, the only countries to get their debt under control have been those that have cut spending.

Get spending under control and start paying down the national debt!

The Treasury is Offering a New Investment Plan, Created Without Congressional Approval


The Wall Street Journal unveiled the existence of a new investment plan that was created without Congressional approval. To be fair, we first heard about it during last years State of the Union address in January, 2014; Obama announced that he would instruct the Treasury to craft a new retirement plan, which the WSJ noted “was puzzling because such plans are normally created by law, not Presidential order”

Sure enough, Obama kept his word. It’s called “myRA”, and it is a retirement plan that invests solely in government debt. Here’s more:

“A form of Roth Individual Retirement Account that allows people to save after-tax dollars and watch them grow tax-free until retirement, the new myRA offers a single investment option. It’s a private version of the G Fund that is available to federal workers and has lately been delivering annual returns of about 2% on its portfolio of Treasury securities.

Intended for those who haven’t started saving for retirement, don’t have a retirement plan at work, and make less than $129,000 per year ($191,000 for married couples filing jointly), the myRA requires no minimum investment to open an account and promises no fees for investors.”

There are no other investments except in Treasury bonds. No stocks, no corporate bonds. Just Treasury bonds. And the Treasury department is funding the program.

The WSJ confirmed that the Treasury Department didn’t actually receive any authority to start his program. Instead, it is using the budget from the “Bureau of the Fiscal Service” to do so. “The assertion here is that existing law allows this part of the Treasury to hire financial agents as part of its mission to efficiently finance the federal government.” In order to manage the new program, the Treasury hired a group called Comerica and its partner, “Fidelity National Information Services”.

The WSJ raises some good questions pertaining to the existence of the program, its purpose, and its funding:

“[F]ar from delivering efficiencies for the taxpayer, this program is designed to subsidize the investors. Not that a low-yielding Treasury securities fund is the right move for these first-time investors. But this is a deal they cannot find in the marketplace because it would be unprofitable for any company to offer it, given that the investor pays no fees and can contribute as little as he wishes in regular payroll deductions. Taxpayers are covering the costs, though their elected representatives in Congress never voted to create the program. So far Treasury also hasn’t told us the fees it is paying Comerica.

The subsidies in myRAs are likely to be small at first, but the history of government programs is that they expand over time. And if such a subsidy scheme can be enacted administratively, does anyone think this will be the last time such power is exercised?

New investors should be encouraged to consider ways to build wealth beyond simply lending money to the feds. And if politicians want taxpayers to support another retirement program, they should do so through law, not White House whim.”

You can read more about myRA by going to the Treasury page. myRA is touted as “a simple, safe and affordable retirement account created by the United States Department of the Treasury for the millions of Americans who face barriers to saving for retirement.”

All this program seems to do is create another fund that is guaranteed by taxpayers, whose accounts invest in a government program — the Treasury Bond — essentially acting like a prop. How much it will cost the taxpayers remains to be seen.