"The most significant threat to our national security is our debt," Admiral Michael Mullen, Chairman, Joint Chiefs of Staff, August 27,2010


Saturday, June 30, 2012

Chief Justice Roberts

This essayist had occasion on Wednesday, April 18, 2012, to read the entire front section of the Chicago Tribune.  Not just the front page but all 20 pages.  Let us recap the stories quickly:

News items:

·         Dixon, IL – city comptroller charged with misappropriating $30 million of city funds for personal purposes in this small town with an annual budget of $8-9 million.  She’d been in the job for 30 years and her theft was discovered during a recent 4 month absence.

·         Chicago – 56 year old former head of Chicago police union pleads guilty to stealing more than $1 million from union dues for personal activities.

·         Chicago – mayor requests immediate action on his proposal to get private companies to pay for public works projects.  Few understand the proposal to which Emmanuel says, “we’ve debated this long enough…I’m not in the position of analysis…I’m…getting things done.”  Many Chicagoans are reminded daily of the last mayor and his private/public transaction selling the city’s parking meters for 75 years to a private group for what some have calculated as less than half their economic value.

·         Chicago – 2 lawsuits against police misconduct – one stemming from 2007 beating of female bartender by off duty cop and one going back to 2006 when cops released a young mentally handicapped woman in a bad neighborhood whereupon the local youth beat her, raped her and she mysteriously fell from a high rise building to the ground

·         State of Illinois – state representative returns to Illinois house after being charged with taking a $7,000 bribe.  Fellow legislators welcome and congratulate him.

·         US of A – former GSA official and associates questioned by congress after years of wasteful spending on personal activities. 

·         And, of course, on any day the city and state both try to avoid facing two real problems – bureaucrats and bureaucracies borrowing money they cannot pay back, in many cases to fund their own pension checks, and students going to school with no measurable educational results.

After reading all these stories about corruption, self dealing and just simple abuse of power, what do we read in the same section of the paper the very same day, coming from the highest court in the land ---

·         US of A – Supreme Court rules that even a private lawyer employed by a municipality enjoys the same immunity from prosecution extended to municipal employees when “they are doing their job.”   Chief Justice Roberts says that immunity is needed for “ensuring that talented candidates are not deterred from public service.”

Roberts thinks the issue is attracting and keeping people interested in public service.  Is Roberts just stupid or is he part of the cabal that keeps this kind of crap going and going and going?   Message to Roberts: the problem is not getting and keeping people interested in public service.  It is getting rid of the lousy ones and holding them personally accountable for their misdeeds and self serving behavior.

This essayist believes that Roberts believes his own nonsense because he has never lived for any period of time in a world of public service accountability – where one is held responsible for what they do.  Responsibility can take the form of legal action – both criminal and civil; take the form of employment downgrading, suspension and termination; or, just plain everyday routine application of fundamentals such as reporting on objectives; being required to move on after a set term limit; limited in the time you can serve in any one position; being disciplined for small or medium errors and misjudgments and being required to take vacations so that someone else can do your job for a while and make sure everything is okay. 

Roberts does not know anything about accountability and yet, he runs the highest court in the land whose job is to administer ultimate accountability.  One of the men most in charge of accountability does not grasp the concept of accountability.   Legal immunity in public employment is a basic abuse of the American government concept of the people being sovereign; not the state.

The solution to the public service nonsense examples above is not at all difficult.  Eliminate collective bargaining for all “public service” jobs’; mandate term limits for all elected officials; demand balanced budgets and outside performance audits and hold all public employees personally accountable for their misdeeds on the job.  And, find a chief justice who can at least define accountability in terms consistent with the premise on which his country was founded.

Postscript – the essay above was written on April 24, 2012 (not published until today) at which time we could only detect that Roberts did not grasp the enormity of the problem facing America.  So, at that time, we made some reasonable, albeit for Washington DC, very challenging observations about this man in this very important job.  This week we learned that our view of him was dead on target.  All he knows is government; all he turns to is government; he believes that government is the solution. He has just this last week used incredibly combobulated thinking to go along with the most disastrous, voluminous and undecipherable piece of legislation produced by congress in our time.  To place the future of American health care in the hands of bureaucrats in Washington DC will result in the same outcome that we are experiencing from placing our financial future in their hands.

America has now found the perfect imbalance of its constitutionally designed checks and balances and so-called balance of powers.  The executive under Obama; the congress under all three – Pelosi, Reid and Boehner; the central bank under Bernanke and the supreme court under Roberts are a disaster of incalculable consequence. 

There is not an ounce of spine in all of them.  There is not an ounce of comprehension of why limits on government are necessary.  They believe in centralized, mammoth government.  Not a one of them will stand up to the geometric expansion of a failed central government. 

Roberts is 57 years old; he can easily be in that job for 20+ years. 

Thursday, June 28, 2012

The Stockton Story

Some facts about Stockton, CA:  2010 population – 292,000 of whom 40% are Latino; 23% white; 22% Asian and 12% black.  Household income - $48,000 which is below the California average of $61,000.  54% own their home and 18% have a bachelors degree or higher (CA ave. is 30 %.)

Thefundamentals has followed the Stockton story for some time now.  If you read this article: http://www.latimes.com/news/local/la-me-stockton-bankruptcy-20120627,0,2285815.story  you will actually find a few key words that summarize the very essence; the basics; the fundamentals of what caused the mess (bankruptcy) in Stockton.  Here is our quick recap –

“Build and spend like there is no tomorrow – add debt assuming there will always be more revenue – make commitments to public unionized employees that are vastly in excess of anything the taxpayers can ever attain on their jobs – give the elected officials  the same package so they will approve it – never cut back; never give up any negotiated benefit or pension or work rule or wage contract – never cut back on anything; instead, if you’re on the gravy train, follow the argument that you earned it; you deserve it; it is owed you and no one can take it away, ever for any reason – when things get tough whine and complain – tell tales of woe and give examples of hardship – anything it takes to make someone feel sorry for you.” 

There is an alternative.  You can go to the recent essay in TheFundamentals about the cities of San Diego and San Jose (see TheFundamentals, June, 19, 2012) and read about two cities – two larger cities that faced the same causal situation and rose up with overwhelming majorities to simply say – enough; we will not let a small group of entitled, over paid public employees destroy our town simply because they have a few labor laws and loud mouthed organizers and well developed fear tactics on their side.

The story of Stockton is the story of Detroit.  It is the story of Vallejo, CA; Central Falls, RI; Jefferson County, AL and every other town that has public employees belonging to a labor union with rising debt.  The unions may be part of the SEIU or the AFL-CIO or the AFSCME or maybe an independent local group with no major affiliation.  The unions consist of policemen, firemen, sewer workers, teachers, municipal water supply workers, clerks, library personnel and every other position in between. They can issue dog licenses, car licenses, business licenses, kitchen rehab permits and liquor licenses or they can come around after the fact and check out your permits and licenses – all in the name of rules, regulations, laws and the public good.

But there is one license that they do not believe in.  One permit they do not issue.  One rule they do not enforce.  It is the license, the permit, the rule of common sense.  Of financial and fiscal responsibility.   Of setting limits on monetary commitments that match the revenue capability of the town.  The revenue capability of the town is not a theoretical or hypothetical calculation.  The revenue is there to serve the people; not the employees.   It is not some hopeful number based on ambitious projections of growth and an always increasing property tax base or business revenue base or population growth estimate or national GDP projections issued by politicians through their bureaucratic hires or by the irresponsible chairman of a central bank or even by the fancy folk with the economics degrees from eastern colleges.

This very minute, as you read these words, there are hundreds of cities and towns and counties across the United States where these words are ignored and the citizens are being forced to empty their already reduced savings accounts to pay for salaries, wages, benefits and pensions that they will never themselves attain or enjoy.  All because the elected officials failed to set limits; failed to stop union organization; failed to say no.  Instead they themselves go along with wages, benefits and pensions for municipal employees that are not affordable.  These are bubbles folks – unaffordable, wasteful spending and costs.  They must come to an end regardless of what Obama or Bernanke or Geithner hope for or say.  Unless you have a local or state government with a fiat (paper) currency trying to maintain the bubble.  Cities and towns do not – all they have is the ability to try to get the currency issuer, usually the central government, to print and distribute currency to keep the bubble alive – which is exactly what the combination of Obama and the other two named above are doing now.  But they cannot possibly do it on a large enough scale to save the Detroit’s, the Chicago’s, the Newark’s and the Stockton’s.

Someone once said, “May you live in interesting times.”

Stockton is living in very interesting times.  Wouldn’t it be nice if the American media, what we call the Hollywood media because of their captivation with all things entertaining, would spend hours on this story and leave the inconsequential nonsense for the tabloids?  Often we wonder if the Hollywood media attended the same eastern colleges that produced the three fools named above.

This is the story.  Nothing new here.   Adults acting like undisciplined children – no limits; no responsibility; just live for today and the devil take tomorrow.

That’s the Stockton story.

Tuesday, June 26, 2012

An Inside Look at America's Health Care Bubble

Early on in our essay preparation and presentation, TheFundamentals displayed this chart:

And so, we asked the questions, “How can per capita spending on health care in the United States be so much higher than anywhere on the globe and yet not produce better results as measured by longevity?  How can America afford such excessive spending for no measurable, consequential results?   Could America’s health care system be loaded with overhead and other costly features that don’t do anything to cure ailments but rather treat ailments for the benefit of health care providers?”    

Here is a recent chart showing health care employment over the last 20 years:
FRED Graph

What do we learn from this chart?  Even during recessions (shaded areas) more and more people are employed in health care services – it has gone from about 8 million in 1990 to over 14 million now.  Way in excess of population growth.  By 2020, health care employment is projected to increase by at least 5 million more "workers."

One of the health care industry's most prestigious publications, the New England Journal of Medicine, has published an article that reaches some startling conclusions about it own industry.   We present a few quotes below (you can read the brief article at:  http://www.nejm.org/doi/full/10.1056/NEJMp1204891 )

“The goal of improving health and economic well-being does not go hand in hand with rising employment in health care.”

“Salaries for health care jobs are not manufactured out of thin air – they are produced by someone paying higher taxes, a patient paying more for health care, or an employee taking home lower wages because higher health insurance premiums are deducted from his or her paycheck.  Additional health care jobs leave Americans with less money to devote to groceries, college tuition, and mortgage payments…”

“There is, however, mounting evidence that our health care system could deliver better care without spending more and that there are tremendous opportunities for improvements in productivity – which suggests that the increase in resources devoted to health care has not generated commensurate value.”

“Treating the health care system like a (wildly inefficient) jobs program conflicts directly with the goal of ensuring that all Americans have access to care at an affordable price.”

Talk about stating the obvious – unless one is deluded or just dishonest.  The comments above are as applicable to health care spending as they are to education spending, generous state and city pensions and, the granddaddy of them all --  FEDERAL GOVERNMENT SPENDING.

A highly regarded professional journal looks at it own service industry and concludes  – “additional health care jobs leave Americans with less money” and “resources devoted to health care has not generated commensurate value” and “wildly inefficient jobs program.”  Something is badly wrong.  But can you imagine a SEIU or AFSCME or AFL-CIO newsletter speaking such truth?  Or a politician or bureaucrat who is fleecing the taxpayer with his or hers massive benefits and pension payments?  Think about the recently retired Daley of Chicago who managed to manipulate the Illinois and Chicago pensions to take over $180,000 each year!  And he is one of the lower paid fellows!!

Someone has to pay for it.  Bernanke does it with his bubble financing activities under the guise of deflation concerns.  Obama does it with his spending and then looks to Bernanke to buy the debt.  Krugman says its good economics.  Do more.  How much more debt they they need to lay on taxpayers?  Remember, only half of working Americans even pay federal income taxes anymore.  They are blowing bubbles. America is simply bankrupting itself in an orgy of fiscal promiscuity which manifest in bubbles – government spending, health care spending and education spending. 

We give the NEJournal of Medicine credit for an honest look and a self serving expose – we all know that this nonsense must come to an end and it is a lot easier to correct something before it collapses.   If only the Hollywood media would cover this story!  Where is anyone in the media on this topic?  Where is Romney?  Does he think he can win by not addressing issues such as ridiculous health care treatment programs that are bankrupting America?


Tuesday, June 19, 2012

A Closer Look at San Jose and San Diego, California

San Jose – 2010 population – 946,000; of whom 33% are Latino; 32% are Asian; 29% white, not Latino (only a “progressive” federal government would so classify citizens – why not based on IQ scores or BMI or hair color?) and 3% black.  Median household income - $79,000, well above California median of $61,000.   60% owned their home.  37% have a bachelor’s degree or higher which is high education achievement by American standards.  31% of the businesses in San Jose are Asian owned.


San Diego – 2010 population --   3,095,000 of whom 32% are Latino; 11% are Asian; 48% white, not Latino and 5% black.  Median household income - $63,000 and 56% owned their home.   34% have a bachelor’s degree or higher and 15% of the businesses are Hispanic owned; 30% are female owned.  Thirty percent of San Diego businesses are owned by women!


The voters in San Jose were offered a ballot proposal recently to change the pension programs and funding arrangements for public employees in their city.   Here is the wording for that proposal:  MEASURE B: PENSION MODIFICATION: “Shall the Charter be amended to modify retirement benefits of City employees and retirees by: increasing employees’ contributions, establishing a voluntary reduced pension plan for current employees, establish pension cost and benefit limitations for new employees, modify disability retirement procedures, temporarily suspend retiree COLAs during emergencies, require voter approval for increases in future pension benefits?”

This proposal, Measure B, passed by a margin of 70 – 30.  Yes, that is correct, 70% of voters said it was time to modify public pensions drastically.

The voters in San Diego were offered a ballot also to change the pension programs and funding arrangements for public employees in their city.  Here is the wording of that proposal:  PROPOSITION B: "Should the Charter be amended to: direct City negotiators to seek limits on a City employee's compensation used to calculate pension benefits; eliminate defined benefit pensions for all new City Officials and employees, except police officers, substituting a defined contribution 401 (k)-type plan; require substantially equal pension contributions from the City and employees; and eliminate, if permissible, a vote of employees or retirees to change their benefits?"

This proposal, Proposition B, passed by a margin of 66 – 34.  Yes, that is correct.  2/3rds of the voters said it is time to drastically modify public pensions.

How did the proponents of these two ballot measures communicate a message to voters that resulted in such overwhelming support in both municipalities to secure the wide margins of success they attained?  They told the truth.  The public pensions are not affordable; they are significantly more than anything available in the private work force and the financial drain of the current pensions on public revenues reduces monies available for needed public services. 

That is it.  Those opposed made the usual emotional and threatening appeals to the electorate.  The electorate in these two towns – San Diego by the way is America’s 8th largest city and San Jose is America’s 10th largest city, told the threatening, emotional harangues coming from public unions officials and other weak sisters to fall in line; wake up and be a good citizen, not a greedy citizen.  They did it at the polling place.

These are not difficult issues.  Look again at the makeup of the two towns that voted overwhelmingly for fairness and common sense solutions for greedy public employees and their demanding union organizers.  There is hope for America – it does help to have people who are educated; who work for a living; who own businesses; who own their own homes and who believe that good parenting involves setting examples – not taking whatever you can grasp from weak politicians and their even weaker bureaucratic managers.

By the way, these towns will not tolerate the low performance education expectations that you will find in union encrusted towns such as Detroit, New York, Washington DC, Philadelphia and Chicago.  There is no more common thread that runs through towns with good schools and where the public monies are properly directed to providing needed public services, not high salaries, high benefit programs and rich pension plans than the simple common sense work ethic of most of the citizens.

There is hope for America.  It just is not going to come from those who presently hold political power.  There is hope – but it does not come from those who talk hope and sell hope – it comes from those who work; get educated; raise their kids with good values (fundamentals) and obey the law.  They don’t whine; they don’t complain; they get about their business and expect others to do the same.  Look again at the makeup of these two towns – pretty good size towns, and you will see the type of people you may wish to make your neighbors.


Wednesday, June 13, 2012

Ben's Odyssey -- Chapter IV

Od-ys-sey (noun): a long wandering or voyage usually marked by many changes of fortune; an intellectual or spiritual wandering or quest.

Here is what we know, so far.  Ben talked about deflation for years – defined it; lectured on how and why to avoid it; and then outlined how to deal with it if and when it arrives.

Next we know that Ben has been engaged in implementing every deflation fighting step he said was available to him.  We reported his progress to you and he’s done darn near all of ‘em.  Even though we have no deflation – we have rising prices.

Now we also know that the objectives that Ben and the men he funds, Mr. Obama and congress, say they seek strong economic growth and jobs creation.  But they are not occurring.  All these fellows keep wringing their hands waiting for good economic news.  We also know some other things.  There is a big disconnect between what Ben said would trigger his deflation odyssey and the facts on the ground.  Overall price declines; demand dropping price declines are nowhere to be found.  Quite the opposite as a matter of fact.  Prices are and have been rising – some at a very rapid escalation pace.

Let’s take a closer look:


1.    We are not in a period of deflation; we are not threatened with a period of deflation as defined by Ben and his odyssey team.  Using the facts, even though they can be and sometimes are distorted by government, we have proven factually that America is experiencing rapidly escalating prices in some very focused sections of its economy – higher education and medical care costs, and government spending is simply off the charts while revenues stagnate.  We also know some cities and states are improving services and becoming very efficient while others seek handouts and federal assistance, and

2.    Overall prices – as computed by the government,  have risen steadily over the past 20 years and are continuing to do so at this very moment, regardless of what Ben and the odyssey gang say, and

3.    Federal government spending on its own – has risen so rapidly that it almost leaves the chart when compared with household income growth.  If citizens don’t earn money to pay more taxes while government spending rises at a much higher rate, we don’t need an MIT economics degrees to know we are not Keynesian bound – we are banana republic bound – look at the numbers in this chart from the Heritage Foundation:


This chart should be enough to send Ben back to the drug store in South Carolina and his leader back to a “community organizing” storefront on Chicago’s south side.  This situation needs to be stopped – not promoted through irresponsible fiscal and monetary policies.

At TheFundamentals we see something else going on.    Not deflation; not even fear of deflation as spelled out by Ben ten years ago.  Something very, very different that has driven Ben on his odyssey.

What is the one overwhelming fact about government in the last twelve years? (see above)  Government spending has skyrocketed.  And, as the spending has escalated quickly and dramatically; revenues have not.  Revenues are not rising but spending is and so, there, is debt.  These are facts we all know.  There is only one reason why a government consistently spends money it does not have – to hold onto power.  And there is only one reason why a government does not tax and take other measures to raise revenues to meet its spending and that is because it will lose power if it does so.  And so government needs two things to keep power when it finds it has out promised its ability to pay its way – the ability to issue debt and the ability to find buyers for the debt.  Ben has chosen an odyssey, a journey for which he has no authorization.  He has decided that it is his job and it is his time to maintain the US government created bubbles in government spending; health care spending and education spending and he has chosen to do so under the camouflage of “fighting deflation.”

We need to step back and ask a basic question – do a majority of the America people demand these bubbles be sustained or do they demand responsible government at all levels but particularly at the level where the monetary policies – interest rate setting; currency transactions and debt management be managed to meet long term, fundamental goals?

Ben Bernanke is not managing monetary policy with long term good fundamentals in mind – he is acting to keep irresponsible people in power.  That makes him irresponsible and it means he too, along with the president and the congress, must be replaced.   It is time to end Ben’s odyssey.

Tuesday, June 12, 2012

Ben's Odyssey -- Chapter III

Ben has defined deflation and has outlined his program to fight deflation.  Ten years ago when no one was thinking deflation.  Today we track just how far Ben has traveled in this odyssey of his to fight deflation or whatever it is that he calls deflation fighting.  First, we would like to bring back a chart we showed you several weeks ago.  Remember, as you view this chart, the definition of deflation that Ben gave us in 2002 when he was thinking about deflation – or at least trying to get others to think about it.  Here are his words – ““Deflation per se occurs only when price declines are so widespread that broad-based indexes of prices, such as the consumer price index, register ongoing declines.”

On our government chart above, the blue line, described as “all consumer items” would reflect an overall assessment of consumer prices.  We, at TheFundamentals, cannot find any evidence or even a smidgen of factual data to support a conclusion that price declines are widespread.  Some prices, as a matter of fact, are not only NOT DECLINING, they are escalating through the roof.  College tuition and fees and medical care prices are jumping off the chart.  And even though we don’t show it here, we all know that the price for anything “government” related just keeps rising and rising.   We can use these facts to support a conclusion that price increases are widespread; not the other way around.  So we ask Ben, “Prices are not declining.  And yet, you are well along this odyssey of yours.  Why?”  Here are some of the deflation fighting actions you described ten years ago (we took the words directly from your speech) along with a current status report --

  • Nominal interest rate declining to zero or almost zero (done – Mission accomplished - you did it Ben; over two years ago and you have said that you will keep them low into 2014.)
  • Lowering rates on longer maturity treasuries (done – Mission accomplished - you’ve done it – ten year treasury bonds are now at record low yields; below 1.5%.)
  • Operate in the market for agency debt such as GNMA (done – you did it; as a matter of fact you own a big chunk of the debt they and the other government mortgage agencies issue)
  • Buy foreign debt (done – you’ve been out there buying foreign debt)
  • Purchasing private assets (done – just the way you described – treasury issues the debt to do the politicians bidding and you buy up the debt)
  • Running that thing you called a technology of the government – a printing press or its electronic version (done – you have been running the printing press 24/7.  When do you plan to stop running the presses Ben?)

And yet, Ben, when we look at the chart above we are still struggling to see that triggering event you mentioned.  Remember Ben, that causal factor about widespread price declines – not specific or focused situations, but overall big time price declines.  Where are they Ben?  Why has this deflation fighting odyssey of yours advanced so far into the steps you outlined without any triggering connection? And why is it not accomplishing the objectives you so arrogantly outlined ten years ago?  Could it be that there is no deflation but something else?  Something very different than deflation that is underway?

Before we close this chapter on Ben's odyssey, we would like to pose this question, "Ben, do you know the difference between supporting unsustainable government sponsored bubble(s)  and fighting deflation?"  What is Ben up to?  More to come...

Monday, June 11, 2012

Ben's Odyssey -- Chapter II


Od-ys-sey (noun):  a long wandering or voyage usually marked by many changes of fortune; an intellectual or spiritual wandering or quest.

After defining deflation, Ben, in his 2002 speech to other economists, asks and answers the question of the threat of deflation to the US.  Ben’s comments follow and are preceded by bullet points –

·         I believe that the chance of significant deflation in the United States in the foreseeable future is extremely small, for two principal reasons. The first is the resilience and structural stability of the U.S. economy itself.

·         The second bulwark against deflation in the United States, and the one that will be the focus of my remarks today, is the Federal Reserve System itself.

·         I am confident that the Fed would take whatever means necessary to prevent significant deflation in the United States and, moreover, that the U.S. central bank, in cooperation with other parts of the government as needed, has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief.

Next Ben discusses using lower interest rates to fight deflation:

·         Deflation of sufficient magnitude may result in the nominal interest rate declining to zero or very close to zero.

·         When the short-term interest rate hits zero, the central bank can no longer ease policy by lowering its usual interest-rate target.

·         Hence I agree that the situation is one to be avoided if possible.

And further expands on avoiding deflation before it happens:

·         … central banks with explicit inflation targets almost invariably set their target for inflation above zero, generally between 1 and 3 percent per year.

·         The Fed should and does use its regulatory and supervisory powers to ensure that the financial system will remain resilient if financial conditions change rapidly.

·         Third, as suggested by a number of studies, when inflation is already low and the fundamentals of the economy suddenly deteriorate, the central bank should act more preemptively and more aggressively than usual in cutting rates

Then Ben says, “Suppose that, despite all precautions, deflation were to take hold in the U. S. economy and, moreover, that the Fed’s policy instrument – the federal funds rate – were to fall to zero.  What then?"  When the short-term interest rate hits zero, the central bank can no longer ease policy by lowering its usual interest-rate target.  Well, Ben has some more ideas; a lot more ideas –

·         …the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

·         One relatively straightforward extension of current procedures would be to try to stimulate spending by lowering rates further out along the Treasury term structure--that is, rates on government bonds of longer maturities.

·         If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well.

·         …. the Fed could also attempt to cap yields of Treasury securities at still longer maturities, say three to six years. Yet another option would be for the Fed to use its existing authority to operate in the markets for agency debt (for example, mortgage-backed securities issued by Ginnie Mae, the Government National Mortgage Association).

·         If lowering yields on longer-dated Treasury securities proved insufficient to restart spending, however, the Fed might next consider attempting to influence directly the yields on privately issued securities.

·         For example, the Fed might make 90-day or 180-day zero-interest loans to banks, taking corporate commercial paper of the same maturity as collateral.

·         For example, the Fed has the authority to buy foreign government debt, as well as domestic government debt. Potentially, this class of assets offers huge scope for Fed operations, as the quantity of foreign assets eligible for purchase by the Fed is several times the stock of U.S. government debt.

Wow, Ben sure has a lot of things in his carry bag for this odyssey of his.  But, remember this was ten years ago and Ben may have been thinking – I’d better not scare these guys too much, at least not yet, so Ben moonwalks backward, just a bit:

·         I need to tread carefully here. Because the economy is a complex and interconnected system, Fed purchases of the liabilities of foreign governments have the potential to affect a number of financial markets, including the market for foreign exchange.

·         I want to be absolutely clear that I am today neither forecasting nor recommending any attempt by U.S. policymakers to target the international value of the dollar.

·         Each of the policy options I have discussed so far involves the Fed's acting on its own.  In practice, the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example…

Then Ben departs from his script – remember he is on the board of the fed; not in the congress but he plants the seed for the congress to do their part when he embarques on his odyssey –

·         Of course, in lieu of tax cuts or increases in transfers the government could increase spending on current goods and services or even acquire existing real or financial assets. If the Treasury issued debt to purchase private assets and the Fed then purchased an equal amount of Treasury debt with newly created money, the whole operation would be the economic equivalent of direct open-market operations in private assets.

So Ben was ready to fight deflation in 2002 – why would that be?  And why is Ben already so far down the road on deflation fighting?  In our next chapter, we will look at just what he has done on this odyssey of his and we will start to ask some questions using facts and Ben’s own words.

Tuesday, June 5, 2012

Do You Know Paul LePage?

We would like to share a few anecdotes about Mr. LePage as presented by our wonderful, always there with the facts and objectivity, Hollywood media ---

1.     Maine’s governor, Paul LePage, signs a balanced budget bill –http://www.cbsnews.com/8301-505245_162-57435656/maine-budget-balancing-bill-signed-by-governor/  (check out the bias in the “reporting” in this Hollywood media article)

2.    Maine’s governor, Paul LePage, encourages healthy unemployed to get moving – http://www.mediaite.com/online/maine-governor-to-unemployed-get-off-the-couch-and-get-yourself-a-job/

3.    Here is the Huffington posts version of same – http://www.huffingtonpost.com/2012/05/07/paul-lepage-maine-governo_n_1496514.html  (if you are a liberal or a democrat this passes as objective reporting)

4.    Here is some “objectivity” from the NYTimes on Mr. LePage – http://www.nytimes.com/2011/01/15/us/15lepage.html

5.    We don’t know anything about this outfit.  Interesting rhetoric though – http://www.thedailybeast.com/articles/2011/04/16/paul-lepage-maines-madman-governor-strikes-again.html (Madman?  Are they referring to the TV show?)

6.    And this is the best one of all; we saved the best for last – http://www.foxnews.com/politics/2011/04/05/uncle-sam-tells-maine-governor-repay-cost-removed-mural-labor-history/  Can you believe that the federal government, using taxpayer money, sent $60,000.00 to the state of Maine for a labor oriented mural depicting workers on strike?  And, of course, the answer is an overwhelming YES; of course, you can believe it but here is what we don’t get.  All the liberal media, what we call Hollywood media, whine and complain every time a cut in spending is proposed and they point to drastic events endangering people’s lives and other such distortions but they don’t move to eliminate unnecessary spending such as labor oriented murals. 

So, TheFundamentals concludes:

1.     Mr. LePage is clearly a man in need of some more coverage from whatever few objective sources may be still available.

2.     Mr. LePage is clearly a man we all need to get to know a bit better.

3.     The people of Maine are clearly fortunate to have him, and

4.    Is he available in a Romney administration for secretary of labor?  Or, maybe even better, Secretary of Eliminating Unnecessary Spending?


Here is the LePage family photo:



If you wish to learn about Mr. LePage’s agenda for the state of Maine (would be a heck of a fit for the federal government in Washington), please go to: 



Monday, June 4, 2012

Ben's Odyssey -- Chapter I

Od-ys-sey (noun):  a long wandering or voyage usually marked by many changes of fortune; an intellectual or spiritual wandering or quest.


Ten years ago, a man unknown to most, set out on a journey.  This journey of his began many years earlier as the child of a drug store owner in Dillon, South Carolina.  He did well in school – well enough to gain admission to Harvard University and thereafter to Massachusetts Institute of Technology.  This young man had the smarts to do almost anything – he chose to do ECONOMICS.  And he stayed in academia and prospered and then something remarkable happened.  He became a member of the board of directors of the Federal Reserve System – the central bank of the United States of America. The guys who control the money supply; the printing presses; the interest rates and darn near anything that has the following symbol connected with it:
$

Ben’s odyssey was about to start.  Coincident with this new job of Ben’s in 2002 – fed board member, Ben was invited to give a speech to a group of economists.  Ben seized the moment; carpe diem, and gave them the speech of his life.  He chose to show the economists that when the moment was right; when the planets aligned; when the fear receptivity was greatest; when those who depended on rising prices and rising economic numbers to keep their paychecks and benefits and pensions rising; when they could be convinced that prices were not only going to stop rising but would actually decline; when they could be spooked to their core that something big had to be done – he, Ben, would be ready and able to deliver the goods; the monetary and fiscal stimulus to make everything all right again.  Just give Ben the reins and the odyssey can begin.  You see, Ben knew all about deflation.  Ben studied deflation.  But Ben needed the fear of deflation to arrive on the scene to get his voyage underway.  Ben was planning this voyage long before that propitious piece of the puzzle came into the picture.

This is the story of Ben’s voyage – his odyssey – told in his own words.  The quotes are Ben’s words:

“Deflation is defined as a general decline in prices…”

“Deflation per se occurs only when price declines are so widespread that broad-based indexes of prices, such as the consumer price index, register ongoing declines.”

“Deflation is in almost all cases a side effect of a collapse of aggregate demand--a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers.   Likewise, the economic effects of a deflationary episode, for the most part, are similar to those of any other sharp decline in aggregate spending--namely, recession, rising unemployment, and financial stress.”

So, you can see how he sets up his opportunity to take on deflation – overall price decline (decline in consumer price index); not specific to one sector of the economy or one product or service and then a rather casual suggestion that it is derived from a “collapse of aggregate demand.”   We will examine this cause and effect later.  And then Ben concludes why we must fear this situation because a collapse of demand brings about “recession, rising unemployment and financial stress.”  That’s enough to scare most politicians and bureaucrats wouldn’t you agree?  Most of us too.  Remember Ben knew all this in 2002; ten years ago.  Ben knows deflation; Ben know depression; Ben knows that all he needs is a crisis to begin his odyssey.

Next Ben lays out his plan to keep deflation away from the great economy of the United States but, if it cannot be avoided, Ben also lays out his plan to show how he and he alone can deal with deflation; slay it in its tracks and save the economy.

Next, we will use Ben’s own words and follow Ben as he begins his odyssey.