New Finance Rules Could Create More Problems

We Should Learn From History

In a Wall Street Journal article from a couple of weeks ago (http://online.wsj.com/article/SB124524649229423271.html), the Obama Administration has urged regulators to overhaul the financial system in an attempt to soften the economic blows of booms and busts. Many in the Democratic Party believe that lack of government regulation led to all of the problems associated with the financial crisis and that more regulation is needed. However, liberals need to understand that regulations can cause more problems than what they intend to solve.

For example, in the past decade, Congress passed the Sarbanes Oxley Act to closely regulate corporate accounting and transparency of publicly traded companies. One of the rules that Sarbanes Oxley latched onto was mark to market accounting. This forced companies to account for their assets based on the values that they would sell for today, as opposed to a rolling average or some sort of mechanism that stabilizes the value of these assets.

This mark to market rule allowed for the bubbling of the housing market. Furthermore, with artificially rising valuations, banks were able to lend more money based on inflated asset values. This created an economic bubble which burst when the economy turned south. Now, mark to market is not the sole cause of the economic crisis, but it certainly was a regulatory mechanism which helped exacerbate it.

We must be careful in overhauling the financial system so that we do not create regulations that increase the likelihood of bubbles. We must also be careful not to abolish any existing regulations which may promote capitalism or effectively regulate the system.

A Public Health Care System That Operates Like the Post Office? No Thanks!!

Liberal Democrats in the US Congress are pushing for a new nationalized healthcare provider that would operate like the "US Postal Service" (as quoted by Sen. Reid). Do Americans really want the federal government to provide the same degree of healthcare as they provide postal service? Earlier this year, I had a USB card with important data destroyed by the USPS. Included in my damaged envelope was an apology letter from the USPS. The damaged USB card fell out of the envelop when I took the mail out of my mailbox. I am not comfortable with the government providing this level of quality in the healthcare industry to Americans. Democrats argue that this will give Americans the opportunity to have cheap, affordable healthcare. The government will not have a structure to adequately support 40 million plus prospective customers. This will create severe quality constraints that will not allow these customers to be delivered quality healthcare.

Do we really want healthcare to be provided by the same people who provide:

The US Postal Service
The Social Security Administration
Medicaid
The BMV (state-level)
Unemployment (state-level)

More Children Dependent on Medicaid, Is This What Liberals Intended?

When liberals argued for the Great Society in the 1960s, they suggested that their brand of economics would help to alleviate poverty in the U.S. Now, based on data released by the Wall Street Journal last week, liberal economics has led to a greater dependency on centralized economic programs, a consequence conservatives have long warned. In 2000, slightly more than 20% of children in the U.S. relied on Medicaid for health insurance. By 2007, that dependency had climbed to nearly 28%. This increase in dependency is going to lead to increased costs for Medicaid and increased taxes for Americans to pay for it. It seems to me that the purpose of some of these programs has the unintended consequences of creating deferred responsibility and greater dependence.

WSJ: Public Wary of Deficit, Economic Intervention

In a Wall Street Journal article last week, a poll taken revealed that almost 70% of Americans surveyed show some great concern of President Obama's economic intervention plans. Why then, are more than 50% of Americans voting to approve him?

Public Wary of Deficit, Economic Intervention

By: Laura Meckler

WASHINGTON -- After a fairly smooth opening, President Barack Obama faces new concerns among the American public about the budget deficit and government intervention in the economy as he works to enact ambitious health and energy legislation, a new Wall Street Journal/NBC News poll finds.

These rising doubts threaten to overshadow the president's personal popularity and his agenda, in what may be a new phase of the Obama presidency.

"The public is really moving from evaluating him as a charismatic and charming leader to his specific handling of the challenges facing the country," says Peter D. Hart, a Democratic pollster who conducts the survey with Republican Bill McInturff. Going forward, he says, Mr. Obama and his allies "are going to have to navigate in pretty choppy waters."

There's good news for the administration, too, including tentative support for Mr. Obama's health-care plan and approval of his nominee for the Supreme Court. The public seems more optimistic about the country's economic future than it did a few weeks earlier, and Americans are still more likely to blame the last administration for the deficit.

But the poll suggests Mr. Obama faces challenges on multiple fronts, including growing concerns about government spending and the bailout of auto companies. A majority of people also disapprove of his decision to close the military prison at Guantanamo Bay, Cuba.

Nearly seven in 10 survey respondents said they had concerns about federal interventions into the economy, including Mr. Obama's decision to take an ownership stake in General Motors Corp., limits on executive compensation and the prospect of more government involvement in health care. The negative feeling toward the GM rescue was reflected elsewhere in the survey as well.

A solid majority -- 58% -- said that the president and Congress should focus on keeping the budget deficit down, even if takes longer for the economy to recover.

Laura Zamora, 40, of Orange, Calif., voted for Mr. Obama but says she is frustrated by the economy and finds her support for the president waning. She says she's facing a possible layoff as a local government worker in California.

"He's bailing out the private sector. He's putting all kinds of money into the private sector," says Mrs. Zamora. "The money should be going to social programs, not to bailing out banks and GM. It should go to people who are unemployed."

The survey of 1,008 adults, conducted Friday to Monday, had a margin of error of plus or minus 3.1 percentage points for the full sample.

The results come after weeks of Republican hammering of Mr. Obama for spending too much and taking on too many issues, arguments that appear to be resonating with some voters.

Mr. Obama's overall job approval and personal ratings have slipped, particularly among independent voters. His job approval rating now stands at 56%, down from 61% in April. Among independents, it dropped from nearly two-to-one approval to closely divided.

In an interview with The Wall Street Journal, President Obama acknowledged the toll.

"If you have an argument made frequently enough -- whether it's true or not -- it has some impact," he said Tuesday. "If you want to attack a Democratic president, how are you going to attack him? Well, you're going to talk about how he wants more government and he wants to socialize medicine and he's going to be oppressive towards business. I mean, that's pretty standard fare."

Mr. Obama ran down some of problems he said he had been forced to deal with, and said the real argument is about whether to take on health care and energy.

"I suppose we could just stand pat and not do anything on either of those fronts...That's been tried for four or five decades. And in both energy and health care, the problems have gotten worse, not better," he said.

By some measures, the public seems to agree. Only 37% of people said that Mr. Obama is taking on too many issues. A solid majority -- 60% -- said that he is focused on many issues because the country is facing so many problems.

The president and his advisers appear to be aware of the peril they face over the deficit. That helps explain why Mr. Obama has emphasized his effort to cut health-care costs over his effort to expand health-insurance coverage, and why he has promised that the cost of any health-care package will be covered by spending cuts or tax increases.

When asked what the most important economic issue facing the country is, 24% cited the deficit, vs. just 11% who named health care.

Mr. Obama has some breathing room. Nearly three in four respondents said that the president inherited the current economic conditions, versus just 14% who said he is responsible for them. Only 6% said the Obama administration is most responsible for the budget deficit. Nearly half blame the Bush administration.

On the economy, the poll had some bright spots, with a rising expectation of recovery. The portion of people who think the economy will improve over the next 12 months rose to 46% from 38% in April. And 20% predicted the recession would end in six months to a year, nearly double the comparable figure from April.

Still, overall, the public finds the economy in dreadful shape today, and people living in the Midwest were much less likely to express optimism about the future than those on the coasts.

On health care, the public remains open to persuasion. Without being told anything specific about the Obama plan in the survey, about a third of people said it's a good idea, about a third said it's a bad idea and the rest had no opinion. When given several details of his approach, 55% said they favored it, versus 35% who were opposed.

There was also support for the Democratic push to let people sign up for a public health-care plan that would compete with private companies, one of the toughest issues in the health-care debate. Three in four people said a public plan is extremely or quite important. But when told the arguments for and against the plan, a smaller portion, 47%, agreed with arguments in support of the plan, with 42% agreeing with the arguments against it.

At the same time, nearly half the participants said it was very or somewhat likely that their employer would drop private coverage if a public plan were available.

As for how to pay for the package, estimated at more than $1 trillion over 10 years, the public favors proposals to require all Americans to get insurance, to raise taxes on the rich and, to a lesser extent, to require all but the smallest businesses to offer insurance or pay into a fund.

But majorities oppose plans to tax health benefits, even if the taxes only apply to particularly generous plans. The public is divided about cuts to Medicare.

Regarding Mr. Obama's pick to the Supreme Court, Judge Sonia Sotomayor, half the public said she's qualified for the post, versus just 13% who said she's not qualified. That's equivalent to numbers in November 2005 for Samuel Alito, Mr. Bush's nominee who was subsequently confirmed to the court.

One in three people said her decisions and views seem out of the mainstream, vs. 28% who say they are in the mainstream. The rest had no opinion. But overall support for her confirmation is strong.

There was some good news for General Motors, despite the widespread antipathy to using taxpayer money to aid the company. More than half the participants said they are considering or have recently considered buying an American car. Of those people, 40% said the recent problems of the U.S. auto industry make them more likely to buy American. Just 14% said it made them less likely.

—Jake Sherman contributed to this article.

Write to Laura Meckler at laura.meckler@wsj.com

Poll Methodology

The Wall Street Journal/NBC News poll was based on nationwide telephone interviews of 1,008 adults, including a sample of 101 interviews with people who only use a cell phone. It was conducted June 12-15 by the polling organizations of Peter D. Hart and Bill McInturff.

The sample was drawn in the following manner: 350 geographic points were randomly selected proportionate to the population of each region and, within each region, by size of place. These individuals were selected by a method that gave all telephone numbers, listed and unlisted, an equal chance of being included. The cell phone sample was drawn from a list of cell phone users nationally.

One adult, 18 years or older, was selected from each household by a procedure to provide a balance of respondents by sex. The data's margin of error is plus or minus 3.1 percentage points; sample tolerances for subgroups are larger.

Liberals and Economics- Failing to Think Beyond Stage One

Economics is often seen by liberals as a simple action and reaction game. They create a certain set of rules to solicit a reaction favorable to their policies. However, liberals fail to recognize the repercussions of some of their economic policies.

A light example is the $25 unemployment increase that President Obama pushed into his stimulus plan. This was intended to provide Americans with more money, thus keeping the economy from contracting further from increased unemployment. However, what the President and Congressional liberals failed to understand is that $25 increase would push many households over the threshold for qualification of food stamps. So, while many families are receiving a $25 increase in unemployment checks, they are also losing hundreds of dollars in food stamps.

Story: http://news.yahoo.com/s/ap/20090615/ap_on_go_ot/us_stimulus_food_stamps

Now, the liberals have struck again by passing the cash for clunkers bill. (http://www.usatoday.com/money/autos/2009-06-18-cash-for-clunkers_N.htm?csp=usat.me)

The law would allow Americans to receive up to $4,500 if they trade in a gas guzzler for a new car. Analysts have projected that this could boost the car market by 10%. However, it presents the possibility of a new problem. What if Americans choose to turn in their older American made vehicles for new foreign made vehicles?

Let's face it. Toyota is leaps beyond the mpg realm in fuel efficiency (Prius 70+mpg), and the Honda Civic is ahead of American made compact cars. Why would someone trade in their car for an American made vehicle when they might be able to get a better mpg deal from a foreign auto manufacturer.

So the American government is going to spend an additional $1 billion or so that will likely end up in another country. That's liberal economics for you!

The Socialism Death Spiral

THE SOCIALISM DEATH SPIRAL
How increased government ownership reduces the size of the overall economy

Over the past several months, Americans have been giving the Messiah (Barack Obama) a thumbs up on nearly every socialist plan that is put into place. Yet, if you survey average Americans, they will tell you that they do not believe in socialism. Looks like some people are drinking the Kool Aid!

Socialism is defined by Wikipedia as:

"any one of various economic theories of economic organization advocating state or cooperative ownership (like GM and Chrysler)" (http://en.wikipedia.org/wiki/Socialism.

However, lets put aside the evidence of socialism as seenin our banks, AIG, and the US auto industry. The best indicator of socialism is the percentage of GDP that is comprised of government spending.

GDP= Consumer spending + investment spending + government spending + net exports

The greater the government percentage of GDP the more socialist a country is since a greater percentage of its output is produced from the federal government. Makes sense right?

From 1980 to 2007, the average government percentage of GDP was 20.9% (see chart here). That means that for roughly every $5 produced by the American economy, $1 was sourced from the government.

Now, according to this site, government spending as a percentage of GDP is estimated to be 45% in 2009!! That means for every $5 produced by the American economy, $2.25 will be sourced from the government. Federal government control over the economy has effectively doubled the historical moving average. Estimates are that this number will be around 42% in 2010, but that is only if the economy begins to grow. This is the highest government expenditure as a percent of output since World War II and that was an era of war production, rations, and several other socialist measures.

Now, how does socialism cause a death spiral? Well, socialism requires money, taxpayer money. And when the government cannot get enough taxpayer money, it borrows from private capital. So, instead of private capital going to private companies, it is going to the federal government. This increase in demand for private capital also raises interest rates, making it harder for small and medium businesses to continuing operating. Many of these businesses shut down, raising unemployment, and continuing the decline of economic growth. Socialism plays right into the deflationary death spiral.

So, what happens to the larger businesses in socialism? Well, most survive until they have trouble refinancing their debt due to a lack of private capital. Then, who do they go to for help! Why, the government of course! So, the government's obligations continue to grow and the cycle continues over and over again.

We need a plan in place for the government to divest itself from our economy (an exit strategy of sorts). Without one, we are prone to continued government ownership for years to come and increased ownership in future recessions as more Americans become too weak to take the brunt of an economic contraction.

Think Government Ownership is Temporary? You Might Want to Think Again

When the financial crisis was unraveling last fall and continuing into the Presidency of Barack Obama, many Americans supported bailouts because they believed "there was nothing else we could do." Unfortunately, it looks as if the reality of a long-term presence of government in the economy is becoming more realistic, according to TWO articles in the Wall Street Journal today.

Would you surrender your economic freedom for the type of economy we have right now?

http://online.wsj.com/article/SB124507696210915249.html

In this article, the IMF issued a report recently that stated federal exit from the bailout programs is going to be a huge challenge. Exiting bailout programs in a time of recovery could cause interest rates to soar, and tamper any type of recovery that the economy is on.

In addition to this, we must remember that private capital must come in to replace any government exit from the economy. This is going to be hard to do in the autos where long term debt holders are being screwed out of their bankruptcy rights. Would you put up your retirement as collateral to lend to an American auto company?

http://online.wsj.com/article/SB124502150880513761.html

This article is a good example of what has already happened as a result of a similar crisis. In 2002, the Argentina economy was on the verge of collapse (ironically because of government involvement in the company's currency) and as a result, the federal government was given controlling powers over the economy. Seven years later, those powers remain in place as the government is described now as an "owner and regulator."

Is this the type of future we want for America? Maybe this recession hasn't turned this country into a command system, but what happens when the next recession hits in 3, 4, or 7 years and the government still has not shaken its control from the last recession? That, I fear, is the slippery slope we are headed down.