Destroying the Dollar

By Alan Caruba

Something I never thought I would ever see in my former hometown, a wealthy New Jersey suburb of New York City, was a Dollar Store, but one opened recently in a former supermarket. Dollar Stores are giving Wal-Mart, Target, and similar outlets a run for their money and it’s not hard to see why. The local one has just about everything you could need and all for astonishing low prices.

In countless ways people are looking to save money these days. The looming problem, however, is the question of what happens when Americans wake up to learn that even a dollar can no longer buy anything?

“When Faith in U.S. Dollars and U.S. Debt is Dead the Game is over – And that Day is Closer than You May Think” is the cheery title of an article recently posted on EconomicCollapse.com.

There’s a reason why both the mental condition and the financial condition are called a Depression. It’s hard to be happy about anything when your nation’s currency is not worth the paper on which it is printed. The Federal Reserve’s answer, some fear, is to print more money and to continue to buy U.S. debt with it. It is doubtful, however, this Ponzi scheme will continue.

There isn’t a day that goes by when some U.S. government agency doesn’t send me a news release to announce that it is giving millions for something and, if our elected leaders are negotiating a solution to this insane spending and giving, there is precious little evidence of it.

New unemployment numbers are up. The administration continues to churn out thousands of pages of new regulations. It has stalled the energy sector from oil and gas exploration that could create thousands of jobs. And China is divesting itself of U.S. securities, anticipating a bad outcome for our economy.

Meanwhile, the so-called “entitlement” programs represent sixty percent of all the money the government spends. Without some changes, these programs are unsustainable. The Democrats’ answer is to depict Republicans as wanting to kill grandma.

The Gross Domestic Product

In a Mid-May article posted on American Thinker.com, Randal Hoven spelled out a number of facts that are overlooked in the political battles between liberals and conservatives. “The entire debate is about a difference that is less than 4% of GDP. According to International Monetary Fund figures, government in the U.S. is spending 41% of GDP in 2011. The current debate is about whether government spends 40% or 44% of GDP.”

The government is absorbing far too much of the Gross Domestic Product for its own purposes. We are in a league shared by Greece and other nations with a serious financial crisis.

While the federal and state governments plunders every cent they can extract from those still fortunate to have a job, any investments, or will die at some point, both Republicans and Democrats have participated in expanding government since the last Great Depression.

While President Obama’s constant blaming of George W. Bush for his first two years became a joke, Hoven notes that Bush expanded Medicare with a prescription program and many of the “liberal” programs we conservatives denounce occurred while Bush was president. “No Child Left Behind”? Bush. Outlawing light bulbs? Bush. Ethanol subsidies? Bush.

The absurdity of President Obama’s mantra that millionaires and billionaires be taxed more ignores the fact that such taxes, even if we took all of their money, would barely cover the rate at which government spends and wastes such income.

While negotiations, we’re told, are occurring or will, the greatest impediment is Obama’s open disdain and dislike for Republicans. This cannot be underestimated in terms of finding a solution.

At the heart of our current problems is that, having inherited a financial crisis, Obama devoted the last two years to a government takeover of both the health care industry and the financial sector with two bills, each of which exceeded 2,000 pages and vastly expanded government bureaucracy.

More government control of the economy is the last thing this nation needs at this time. Or any time.

Social Security will be insolvent by 2037 and, together with Medicare, they have unfunded liabilities of $107 trillion in today’s dollars. That is seven times the size of the U.S. economy and ten times the size of the national debt.

The real problem for the United States is the falling confidence and faith in the U.S. dollar. It is the default reserve currency of the world. Just about everything trades in U.S. dollars. It’s not only Americans losing faith in our government’s ability to maintain its value, it is everyone else.

In April, Standard & Poor’s downgraded its outlook on U.S. government debt from “stable” to “negative.” It warned that the U.S. could lose its prized AAA rating. Unless Congress and the current occupant of the White House take specific steps to fix Social Security and Medicare, the dollar compared to other major national currencies will continue to fall. It has fallen 17% since 2009. Moody’s rating service has also issued its own warning.

Pretty soon, nobody will want to buy U.S. securities used to currently borrow 41 cents of every dollar the government spends. The U.S. borrows about $168 million every single hour.

In April, CNSnews reported that “the federal government made $125 billion in ‘improper payments’ in fiscal 2010, more than eleven times the total 2010 spending by the U.S. State Department.”

That’s a government that doesn’t know what it’s doing and isn’t in a hurry to fix it.

That’s why a Dollar Store just opened in one of the most affluent suburbs of New Jersey.

I know the economists and others keep saying that the Recession that began in 2007, ended in 2009. I know they can and will cite all manner of good economic indicators, but if faith in the U.S. dollar continues to falter, it won’t matter.

© Alan Caruba, 2011

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History is No Help to the Federal Reserve

By Alan Caruba

Federal Reserve Chairman, Ben Bernanke, gave a press conference on Wednesday and, try as I did, I fell asleep almost immediately. For those suffering from insomnia, I would recommend you “take two Bernanke’s and call me in the morning.”

At the time of his appointment Bernanke was widely known as an expert on the history of the Great Depression. It was commonly thought that he would avoid putting the nation through a similar experience, but a long, deep recession has put that in doubt.

In “New Deal or Raw Deal”, historian Burton Folsom, Jr., identified three major causes of the Great Depression, beginning with a Smoot-Hawley Tariff Act on imported goods that was signed in June 1930 by Herbert Hoover. It was the highest tariff on imported goods in U.S. history. Other nations retaliated. “Our exports, therefore, dropped from $7 billion in 1929 to $2.5 billion by 1932.” The result was that “By July the stock market had lost one-third of its value in ten months”, a second major cause of the Depression whose beginning is generally dated to the Wall Street crash of October 1929.

The other cause was due to the fact that, in the three years leading up to the bill, “the national debt balloon(ed) from $1.3 billion to $24 billion.” Our current national debt is equal to our entire Gross Domestic Product, the value of all of the nation’s goods and services.

Folsom identified the third leading cause as “the poor performance of the Federal Reserve. “In practice, the Fed had raised interest rates four times, from 3.5 percent to 6 percent, during 1928 and 1929. That made it harder for businessmen to borrow money to invest, which hindered economic growth.”

Under former Chairman Alan Greenspan and Bernanke, the Fed has kept the interest rates it charges banks to nearly zero. Bernanke is no doubt aware that the Fed’s failure to lend money to cash-hungry banks led to the collapse of hundreds during the Great Depression.

Fast-forward to present times and we see that the Fed has literally flooded the economy with cash, essentially by simply printing money out of thin air. All of it is backed by the “full faith and credit” of the government.

On April 25, The Wall Street Journal headlined an article, “Fed Searches for Next Step” noting that it “is likely to begin closing a wide-open credit spigot this week—but faces a major decision: when to start draining the excess credit out of the economy by raising interest rates.”

Whether the economy was infused with great gobs of cash or whether that liquidity is slowed, the Fed—then and now—is caught in a vice because history demonstrates that neither action had the desired purpose. If this was a game of Monopoly, the players could put the board away in its box, but neither history nor current trends point to anything other than a severe depression.

The rating service, Standard & Poors, recently issued a warning that the U.S. debt was slipping into a “negative” situation and this has been followed with a prediction by the International Monetary Fund that the U.S. economy will be overtaken by China in just five years. S&P is famous for its failure to spot bad guys like Enron, to whom it gave high ratings right up to the day it collapsed, nor should we believe the IMF propaganda which suspiciously tries to panic Americans.

The Fed was created by a small group of bankers and came into being in 1913. In good times and bad it has functioned in concert with international banks to control the volatility of the financial marketplace and sustain the viability of the individual nations they represent. The Fed functions largely in secret. The oversight that Congress is supposed to exercise is much the same of its regulatory agencies that have rarely seen trouble brewing, nor been able to do much about it except to clean up the mess with taxpayer’s funds.

The problem in the 1930s and now is the national debt, the result of insane, profligate spending. Those in the White House and the Democratic Party are opposing any rational steps to reduce it.

Instead, it enacted Obamacare, legislation that will further crash the economies of individual States. Some twenty-eight States are already on record opposing it. An effort to have it declared unconstitutional was greeted by the Supreme Court with a refusal to expedite the case just before the judges began a three month vacation.

An April 27, 2010 Cato Institute briefing paper by Arnold King presciently noted that “Recently, the Federal Reserve has significantly altered the procedures and goal that it had followed for decades. It has more than doubled its balance sheet, paid interest to banks on reserves held as deposits with the Fed, made decisions about which institutions to prop up and which should be allowed to fail, invested in assets that expose taxpayers to large losses, and raised questions about how it will avoid inflation despite an unprecedented increase in the monetary base.”

The Cato paper was titled “The Case for Auditing the Fed is Obvious.” The fate of the nation is held in the hands of the Federal Reserve. It performed poorly in the late 1920s and 30s, and confidence in its ability to extricate the nation from its enormous debt may well be misplaced.

A combination of unsustainable entitlement programs, too much spending, and the collapse of the housing market that resulted from Fannie Mae’s and Freddie Mac’s belief that housing prices would never fall has brought us to this point in the wake of the 2008 financial crisis.

The response by the government, however, was to buy the bank’s bad debts and engage in multi-billion dollar “stimulus programs” which we were told would create employment and put the economy on track to recovery. It has not happened.

Instead, taxpayers have had the nation’s future put in jeopardy into the next and further generations, some of whom are as yet unborn.

Despite the Fed’s printing presses, the U.S. dollar is in decline at the same time that the price of gasoline, food, and everything else is rising.

The 2010 elections that put Republicans in charge of the House of Representatives, the branch of government that initiates spending bills, has resulted in partisan warfare on Capitol Hill as the GOP weighs what steps it can take. Ambivalence about raising the debt ceiling reflects GOP concerns regarding the 2012 national elections and their fear that they, not the Democrats that regained control of Congress in 2006 will be blamed for the current crisis.

Suffice to say that both political parties deserve blame for years spent initiating excessive spending and ignoring the warning signs.

Meanwhile President Obama has declared his candidacy airily demanding that taxes be raised on “the rich” at a time when raising taxes is the worst possible choice to make as the economy struggles to recover. For the passed two years, the Obama administration has engaged in every effort to undermine and destroy the economy.

John Adams, one of the Founding Fathers and the nation’s second President, warned “Remember, democracy never lasts long. It soon wastes, exhausts and murders itself. There never was a democracy that did not commit suicide.”

2012 looms as an election year in which Americans will decide whether to change course or, indeed, commit suicide.

© Alan Caruba, 2011

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Debt Beyond Belief

By Alan Caruba

Have you noticed the many television advertisements urging you to buy gold, to refinance your home, to get a reverse mortgage, or to fix your personal credit score? There’s a reason for this, not just individuals are financially stressed, but the entire nation is broke.

The nation has not seen this level of debt since the end of World War Two. We have debt equal to the entire value of our Gross Domestic Product. The government cannot collect enough taxes to make a dent in it. It has to cut spending. It has to find ways to reduce the need to borrow.

Monday’s Standard & Poors' downgrade, not of the nation’s triple-A rating for its treasury securities, but a warning that the nation’s “sovereign rating” has a “negative outlook” says that America has wandered into a dangerous area in which worldwide confidence in the dollar is slipping away.

For too long, too many of the economic advisors to presidents Clinton, Bush and Obama, have been allowed to cause this damage and then, as often as not, return to their ivory tower jobs secure in the knowledge that more knucklehead economists will fail to apply the brakes.

How does a nation engaged in two foreign wars do that? The answer is that it can’t. No matter how much government waste is exposed, it rarely translates to a reduction. The bureaucrats running federal departments and agencies understand that failure to spend as much of their current budget as possible threatens their ability to ask for and get more

The responses to the S&P news, as reported in Monday’s Wall Street Journal, demonstrate that economists, tightly wrapped in their favorite theories and masses of numbers, are clueless. Mark Thomas of the University of Oregon dismissed the S&P warning, airily saying “the political process will deal with this problem.” It is the political process, specifically decades of interfering with the nation’s housing market that caused the 2008 financial crisis.

Add in interference with the energy marketplace since the days of Jimmy Carter and you have $5.00 a gallon gas by June, maybe sooner.

It is the political process that is blathering about raising the debt ceiling when all it has ever done is raise the debt ceiling. The same political process has proven incapable of eliminating federal government agencies and programs that have ballooned the debt while slowing economic growth.

Dean Baker of the Center for Economic and Policy Research noted S&Ps “horrible track record for judging credit worthiness” and, considering that it “gave Lehman, Bear Stearns, and Enron top ratings right up until their collapse”, he’s got a point. Much of the alleged structure in place to avoid banking failures has been a failure.

Steven Richhiuto of Mizuho Securities suggested the “political realities” will make it difficult “to achieve the type of entitlement and tax reform necessary to put the deficit on a credible declining trajectory.” You think? For decades Social Security and later Medicare have been the famed “third rail” of politics.

No one wanted to address the way changing demographics—more older people, fewer working people—had rendered the systems unsustainable. Rep. Paul Ryan’s 2012 proposed budget does, in fact, address these and other problems, but if “political realities” fail to bring about the changes he and several deficit commissions have recommended, then the S&P warning is the equivalent of being on the Titanic.

Paul Krugman, Princeton University’s Nobel Prize winner, and New York Times columnist just repeats that same nonsense that “the U.S. is perfectly capable both of running large deficits now and getting its fiscal house in order over time”, cautiously adding, “but not if the parties cannot agree on any solution.”

The political parties have not been able to agree for decades. When the economy rebounded from President Reagan’s tough love, it still took a 1994 historic change in Congress to Republican control before welfare reform was embraced by President Clinton. He then took credit for an improving economy. In 2010 the voters returned control of the House to the Republicans, but the previous Democrat House and two other branches of government, the Senate and the White House, have plunged the nation into its current crisis by tripling the debt by trillions.

The bottom line is that the nation cannot continue to run large deficits because it cannot afford to pay huge interest rates on every dollar it borrows. That is a cycle that must be broken.

At the heart of present dangers is the Federal Reserve that has been printing money out of thin air for the purpose of buying the bank’s “toxic paper”, the millions in “bundled mortgages” for homes, the ownership of which is often in question. This is called “quantitative easing”. Other nations have gone this route and achieved little as a result.

Writing in November 2010, Bill Bonner, creator of newsletter The Daily Reckoning, said, “America’s own experience with quantitative easing is similarly discouraging. Between the beginning of 2009 and March 2010, the Feb bought $1.7 trillion worth of mortgage-backed securities, creating new money specifically for that purpose. Where did the new money go? Into the coffers of the banks. Did it stimulate the economy? Not so’s you’d notice.”

By April 2011, all the major economic and social indices by which a nation’s financial status is measured have been in the negative. Economists and others may choose to ignore the S&P warning, but eventually the nation’s economic system will simply collapse on its own if steps are not taken to dramatically address the issue.

You don’t have to be an economist to know that something is terribly wrong with the way all levels of government have horribly mismanaged the nation’s and the state’s fiscal affairs. You just have to watch the television commercials.

© Alan Caruba, 2011

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Lame Ducks Threaten Economic Recovery

By Alan Caruba

As if the forcing of Obamacare on a nation vastly opposed to it was not enough, the lame duck session of Congress between now and December 31st has the potential to harm economic recovery still more.

Congress includes sixty Democrat Representatives in the House who will not be returning and six in the Senate who were also voted out of office or who have announced their retirement. If the world made any sense, none would be permitted to vote on anything at this point.

If, indeed, Congress functioned in a reasoned and rational fashion, the nation would not be forced to wait until the last month of the year for it to resolve a range of fiscal and other issues despite the fact that Fiscal 2011 has begun. It has not passed a budget and it will need to pass a continuing resolution to fund the federal government until it does.

Americans and the business community in particular are still waiting to see if Congress will extend the Bush tax rates. They have been in effect for nine years. Everyone understands maintaining the existing rates is essential to avoid worsening an ailing economy.

For the President and Democrats in Congress, the issue has to do with “billionaires” and “millionaires” when the real issue is whether small to medium-sized businesses will be able to hire and expand. The issue is whether millions of Americans who are still employed will see their take-home pay reduced in January by additional taxes. It’s worth noting that those high earners already pay some 70% of the income taxes collected every year.

Another problem is Sen. Harry Reid’s intention to bring the “Dream Act”, yet another amnesty effort, to a vote. Here again, Americans overwhelmingly oppose any easing of laws regarding illegal aliens.

Democrats are also discussing a ban on “Don’t Ask, Don’t Tell”, a policy that permits gays to serve in the military, but to keep their silence regarding their sexual orientation. In an all-volunteer military corps morale should trump this issue, but thanks to political correctness, it does not.

Medicare, who most agree was in need of repair, but not the bureaucratic monster of Obamacare, is required to reduce reimbursement rates for physicians every year and, to avoid that, Congress has always passed legislation to avoid the cut, called “the doctor’s fix.” If Congress does nothing in the lame duck session, reimbursement rates would plunge 23 percent. Those on Medicare would have to dig into personal funds as doctors would understandably raise their fees to make up for the loss.

The extension of unemployment insurance is going to prove a very difficult issue, which is why the Democrat-controlled Congress put it off until after the elections. Benefits averaging $310 per week are due to expire on November 30 and this affects some two million Americans. It is a disincentive to seeking employment.

Republicans and a contingent of Democrats are demanding that the cost of extending unemployment compensation be financed through budget cuts, but how does Congress achieve any savings when Obamacare creates a federal bureaucracy of more than 150,000 new employees? It will even provide insurance to non-U.S. residents whether they are here illegally or not. If that’s not bad enough, it gives the government real-time access to your bank account and the authority to make electronic fund transfers from it! That's not government, that's gangsterism.

Outside of Congress, another threat exists in the form of the Environmental Protection Agency’s illegal and obscene effort to regulate “greenhouse gas” emissions. The agency plans to initiate this power grab by January 2nd and it must be stopped.

After an orgy of borrowing for stimulus legislation that has failed to generate new jobs, the further devaluation of the U.S. dollar looms as the Federal Reserve undertakes a second “quantitative easing.” The first did not increase bank loans to businesses and others. The Russians and Chinese have just announced they will conduct bilateral trade using their own currencies, not the U.S. dollar that until now has been the global standard.

Further threatening an economic apocalypse is the question of whether more European nations will join the ranks of failed economies from Greece to Ireland to Spain and Portugal. England and France are imposing much needed budget cuts while Germany, the strongest European economy, appears to be understandably reluctant to bail out the Euro.

The arrogance and incompetence of the Democrat Congress and Administration defy the imagination and the clear intention of a growing legend of Americans is to put an end to their liberal legislative abominations.

© Alan Caruba, 2010

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Cartoon Round Up

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Halfway Between Sanity and Bedlam

By Alan Caruba

“In individuals, insanity is rare; but in groups, parties, nations, and epochs it is the rule.” – Friedrich Nietzsche (1844-1900)

To listen, watch, or read the news these days, one is struck by the sheer insanity of most of the activities sanctioned by the government and encouraged by the signs of sanity reflected by the outcome of the midterm elections.

The people have spoken! And they are still at risk of being ignored by the White House and the Democrats.

For example, the “enhanced” airport inspections complete with full-body scanners and “pat downs” that have managed to enrage air travelers. The Israelis don’t do this and they have never had an El Al flight hijacked or blown up. Meanwhile, al Qaeda is enjoying the way the Department of Homeland Security has vastly over-reacted to its threat. As many rational observers have pointed out, identifying ARABS and/or MUSLIMS for a closer look is a very good idea. There is no record of a Catholic nun having ever hijacked a commercial jet.

In March of this year close to a million Americans showed up near the Capitol steps to protest Obamacare. They were dismissed by David Axelrod, a White House advisor, who said, “They’re wrong.” This was followed by Speaker Pelosi telling Americans that Obamacare had to be passed first so everyone could know what was in it and that included the members of Congress who voted for it. That is a definition of crazy. Almost immediately, corporations and unions began to file for waivers for their employees and members. Laws are supposed to apply equally to all Americans. Obamacare does so by raising your health insurance premiums.

The Federal Reserve, charged with the responsibility of protecting the value of the dollar, hasn’t done that for decades. Since the dollar is not pegged to a commodity such as gold, it is merely a piece of paper that the government promises to honor. That is now in jeopardy as the Fed engages in yet another “quantitative easing”, buying U.S. debt with devalued U.S. dollars. Other nations watching this slight-of-hand are not fooled and at some point they will stop buying $50 billion in U.S. securities every day.

One sign of sanity were the midterm elections that returned power in the House to the Republicans and narrowed the power of Democrats in the Senate. Members of the Republican Party and Independents are waiting to see if its leadership has figured out that they do not want any compromise with the White House that has never shown any compromise during the last two disastrous years.

The Republicans have real depth in terms of whoever they might choose to run against Obama, but all the “buzz” remains focused on former Governor Sarah Palin who can be seen these days in a Discovery Channel series about her family and Alaska. I doubt Sarah will take us on a tour of the utterly barren Alaska National Wildlife Refuge under which lies millions of barrels of untapped AMERICAN oil. It is just insane to not tap the enormous reserves of oil that are known to exist throughout and offshore of AMERICA.

On November 20, General Motors held an initial public offering (IPO). You will recall that, instead of being allowed to go through the normal process of bankruptcy and restructuring, the Obama administration stepped in and made all Americans part owners. Isn’t that called Communism?

John Berlau of the Competitive Enterprise Institute said this of the IPO: “What exactly is so remarkable about a company coming back to life after a $65 billion taxpayer bailout, additional billions in tax breaks not available to other companies, and even an amazing “sovereign immunity” exemption for this IPO from anti-fraud securities laws and lawsuits? With this massive infusion of government aid and favors, even a company selling ketchup Popsicles to women wearing white gloves would likely show a profitable quarter!”

If, by now, you have seen a pattern of public policy that has staggered back and forth between sanity and bedlam, you are not alone. The first two years of the Obama administration has systematically destroyed confidence in America from within and without.

The international slap-downs the President has encountered speak to an insane policy that includes adding trillions to the national debt; thus putting the United States on a par with member nations of the European Union that are in financial trouble.

Americans, usually known for their common sense, are in near rebellion.

They don’t want to be fondled on their way to a vacation or business flight.

They don’t want the government to tell them what they should eat.

They don’t want a million mandates about everything they purchase.

They don’t want their children brainwashed in schools and colleges to believe utter nonsense about “climate change” and all the absurd claims attached to it. Change is what the climate has done for 4.5 billion years on planet Earth.

They don’t want amnesty programs for people who entered the nation illegally.

They don’t like the fact that government workers, thanks to the largest union in America, earn far more than those in the private sector and receive outsized pension and health benefits.

Et cetera!

America lost its mind over a totally unknown Senator from Illinois in 2008. In 2010 it is struggling to regain its sanity and is demanding the same of those whom it has elected to protect the nation against him.

© Alan Caruba, 2010

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The Federal Reserve's Magic Money

By Alan Caruba

Historically, the Federal Reserve has had a poor record when it comes to correcting an economic slide into Depression.

In his book, “New Deal or Raw Deal?” historian Burton Folsom, Jr, asked and answered the question “What caused the Great Depression?” Among the factors he cited was the huge debt left over from World War One. In the United States, the national debt had ballooned from $1.3 billion to $24 billion in three short years, half of which consisted of loans made to the allies.

Today the U.S. is feeling the impact of the aftermath of 9/11 when military action was taken first in 2001 and then in 2003. We are still in Afghanistan and Iraq without much to show for it. As opposed to short, preemptive, lightning strikes, we have become involved in “nation building.” Forgotten is the fact that it was the Russian intervention in Afghanistan that ultimately brought down the former Soviet Union.

In the 1930s, in addition to tariffs on imported goods, “The third cause of the Great Depression was the poor performance of the Federal Reserve,” concluded Folsom. “The Federal Reserve was created in 1913 to control the money system by regulating interest rates and lending money to banks.”

In an eerie way, Raymond Moley, a member of Franklin D. Roosevelt’s “brain trust” of advisors and an initial advocate of the New Deal, reflects the widespread perception of Barack Obama today. In 1933 Moley broke with FDR and became a conservative. Following a meeting with FDR, Moley recorded his observations.

“I was impressed as never before by the utter lack of logic of the man, the scantiness of his precise knowledge of things that he was talking about, the gross inaccuracies in his statements, by the almost pathological lack of sequence in his statements, by the complete rectitude that he felt as to his own conduct, by the immense and growing egotism that come from his office, by his willingness to continue the excoriation of the press and business in order to get votes for himself, by his indifference to what effort the long continued pursuit of these ends would have upon the civilization in which he was playing a part.”

This description of FDR is, in astonishing ways, a mirror image of Barack Hussein Obama.

The dissatisfaction that Moley expressed has been manifested in the immergence of the Tea Party movement and the rejection of many in Congress who supported Obama’s agenda, including Obamacare, his failed efforts to jump-start the economy with large, temporary stimulus bills, temporary housing rebates and business tax credits, and the one-time cash-for-clunkers program that followed the federal takeover of General Motors and Chrysler.

There are harsh facts being ignored about the present economic crisis. More than 42 million Americans were on food stamps in August, an all-time record and a number that is 17% higher than a year ago. The U.S. is experiencing massive unemployment and the American Bankruptcy Institute predicts there will be an estimated 1.6 million consumer bankruptcies this year.

The U.S. government is completely and totally broke. A Boston University economics professor, Laurence J. Kotlikoff, has concluded that the U.S. government is facing a “fiscal gap” of $202 trillion dollars.

John Allison, who for two decades served as chairman and CEO of BB&T, the nation's 10th largest bank, told CNSNews.com that it is a “mathematical certainty” the United States government “will go bankrupt unless it dramatically changes its fiscal direction immediately.”

Having tried “quantitative easing” once already the Federal Reserve is undertaking a second effort. It consists of printing magical money and using it to purchase U.S. treasury securities. QE-1 cost $1.7 trillion and did not work. QE-2 will fail as well to the tune of $0.9 trillion.

The U.S. dollar has lost 50% of its purchasing power since 1986 and it has dropped 11% in value since June of this year.

Writing in the November 8 edition of The Wall Street Journal, Kevin M. Warsh, a member of the Federal Reserve’s Board of Governors, went public to warn against QE-2. “Fiscal authorities should resist the temptation to increase government expenditures to compensate for shortfalls of private consumption and investment,” said Warsh who urged “a strict economic diet of fiscal austerity.”

Whether it is Congress or the Federal Reserve, the failures of the present reflect the failures of the past. Major surgery is needed to pare the entitlement programs of Social Security and Medicare. Instead, Obamacare added millions to the Medicare rolls.

The government sponsored entities, Fannie Mae and Freddie Mac, need to be privatized to avoid using billions more in public funds to save them and the too-big-to-fail banks that engaged in “liar’s loans”; mortgage loans that ignored prudent lending practices resulting in the housing market collapse.

TARP did work as an emergency measure, but the government has got to stop being the lender of last resort. It’s our money.

The Federal Reserve is contemplating the creation of “magical money” at a time when the U.S. economy is in deep trouble. It is a trouble that can only be cured by retaining the Bush tax cuts and by simplifying the current insane tax code. Why is there such slow growth? American corporations pay the second highest tax rate in the world.

The burden of federal regulation must be reduced. Economists W. Mark and Nicole Crain, noted in a September Wall Street Journal that “The annual cost of federal regulations increased to more than $1.75 trillion in 2008, a 3% real increase over five years, to about 14% of U.S. national income.”

The President’s original economic advisors have departed. They, like Raymond Moley in the 1930s, know that he is either clueless and/or resistant to any pragmatic solutions.

The midterm elections gave power to the Republicans in the House, the branch from which all financial bills must originate. Failing to do the same in the Senate, it may take two years to repeal Obamacare, but efforts must be taken to defund it, to render it inoperable. The courts may offer relief with a decision that it is unconstitutional.

When the new Congress meets in January 2011, every pressure possible must be brought to bear on the Federal Reserve to stop short-term failed “solutions” before the U.S. dollar is utterly debased.

© Alan Caruba, 2010

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