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April 29, 2010

“Totally Changing the Economic System” Redux by Colonel Bob Pappas, USMC, Retired

Washington Post: Touring the Midwest, President Obama said he was "very pleased" a deal had been reached, and he criticized Wall Street lobbyists for trying to dilute the bill's most stringent provisions. Obama said he did not "begrudge" wealth that is "fairly earned." But in a departure from his prepared remarks, he added, "I think at some point you have made enough money."

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“Totally Changing the Economic System” Redux

by Colonel Bob Pappas, USMC, Retired

When Obama told us that he would “totally change the economic system;” “totally change America;” and “totally change the world,” he wasn’t kidding. There has been much speculation that he “doesn’t know what he is doing.” In a sense they are right, but in one thing they are dead wrong and that is he intends to carry out his promises as they pertain to the country’s economic system, the social system and how America fits into the international order. To think otherwise is to ignore the obvious.

Observing the United States of America destroy itself from within is one of the most heart rending, angering, events imaginable, but it is happening. Several years ago, I included sarcastic comments in an essay for the benefit of Osama bin Laden, exhorting him to be patient because all he had to do was wait and the US would destroy itself. Tragically, that sarcastic admonition is in advanced stages of coming to fruition.

The USA, once the economic envy of the world is fast becoming its whipping boy, its laughing stock, and its economic and social black hole. Once the defender of righteousness and good, it is rapidly declining into the pit of self-delusion, over-indulgence and Rome, except that it took Rome longer to fall than the length of its history of the United States from its founding to date.

The International Monetary Fund is based on the U.S. Dollar but if one has been paying attention of late, there have been some heavy weights that have called for a change from the dollar to some other form of international currency. Even light-weight, Islamo-facist Iran made similar calls during the past year. And despite Obama’s pathetic overtures directly to the Iranian people; his embarrassing “reset” with Russia; whatever gimmick he comes up with for China; his wild inflationary spending, dollar devaluing; financial markets takeover intended to generate pressure for a “total change to the world economic system,” Obama voters asked for it, now he is delivering. So, why the surprise?

In an AP article dated March 21, 2009, by Andrew Taylor, “Agenda on Track Despite Worsening Deficits” Taylor explains the projection of Obama Administration multi-trillion dollar deficits as far as the eye can see. Deficits of that magnitude were not caused by the “failed policies of the Bush Administration” about which Democrat Candidate B. Hussein Obama railed with regularity during the recent election cycle. Where it had its beginning during the Bush Administration, the magnitude and scope of the present crisis is entirely and directly attributable to Obama’s legislative and leadership initiatives.

Bush Administration deficits were child’s play, at $500 billion annually, by comparison to Obama’s in league with the socialists in Congress planned, multi-trillion dollar spending spree; which incidentally began with his $787 Billion “Stimulus Bill,” followed by the $410 billion Omnibus, earmark-bloated spending Bill. Both of which are on top of the Bush Administrations paltry $138 billion stimulus bill of last spring and the $70 billion dollar bailout of Fannie Mae and Freddie Mac, and $30 billion Bear Stearns binge.

In a laughable moment during his recent White House Press Conference Obama stated that we would move the economy from “borrow and spend to save and invest,” this on the heels of the largest expansion of government spending in history. Of course the “lemmings” lapped it up, but reality is that the statement was made on the heels of ten year projections of multi-trillion dollar deficits. So, either Mr. Obama doesn’t have a clue, or he is, shall we say, “prevaricating?” Worse yet, there is plenty of circumstantial evidence that Obama is intentionally overspending to bring the dollar and economy to bankruptcy so that people will beg for a complete government takeover. And what would such a takeover be called? A bailout? Or communism?

The Democrats repeatedly bashed President Bush for his “failed economic policies” that is, “tax breaks for the rich,” “excessive spending” (if one can believe that coming from Democrats) and the cost of the “unnecessary” War on Terror. Their stated theory was that if the rich had been taxed there would be no need for deficit spending.

They point to the “surplus” from the Clinton years to the deficit in the Bush years as proof of their argument. Additionally, they blame the cost of the War on Terror as contributing to increasing deficits and National Debt. The question now is, “Why are we still engaged in Iraq and Afghanistan?” Why are the rich still benefiting from the Bush tax cuts? All this was supposed to stop the moment Obama took office. Of course it was campaign rhetoric at the time, and is now confronted with reality until he can “totally change the economic system.”

With the benefit of a “retrospectrascope” it is fact that the downturn in the economy began after six straight years of economic growth under the Bush White House and Republican Congress (although to be fair, one can find plenty of room for improvement), when Democrats took over the Congress. Further, Democrats including Obama voted in favor of the “Bush” stimulus bill and the bailouts for Fannie Mae, Freddie Mac and Bear Sterns.

Obama has repeatedly blamed President Bush for the “hand he was dealt,” which like all good prevarications, contains elements of truth. But what he doesn’t divulge is that his budget deficit projections are in the trillions of dollars, not for one budget or election cycle, but for generations. All the while he smoothly intones that he will cut the deficit in half by the end of his “first” term. If one pays attention, it doesn’t take a rocket scientist to figure out how he plans to do it.

He begins by putting forth a budget that alone has rocked the entire world’s economic system to the point that the UN, Russia and China are calling for replacing the dollar as the basis of international currency.

(Question: Why is the dollar the lead international currency? Answer: Because it has been the most stable of all currencies since the end of WWII; better than gold for a reason, and now that reason is rapidly evaporating.) After piling up enormous deficits for several years, all it would take would be to cut the pork during the last year and there one has it, the deficit would be cut in half. Far fetched? I’d bet a dinner at Ruth’s Chris for four.

When Obama eventually cuts that quadruple inflated budget in half, he would still be devaluing the dollar at a rate that is more than double that of the past eight years, but will have kept his promise to reduce the budget deficit in half. Note: Obama makes reference to cutting the “budget deficit,” not National Debt, in half. By way of explanation, devaluing the dollar makes American made products attractive on foreign markets while it drives the cost of imported goods up, thereby making American made products also more attractive at home.

At the same time, Obama is protecting the so called, “working class” from the inflationary effects by overt efforts to drive up wages by increasing union membership throughout the workforce and thereby driving up the cost of labor across the board.

That not-so-veiled attempt to enact “Universal Unionization” is called the “Employee Free Choice Act” (EFCA) which Obama promised “I will make it the law of the land when I'm president of the United States.” Of course his assertion assumes that Congress will enact EFCA. The provisions of the act as presently written would strip independent and free employees of the right to a secret ballot, subject them and their families to harassment and threats by union thugs (organizers) and essentially force unionization on the workforce. Readers know it, the Administration knows it, unions know it and anyone who is awake knows it.

In the light of day, union membership is ultimately designed to provide income and benefits for the union hierarchy first, foremost and always. They get rich on the backs of members through union membership dues. Then from time to time they take union members out on strike to show their clout which strips those same workers of income and jobs.

The sad truth is that unions have cost/lost more money, destroyed more companies, driven more companies/work overseas and brought about more illegal immigration that is taking work away from American workers at home in the last fifty years, than any other single factor in the economy.

Organized labor supported Obama during the election and now it’s “payback” time. He envisions that by vastly expanding union membership through enactment of the “Employee Free Choice Act” he will lock in what he is rapidly making a strangle hold on the economy.

Some companies deserve to be struck, and also are complicit in the loss of US jobs. Those CEOs fall into what is commonly referred to here as “Robber Barrons,” taking vast amounts of money out of a company and shareholder equity without contributing any reason for employees to be loyal or provide stockholders with even a small return on their investment.

Investing in the stock market has always carried a level of risk. But risk, whether intentional or otherwise was transformed into gambling and formalized by Phil Gramm, a Republican, and Bill Clinton during the Clinton Administration. It provided broad deregulation of the financial markets and caps on Executive compensation. The result was compensation for CEOs being paid in stock options. That drove CEOs to take actions that would inflate the price of publically traded stock, totally unrelated to actual company performance, in order to increase their income. Opportunists rode the wave to an all time high before the bubble burst last summer.

The collapse of the stock market is directly attributable to the following factors and although the list is not comprehensive, it is a good start: CEO equity greed, overinflated stock prices, gambling, margin accounts, the spike in oil prices at $150/barrel, hedge funds, sub-prime lending, and the banking crisis.

During the Carter Administration a piece of legislation entitled the “Community Reinvestment Act” (CRA) was signed into law. Its purpose was to force lending institutions to loan money in communities that has previously be “redlined,” that is, where little or no lending activity took place because of socio-economic factors.

It turns out that the “disqualifying” socio-economic factors were primarily within black neighborhoods. The CRA made “redlining” illegal and “encouraged,” that is, forced banks to make loans that were risky, basing a bank’s ratings for future growth on lending activity within the “redlined” communities.

Over time there were a number of changes to the law whose ultimate and laudable objective was to bring the black community as a whole on par with their non-black counterparts. Fannie Mae and Freddie Mac bought loans that were offered under the auspices of the CRA and combined or bundled them with other loans. Generally, non-performance of CRA loans was from the outset and has remained historically at a higher level than non-CRA loans. Enter the Sub-Prime loan era.

Senators Christopher Dodd and Congressman Barney Frank forced banks to make Sub-Prime loans under the aegis of the CRA so that as the housing bubble inflated and speculators engaged in house flipping and thereby making large profits in short order, members of the black community could exercise the same opportunities.

The way that banks structured sub-prime loans was as an adjustable rate mortgage. The initial rate was actually below the prime rate set by the Federal Reserve, thus “sub-prime,” where a loan payment might be very attractive for a long enough time to afford borrowers the opportunity in the inflating housing market to “flip” a house for profit. Co-incidentally, the bulk of sub-prime adjustable rates were scheduled to mature to higher rates during the spring and summer of 2008.

Following hurricanes Erin, Dennis, Katrina, Gustav and Ike, the price of oil began to rise and soon speculators jumped on. Seeing the opportunity to gouge the U.S., OPEC even threatened production cutbacks. Speculators had a “field-day” driving the price of oil from under $30 dollars a barrel in 2001 to $60 a barrel in 2007 and reaching $150/barrel in the spring and summer of 2008.

The price of gasoline rose from about $2.00 per gallon to over $4.00 per gallon beginning in January 2007 peaking in July 2008 at over $4.00/gallon. So, a commuter who had been paying $200.00 a month was confronted with a jump to $400.00 a month at exactly the same time that the house payments went from hundreds of dollars per month to over a thousand dollars because of the rate adjustment previously negotiated sub-prime mortgage loans. That combination resulted in defaults followed by foreclosures.

With millions of non-performing loans with payments late or non-existent, underwritten by Fannie Mae and Freddie Mac, those agencies were unable to meet the mountain of financial obligations and had to be rescued by the Federal Government. (Did those CEOs have their bonuses taxed at 90 %?)? But the tsunami had begun because banks that had purchased bundled (toxic) loans from those two government created entities had also been lending to gamblers in the stock market who were using borrowed money for among other things, margin trading. (Margin trading is a means of leveraging funds to buy more stock than there is money available in a particular trader’s account.) Once the trade is settled ostensibly at a profit, the money is paid back with interest. If a stock goes down in price the margin is immediately called by the lender.

Since the stock market, which had in fact become a somewhat regulated gambling operation, had become hyper-inflated in relation to book value, banks began drawing back lending for margin accounts or as noted began calling the margins for those stocks that declined in value. Trading firms’ liquid assets ran dry over night and “voila!” we witnessed the collapse of Bear Sterns due primarily to its holdings of toxic sub-prime mortgage assets and later Lehman Brothers. Bear Sterns received government help ostensibly because of Stearns sub-prime involvement and Lehman was allowed to collapse and was bought out by various US and overseas entities.

The ripple or should one say, the “wave” of failures and government intervention has dramatically increased with the advent of the Obama Administration, but he claims that he is dealing with the hand he was dealt when in fact between his calamitous talk and ramrod of the $787 billion stimulus bill, he has created a shift in the financial market’s tectonic plates.

In an earlier essay I wrote, “Many Republicans, so called “conservatives” tell us they want Obama to succeed. At what? If he succeeds at the promises to “totally change the economic system,” “totally change America,” and “totally change the world” the U.S. will descend the ladder to third world status in less than a decade.

Obama doesn’t have a clue how the U.S. economy works nor does he want to know, any more than he knows how national security, or virtually the entire gamut of U.S. government functions work. Government is not the solution, it is the problem. Government bureaucrats are empire builders and creation of four hundred thousand new bureaucratic jobs does not boost the economy, it burdens it. Government does not create economies, it may regulate them, it may harm them, and central planning czars are reminiscent of Soviet central economic planning.

Message to Obama, socialism/communism doesn’t work, and another attempt, this time in the US will only damage the US, including those to whom you want to “spread the wealth.” Think about it and put on the brakes because your “gallows humor” is called that for a reason.

I urge all Americans who believe in freedom to make your thoughts known to your Congressman and Senators. Otherwise, stand by for the fast ride into a Cuba, Russia, China, or some other “workers paradise.”

Semper Fidelis

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Wild Thing's comment........

Good write up!!! Thank you Col. so much!!

I really belileve what Obama is doing is intentional. He has an agenda for our country and it is fueled by his compplete hate for the USA, for Americans and our Constitution.

....Thank you Mark for sending this to me.

Mark
3rd Mar.Div. 1st Battalion 9th Marine Regiment
1/9 Marines aka The Walking Dead
VN 66-67

Posted by Wild Thing at April 29, 2010 06:49 AM

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Comments

Posted by: willy at April 29, 2010 08:05 AM

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Posted by: Jim at April 29, 2010 10:22 AM

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Posted by: TomR at April 29, 2010 10:23 AM

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Posted by: Mark at April 29, 2010 12:36 PM

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Posted by: Wild Thing at April 30, 2010 04:59 AM

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