Fed needs new leadership

Knoxville News-Sentinel November 4, 2012 Regardless of who wins the presidency it is rumored that when his term as Fed chairman expires in 2014, Ben Bernanke will not be reappointed. This is no surprise if Romney wins. However, it is somewhat of a surprise if Obama is re-elected. This is because Bernanke has been the most accommodating Fed chairman in history. Under Bernanke, the Fed has purchased billions in Treasurys allowing the administration to spend without a budget constraint. One would think that Obama would welcome the continuation of what has been - to him - a wonderful relationship. On the other hand, Romney would certainly be delighted if Bernanke decided to exit even earlier, say January 2013. However, regardless of what Bernanke decides, a President Romney would be left with a Federal Reserve Board comprised of governors all appointed by President Obama. Even though the chairman gets the majority of the publicity, all the governors sit on the Open Market Committee that makes the decisions regarding monetary policy. This Board of Governors has been unanimous in its support of Bernanke in keeping long term interest rates artificially low. Thus, a Romney appointed chairman may encounter a recalcitrant group of fellow governors and find it difficult to reach a consensus if a change in policy were desired. Nonetheless, Fed policy even under Bernanke has been a contradiction. Through the expansion of its balance sheet by purchasing Treasurys in QE1 and QE2 and the purchase of mortgage backed securities in QE3, the Fed has dramatically increased the amount of excess reserves held in the banking system. Normally, these reserves would be loaned out, creating money. The result would be highly inflationary. That the banks are not lending the reserves and not creating money are a product of two disparate forces. The first is the Fed is paying 0.25 percent interest on the excess reserves. That amount is about what a two year Treasury earns, so the banks can hold the reserves and earn interest without incurring any default risk. Bernanke has indicated that this is how the Fed can ward off inflation. By manipulating the interest it pays on reserves it can induce the banks not to lend. However, by paying interest on reserves, the Fed is acting counter to its own stated policy - that of stimulating economic growth. Indeed, if you take out the increase in the government sector, overall economic growth during the Obama years has been negative. Coupled with the Fed seemingly driving the economy with its foot on both the accelerator and the brake are the actions of the Fed, the FDIC and the Comptroller of the Currency as bank regulators. All are still smarting over being accused of lax regulatory oversight precipitating the financial crisis. As a result all are now being heavy handed resulting in a tightening of loan standards drying up funding to businesses and individuals. So while the Fed is saying that it is pursuing expansionary monetary policy through its purchases of long term securities it is also not allowing the economy to expand. It would be a welcomed change to see a coherent Federal Reserve policy. Therefore, it will be a welcomed sight to see Bernanke leave.

Ghosts of Ole Miss

I had never watched ESPNs 30 for 30 but watched the one “Ghosts of Ole Miss.” It told the story of the only undefeated Ole Miss team of 1962 juxtaposed with the integration of the school by James Meredith. It was a powerful story only marred by its telling. Too much time was spent on the story teller than on the story itself – but perhaps this is the style of the series. One lasting impression is the strength and courage of Meredith especially in light of the demonic evilness of the students interviewed. I enrolled in Georgia the exact same quarter that Meredith went to Ole Miss. I actually sent him a note telling him to stay strong. I never got an answer but he may have never gotten it. I remember growing up and hearing “you think Georgia is bad? You should be thankful you are not in Mississippi.” So true. The film revisited the deaths of Emmitt Till and Chaney, Goodman and Schwerner. The whites interviewed said “They deserved it.” No remorse there. Compared to Meredith, we seven blacks at Georgia had a walk in the park. Yes. Thank goodness we were not in Mississippi. The story then told of ridding the Ole Miss football games of all the confederate paraphernalia. Curiously it told of the first black cheerleader who in 1982 refused to carry the confederate flag but it neglected to mention the first black football player. I know all about this experience much too well. When I went to Georgia, the cheerleaders carried confederate flags as did most of the fans. The band was call the Dixie Red Coat Marching Band and played Dixie after the national anthem. We sat down and were pelted with stuff and yelled at until the dean of students showed up and started collecting IDs. Unlike Meredith, we went to every game and at every game we were called every name imaginable. Today no vestiges of the confederacy remains at UGA games – even the flags are gone from the tailgate. I wonder if the same is true at Ole Miss. The film also talked about the tribute to the 1962 team 50 years later and mentioned that Meredith was in the chancellor’s box. But it did not mention if any tribute was paid to Meredith. Curiously, there was a scene in which there was shown a statue of Meredith on the Ole Miss campus but not a word about it. Lastly, the best part of the film was the interview with Meredith himself. Clad in all white, he looked the part of a gentleman planter. He was still full of confidence and self assurance. Perhaps few people in history has had so great an impact on fundamentally changing a culture, a way of life and introducing so many in an entire state to the human race.

A recent speech on the economy

Speech to the Tennessee Bankers Association Meeting Nashville, TN October 24, 2012 The Economic Outlook I do not need to tell you that the economy stinks. How bad is it? Absent the government sector, negative real economic growth of -0.3 percent. That means that this is the first president other than Hoover with negative growth during his first four years. Yes, the president has a point when he says that he inherited a bad economy. With George Bush the economy grew 6.6 percent. But the president’s policies made it worse. His antibusiness agenda, refusal to compromise by adopting Simpson-Bowles and the Keystone pipeline along with his desire for tax increases and health care are only the tip of the iceberg. Federal spending is now 24% of GDP and growing. Traditionally it is 20 percent. Middle class incomes have fallen by $4,520. Health care premiums increased by $3,000. Only a blind party loyalist would want four more years of this. Regardless of who gets elected, there is the so-called "fiscal cliff” looming where we have tax hikes and spending cuts of nearly $600 billion of tax hikes and spending cuts set to take effect at the end of the year. • Payroll tax cut benefiting 160 million workers is scheduled to expire at the end of the year (taking away $1,000 for the average family) • increase in the taxes of $1.7 trillion under Obamacare • A typical middle-income family making $40,000 to $64,000 a year could see its taxes go up by $2,000 next year if lawmakers fail to renew a lengthy roster of tax cuts set to expire at the end of the year, according to a new report. • Taxpayers across the income spectrum would be hit with large tax hikes, the Tax Policy Center said in its study Monday, with households in the top 1 percent income range seeing an average tax increase of more than $120,000, while a family making between $110,000 to $140,000 could see a tax hike in the $6,000 range. • The increases would total more than $500 billion -- a more than 20 percent increase -- with nine out of 10 households being affected by the expiration of tax cuts. • Taxes would rise by more than $500 billion in 2013 -- an average of almost $3,500 per household. • $109 billion in automatic spending cuts scheduled to take effect in January Cumulatively, the country would see a 5 percentage point jump in its average tax rate, which works out to taxes on the top 1 percent jumping by more than 7 percentage points and about 4 percentage points for most people earning below $100,000 a year. Put another way, people in the $40,000-$64,000 income range would see their average federal tax rate jump from 14 percent to 17.8 percent -- or an increase in their overall federal bill of 27 percent. All told, almost 90 percent of all households would face a tax increase, though the top 20 percent of earners would bear 60 percent of the overall cost. Across all households the tax increases would average almost $3,500. The new top rate of 39.6 percent would kick in for income over $397,000. The current top rate is 35 percent rate. What will this portend for the economy? The Congressional Budget Office said in August that this would cause a 0.5 percent contraction in gross domestic product next year, triggering a recession. If postponed the consensus of business economists is that the U.S. economy will likely expand 2.4 percent next year, up from projected growth of 1.9 percent in 2012. The Federal Reserve analysts projected that the unemployment rate would stay near 8 percent through 2014 having downgraded its forecast. Federal Reserve Chairman Ben Bernanke said "I suspect that the fiscal issues may be part of that." I suspect that he may be right in the short run. But in the longer run, the irresponsible disregard of the Fed for the value of the dollar may be more significant. Regardless, if Romney is elected - sell your gold.

Random thoughts

• Candy Crowley. Should I say “I told you so?” Although it would have been written and reported that Romney was peevish, don’t you wish Mitt had said “Candy, if you are going to continue to interrupt me and fact check (erroneously) for the president, why don’t you go stand next to him.” Crowley’s open partisan behavior especially in interjecting that the president said at the outset that Libya was a terrorist attack when she had previously admonished David Axelrod that it was not, is the stuff that used to get people fired. Anyone taking bets that Crowley will stay on the job? • What about those anti-capitalist Nationwide Insurance ads that say “We don’t have shareholders so we make our policyholders first”? I expect Obama to show up saying “I endorse this message.” Well studies comparing mutual savings and loans to stock savings and loans show that the mutual organizations are less efficient and more wasteful than stock organizations. The mutual executives have significantly higher perks than those who run firms with stockholders. The stockholders (the market) provide oversight that lessens waste. So in reality the absence of stockholders is a bad thing, not a good one. • Have you noticed that the polls are suddenly showing Romney strongly in the lead? How could he possibly have gained 11 points in Wisconsin seemingly overnight? How could all of a sudden he be even with women nationwide? How come all of a sudden his national lead is 6 points? The answer is that as I have pointed out before, the polls have all been rigged with an oversampling of democrats. Again for those polls to be correct then the voters would have to show up on voting day in the same proportion as they are represented in the polls. Not likely especially given the stark drop in democrat registration. • I voted yesterday. I arrived at the polls 15 minutes early and the line was already out the door. One of the poll workers said that she had never seen anything like it. After I voted, the line was in the parking lot. I was told that the same was true all over east Tennessee. As a friend of mine said "I have been waiting for four years for this day!" Wonder who she voted for?

The coming election: Why am I so uneasy?

With the election coming I have a deep uneasy feeling that I have kept to myself. It is that whoever wins, the other side will actively try to tear this country apart. Consider all the invective on the left regarding the Tea Party, republicans and Mitt Romney. Need I say that the smear campaigns against each is actually a hate campaign. The left has yelled over and over that the right hates women - I guess even right wing women are supposed to hate women (who said it was remotely rational?), hates blacks, hates hispanics, hates gays, hates working class Americans and only favors corporate greed. I have even had people say this to my face. Even though blacks are becoming increasingly marginalized in this country, they still remain a powerful force. Defeat of Obama could galvanize many blacks to take to the streets. Joining them will be the anarchists, the Occupy Wall Street crowd, and the radicals on the left. On the other hand, the right has lambasted the "progressives" and Obama as socialists - if not communists - hell bent on the destruction of the country. An Obama victory could spur the skinheads, the states rights groups, the state secessionists, and the kook fringe on the right to take to the streets. Whoever that takes to the streets will likely be met with force from the opposing camps. The left thinks that the right tramples freedom and wants to institute a police state while ironically the right thinks the same about the left. While the right conjures up visions of Stalin on the left, the left throws Hitler back in the face of the right - even though Hitler was a socialist. Yes I know that four more years of Obama would be a continuing disaster on all fronts - domestic and foreign. Yes I know that Romney has the expertise to right the ship - but I am not certain if he has the guts to do it. But what I am not certain of is the reaction of the left if Obama loses or the reaction of the right if Obama wins. I have the feeling that we are in for some interesting times.

So who taught you how to read?

One of the most laughable bumper stickers out there is the one that says “If you can read this, thank a teacher”. Are teachers really responsible for kids learning to read? If so then teachers are also responsible for kids not being able to read. Both my brother and I could read before we stepped inside a school. The same is true for my kids and my brother’s kids. However, even a teacher would be able to teach our children to read. I am reminded of my brother who was a math major at Purdue saying that he did so well because he could not understand a word spoken by any of his professors. Nevertheless, bad teachers don’t teach kids to read and the inability of teachers to teach is blamed on the kids. Consider that the head of the Chicago teachers union said that the increased accountability demanded by the city administration over the dismal performance of the school system was “unfair” because “poor kids can’t learn”! (http://eagnews.org/ctus-lewis-increased-accountability-unfair-because-poor-kids-cant-learn/). Of course this is nonsense. Consider that virtually all these students can recite every word to the most complicated rap after only three listenings. Indeed, if Lil Wayne rapped War and Peace, these kids would know Tolstoy in a week. If I were a parent in Chicago I would be on the warpath. The problem is that in the education system only the students do not have an advocate. Lack of achievement is always laid at the feet of the students when the real culprit is the method of instruction. The teachers are taught methods that have demonstrated failure. Sure there are high achievers but studies show that these students excel regardless of the method employed. The colleges of education have an invested interest in their traditional methods and will defend them to the detriment of the children taught. Yet nontraditional methods such as Direct Instruction have been shown to produce proficiency rates in at-risk students that are equal to and even higher than those for students in high income districts. Its high time that we quit excusing the teachers and blaming the kids. As I have said before, if we want kids to achieve then we should privatize the school system, collect the taxes and turn it over to the Catholics.

Early voting = fraud?

Early voting in Tennessee starts on Thursday. I know that some on the right are contending that early voting equates to fraud. But the logic escapes me. I have yet to find any confirming evidence. Those that argue fraud also argue that if voters cast their ballots before election day, that there is no chance that opinions that might change at the last minute will be reflected. This, of course, has nothing to do with fraud. I for one always vote early. I live in a district with high voter participation. On election day, the lines are long throughout the day and the wait is long. To avoid this inconvenience, I vote early. It is my impression that most of us early voters will not be swayed one way or the other by later breaking news - the fabled October surprise. We are not the undecided and I am puzzled how one could be undecided in this particular election. Yet I heard an interview with an undecided voter who said that he was faced with two unsavory choices: between "more government and less freedom". Excuse me? Naturally in the tradition of today's news interviewers, there was no follow up to explore this bizarre notion. Now it has occurred to me that the argument regarding voter fraud does not relate to early voting where the voters go to the polls early but to absentee ballots. There the potential for fraud exists. The case usually cited is in the Minnesota senate race where the republican Norm Coleman lost to the idiot Al Franken because an unlikely 60 percent of the absentee ballots went to the democrat. It would be interesting to see if in states where the election commission is dominated by democrats, that their candidates get the most absentee votes and in states where the republicans dominate, their candidates get the most. Then there might be an argument that absentee voting is likely to be fraudulent. But to include early voting at the polls as fraudulent is a bit of a stretch.