My take on GOP presdential candidates

Ron Paul, Wikipedia

Ron Paul -- I remain conflicted about Ron Paul.  The reasons are simple and shared by a number of GOP voters.  Let's first look at the plus side.  I love the man on fiscal policy.  As he once described his zeal to cut federal spending, “I am absolutely convinced it is the only road to prosperity.”  On monetary policy -- Ron Paul is the gold standard (pun intended).

If not for the Tea Party, I'd have bolted from the Republican Party a few years ago because I wasn't seeing enough Republicans walk the fiscal talk that Rep. Paul walks every day.  Then I discovered Ron Paul.  When Ron Paul says he'd cut a trillion dollars in federal spending year one, he even tells you how he'd do it.  When he talks about The Fed's destructive, easy money policies -- he means it.  I admire his courage and consistency.  Unfortunately, Rep. Paul's foreign policy is often, "Blame America First."  It's unfair to brand virtually all American foreign intervention as "nation building".  He's more worried about domestic TSA agents, than foreign enemies of this country.  He's obsessed with "rights" of enemy combatants (non Americans) in Guantanamo and dismisses the record of domestic security our existing policies (maintained by leaders in both parties) have engendered.  I also question his views on Israel.

I recall an attempt Mr. Paul made to appeal to Pro-Defense Republicans when he highlighted the fact he had voted to use force after 9/11.  My fear is that a President Paul would wait for another 9/11 before acting.  Ignoring one's enemies has nothing to do with Liberty. 

Traditional Republicans have significantly more in common with hardcore Paul supporters than either group has in common with Democrats -- and probably always will.  I respect the ideological purity of most Libertarians -- their loyalty and unswerving respect for the Constitution.  My differences with some of them are: a) an all hands-off position about containing evil and preserving national security, b) a failure to embrace political reality by running hopeless candidates who siphon GOP votes and c) too many of them still spout the nonsense that there is no difference between Republicans and Democrats.

Newt Gingrich, Wikipedia

Newt Gingrich -- Mr. Gingrich will not be the nominee of his party, but if you ever have the opportunity to see Newt Gingrich speak in public, you must make the time.  He's a rare breed of public speaker -- poised and colorful with an enviable command of American history and domestic politics.  I've never seen him use notes at the stump.  Speaker Gingrich also says ineffective things at the worst possible moments like his recent attacks on Romney's private equity group.  .            

Rick Santorum --

Rick Santorum, Wikipedia

A lot of Americans are getting their first taste of Rick Santorum.  He's been a part of the Washington landscape for a long time while managing to keep his nose clean and win respect from people who agree with him and scorn from those who don't.  Mr. Santorum will not be the nominee of his party either.  His character, social values and deeply-held convictions are the stuff that lands one a spot on Mount Rushmore, but we need a CEO in the Oval Office more than a role model for at-risk youths.  I'm also troubled by his explanation for a vote against the Commonwealth of Pennsylvania when it tried to become a Right To Work (RTW) state.  Mr. Santorum now says he'd sign an executive order allowing all states to become RTW states. By the way, check out this site to learn more about RTW site.

Mitt Romney --
That brings us to Mr. Romney.  Words that come to mind are: urbane, wealthy, smart and energetic.  Of course, that's not enough to win.  I hope Governor Romney's commitment to balanced budgets will remain as pure as Governor Scott Walker's performance here in Wisconsin. 

By the way, I'm now awarding an annual Maddente.com MVP Award for public adherence to fiscal responsibility under adverse conditions.  Mr. Walker earns the inaugural award -- hands down -- for his 2011 performance.  Taking a $3.6 billion dollar deficit to a $300 million dollar surplus, without raising taxes, against a Tsunami of cheap legislative stunts and vicious public union attacks, has re-defined courage and leadership in this state.

But back to Mitt.  There's much more to learn and discuss about Mitt Romney, of course, but for now I'll close with this thought: Mr. Romney will be the GOP nominee facing Barack Obama in November and if elected, he'll become an infinitely better President than his predecessor.

A book: All The Devils Are Here

Back in 2007 while waves of defaults occurred after sub-prime loans "reset" (an adjustable rate mortgage payment that increases after the prime interest rate increases) I asked one Loan Officer,  "Why did lenders write variable rate notes when they knew many borrowers had little capacity to make higher payments down the road?"

What I heard in reply was that as risky as these credit bets were, if conventional higher fixed-interest rates were used, the borrower could not have qualified for as much of a loan.   My reaction?  Exactly.

I'm reading a book by Bethany McLean and Joe Nocera - All The Devils Are Here - The Hidden Story Of The Financial Crisis (Portfolio/Penguin).  I'm learning more about the origin of sub-prime lending and the players behind it, but I'm struck by a rhetorical question the authors pose in Chapter Six, concerning the line between predatory lending and what I have called predatory borrowing:

"But in the larger scheme of things, did it really matter who was at fault?"

Yes.  It matters.  Attention to causality (i.e. fault) is important because sweeping policies are being hatched to curb systemic risks for the future.  If they get it wrong, we'll over-regulate mortgage originators -- possibly choking off  liquidity for many qualified, low income borrowers.  My biggest fear is that we'll fail to transfer liability from the American taxpayer to future borrowers-lenders-investors (where it belongs).

A debate over a Kyle Bass interview

Cameron and I are jousting again. 

Wikipedia image

This time the fodder is an hour-long interview with hedge fund manager, Kyle Bass which Cameron and I both viewed with great interest.  Taped last month, I encourage you to view it too.

Cameron writes...

“John, I watched that video, thank you for forwarding it. It was very insightful. There were a lot of things that really popped out but one especially. Bass states that Washington has a spending problem, but in the same breath he states that the solution is simple. He states we need to raise revenues 2 1/2% and reduce expenses by 5%.   

Which is exactly what I wish Washington would do, but the Republicans stance against no new taxes and no compromise on that issue is hardly going to get that accomplished.”

My reply to Cameron...

Cam,

Note that the spending reduction Mr. Bass calls for is two times the tax increase he calls for.  Perhaps that’s because giving (additional) revenue to the federal government is like tossing it in the ocean.  Politically, raising some taxes might be an expedient way to get a budget bill past the Dems in order to ultimately net a much larger reduction in spending, but we don’t raise taxes because it is morally appealing, or because we think it's a prudent way to help the disadvantaged.

I hope to visit Cameron while I'm in Texas during the holidays.  At this time, I'd also like to wish all six readers of this blog a Merry Christmas.

Wikipedia image

Quick hits for combative times

Super committee fails - or did they?
So, across the board (1/2 defense, 1/2 non-defense) federal spending cuts of $1.2T will begin January, 2013 without tax increases.  That's the plan, but there is plenty of time for Congress to derail progress.  Thankfully, President Obama says he'll veto any bill that attempts to overturn the sequester.  Republicans or Dems who try to do it to protect whatever it is they purport to be protecting -- will do so at their peril.  This is the 2012 issue to watch.

GOP nomination and a narrowing field
I felt many of the same hopeful moments and (ultimately) profound disappointments from Herman Cain's candidacy as I felt during the Sarah Palin VP run in 2008.  My view has less to do with Mr. Cain's alleged personal indiscretions than his performance on the campaign trail which has become as painful to watch as Ms. Palin's was during the 2008 election.  

Cameron weighs in on income redistribution
In May of 2010, I began an interesting exchange with my old pal Cameron. 
More recently Cameron sent me the CBO report that has garnered so much attention, "Trends in the Distribution of Household Income Between 1979 and 2007.  CBO says, "... the population with income in the lowest 20 percent (quintile) in 2007 was not necessarily the same population group in that category in 1979."  That point seems lost on some who believe this 20% is the exact same control group tracked during the period of study and thus the one still mired in poverty.  By definition, there always has been and always will be a lowest quintile, ipso facto.  CBO also mentions that the lowest 20 percent actually experienced income "18 percent higher in 2007 than it had been in 1979."  This data point suggests that a rising tide has lifted their boats too, though admittedly, not to the same degree as boat owners in higher quintiles. 

OWS and that "evil" one percent
Debate centers on the top 1% of income earners where the income share has increased dramatically in recent years.  Why?  Because if one looks at the income share by quintile, going back to the late 1960s, one sees that the share percentage of income earned by the top quintile has gone up (and down) in  percentages of total income between roughly 43 percent to 50 percent.  When I looked back further to the 1940s, the data for this quintile was still bouncing around in the mid 40s share percentage.  Thus, the share of total income going to the top quintile, hasn't changed much in relative terms. 

We all like to trot out statistics that support our own worldview.  I just did.  Don't want to talk about who pays the most income taxes?  Talk about income disparities.  Don't want to talk about higher living standards, or increased consumption by all Americans?  Yes, focus on the income.  Don't want to talk about anemic economic growth or continuing growth in government employment levels?  You got it -- single out the income issue.  One can always make a case and a counter case with quantitatively-supported talking points.  

As these wobbly debates continue, what's troubling is the class envy and resentment boiling over on to our streets.  For additional perspective, check out David Malpass' article in the current issue of Forbes Magazine ("Class Warfare Hurts Growth").  

Image by krakenimages.com on Freepik

'Tis but a scratch

When the bills come due, nations that have fallen prey to the entitlement vortex can foster street violence and class warfare when the coffers are empty.  Some leaders can also breed denial once they run out of money.   

That's the reaction of some Greek politicians who don't appreciate the futility of their fiscal situation.  A year and a half ago, German officials averred that part of a Greek bailout plan could involve the sale or lease of state-owned assets, as well as, other austerity measures. 

This proposal did not amount to a wholesale transfer of Greece's sovereignty as its opponents claimed.  Rather, it was part of a larger plan to lift a struggling debtor out of its self-induced mess through privatization of government assets including some Greek islands.  

In response one Greek government official said, if such asset transfers came to pass, it will result in a Greek boycott of German goods.  This threat seems to ring hollow.  They're broke, they can't borrow and they threaten not to buy products.  I'm reminded of the Black Knight from Monty Python and The Holy Grail.  After being drawn and quartered, the dismembered knight vowed to attack his foe (who didn't want to fight in the first place).  

                                                                 YouTube Video

Above is the clip.  Watch King Arthur's reply to the Black Knight, which could be Germany's reply to the aforementioned Greek official, "What are you going to do, bleed on me?"  

I'm sympathetic to the suffering in Greece, but it's hard to abide politicians who want to perpetuate the irresponsible government spending and market meddling that caused their mess.  

At the end of a 99 year lease, the British honored their treaty with China and transferred sovereignty of Hong Kong in 1997. Life went on.  Perhaps a multi-year lease of Mykonos would help matters. 
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October 2, 2011 - NEWS UPDATE - Reuters just released this report on the Greek financial crisis...

"The Greek cabinet is expected to approve a contentious plan Sunday to lay off state workers, and sign off on a draft of next year's budget, in a race to slash spending, free up bailout loans and stave off bankruptcy.

Without the release of an 8 billion euro ($10.7 billion) tranche of an EU bailout, massively indebted Greece could run out of money to pay state wage bills within weeks.  European officials are scrambling to avert a Greek debt default, which could wreck the balance sheets of European banks, damage the prospects of the euro single currency and possibly plunge the world into a new global financial crisis."

When compromise and experts are dangerous

With a title like, "Are Economists Really That Smart" I had to read Bill Flax's piece in this month's issue of Forbes magazine, especially after digesting his first sentence, "Remember when Joe Biden admonished us to keep spending or else we'd go bankrupt?"  Mr. Biden's statement reminded me of something Nancy Pelosi uttered before enactment of the unpopular Obamacare legislation affecting 1/6th of our national economy.  Of course, Joe Biden and Nancy Pelosi are not trained economists, nor am I, but these people are running the country.  This clip is only two seconds...

My timing to read the aforementioned Forbes piece was good since I'd just finished fighting my way through Nassim Taleb's best selling book, The Black Swan.  (I say "fighting" because several technical aspects are beyond me).

In their own ways, Messrs. Flax and Taleb fillet and roast the cadre of economists, public policy-makers and financial journalists who worship at the Keynesian alter.  Living within one's means and free market principles are concepts ignored, even ridiculed, by economic intelligentsia as they advocate for trillions in "stimulus".  

Their voices clamor for more government spending.  The reason QE2 failed, according to these experts, is that the sum wasn't large enough and all the fresh liquidity wasn't given enough time to work.  On the other hand, economists like Nassim Taleb see the economic calamities we now face through a different lens.  But back to the Forbes, piece.  

Mr. Flax says of economics and its modern day application to fiscal policy, 

"The principal failing of macroeconomics is the intrusion it invites and the certainty it instills in politicians...no planner, no matter how wise, could possibly appreciate all the subjective nuances lurking behind these numbers.  Such schemes are doomed to folly."

There also exists today, a notion that Pols sparring over fiscal policy must "compromise" as if the key to solving our economic morass falls in the middle of some ideological bell curve. 

Icon by Creatype at freepik

Compromise might produce added legislation, but it won't cure a deficit spending addiction.  Consider Nassim Taleb's eighth principle for a Black-Swan-Robust Society,

"Do not give an addict drugs if he has withdrawal pains.  Using leverage to cure the problems of too much leverage is not homeopathy, it's denial.  We need rehab."

1900 advertisement treatment for morphine addiction - Wikipedia

The same metaphor I used in January of 2009 (and used elsewhere by others) of a drug addict who needs to take the pain, was also used by Dr. Taleb.  

The point is one cannot compromise with a drug addict, they only come back for more, which is why we must lower federal spending.  Tax increases and money printing are analogous to a government's morphine fix -- it feels good for a while, but it only makes the problem worse before the inexorable crash.  We must go cold turkey and take the pain incrementally.  

Conflicting voices about the debt crisis

The official position of this blog remains that the United States does not have a revenue problem, it has a spending problem. 

I spoke with Rep. Jim Sensenbrenner at a local Town Hall Meeting last April about an idea advanced by Tim Pawlenty to avoid default without raising the debt limit.  The U.S. Treasury has the power to sequence (i.e. prioritize) payments when bills come due.  So debt holders can indeed be paid first to avert default and buy time while a budget patch is passed.  The idea has been roundly ignored or dismissed as impractical.  Of course, the U.S. government also has over a trillion dollars worth of other assets much of which could be liquidated to pay bills, but that's another post.

Guy tilling soil in front of Financial Temple - Wikipedia

The debt markets have not been as restive as the equity markets.  Bond markets know that the administration would not pull the financial temple down on our heads and allow a default, because it is not in the politicians' interest to do so.  The Obama administration would have little choice but to play the payment sequencing card to avert financial Armageddon. 

Treasury Secretary Tim Geithner does not believe the Treasury possesses this ability.  A blog called FairlyConservative.com points out the bluff by citing some July 25th reporting done by Charlie Gasparino.  

What happened two days ago?  Bloomberg News and others reported that "...the Treasury Department will disclose its list of spending priorities in the event the debt limit isn't raised before August 2nd."  Apparently, the rating agencies warn against doing this (the same folks that did such a fine job assigning risk before the housing market cratered).  In the macro-scheme of things, it really wouldn't matter much according to David Wessel, and others. 

I don't want a credit downgrade to occur like Neil Cavuto and I understand the impact on our borrowing costs, but it might be more of a political risk than an economic risk which is a view expressed rather well in this blurb from Politico.

I'm listening to Bloomberg Radio and an interview with Mohamed El-Erian.  Dr. El-Erian understands the bond markets which at this juncture, are a more reliable indicator of danger than political sideshows that reap so much media attention.