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Obama's 'We Will
Recover' Pipe Dream

By Joel Skousen
World Affairs Brief
President Obama's promise that, "We will rebuild, we will recover, and the United States of America will emerge stronger than before," will go down to haunt him like the Bush's "Mission Accomplished" Banner. When inflation comes back people will initially think a recovery has arrived, but fast rising prices will soon begin to rob all existing assets and savings of their value. A true recovery could only happen if the government and people were willing to take dramatic and honest steps to instill true fiscal and economic restraint upon the nation: Cut spending (no more deficits, no more foreign aid, no more welfare), create a solid gold backed currency, let the insider speculators and banks fail, and drop all regulatory and tax requirements related to employment.
Regulatory and tax costs of employment are the number one disincentive to hiring in the incipient phases of small business growth and one of the main reasons employers seek to take jobs overseas. All of these changes together wouldn't halt this difficult transition period, but at least it would create honest expectations for slow, steady and stable future growth--without creating another bubble. Instead, we are starting down the path of draconian fiscal irresponsibility, warned against by the Austrian economic adage: "when you bailout an economy with ever increasing doses of fiat money, each subsequent boom-bust cycle is larger and more violent than the last." That's the fundamental law of economics that is bearing down on us like a future tidal wave and there is no escape.
Michael LeMieux and Gary Franchi of Restore The Republic had these critical comments about Obama's speech: "Tonight we heard an eloquent speech presented by a master orator. He was polished, witty, and... Having said that; here is a man that less than 5 weeks ago swore an oath to 'protect and defend the Constitution;' who spoke for 50 minutes on the many and costly programs that were totally outside the scope of the federal government.
"This is not about saving money, or banks, or car companies, this is about saving the very principles this great nation was founded upon. What we heard tonight was nothing more than a plea to race headlong toward socialism, to spread the wealth around, as he has said before. He wants to create federal lending funds and housing rescue plans to help individual home owners (wealth redistribution). He wants to swoop down from on high with the 'full force of the Federal Government' whenever any bank may be having problems and bring them to task. And may we remind the reading audience; it was that very same federal government that mandated that these banks make those loans or lose their favored bank rating. They caused the problem by their very own regulations and offer to fix it by increasing regulation and control.
"He spoke of more money for education. In effect creating a cradle to career (his words were birth to college) [path] to get more college level workers into the system. He spoke of providing every child the opportunity for universal education to include a college education that will cost at least a half a trillion dollars in and of itself. He wants to immediately establish the electronic healthcare records program. As with every other electronic system in existence, the federal government will have its fingers fully intertwined within it. And anyone who believes the government will not utilize every bit of information it has at its disposal to fulfill any of its 'missions' is either ignorant of the working of our government or a fool.
"Then there was the quickly touted claim of enacting 'preventive health care.' One can only be lead to believe that because you are on the government's health care system you must comply with certain requirements to ensure proper cost saving measures. One could envision a required semi-annual checkup, weekly exercise program, and calorie and meal requirements for the obese [not to mention the future restrictions on doctors to make sure they can only use "approved" protocols, which will surely prohibit more effective natural procedures]."
As in the TARP legislation, no one (except Ron Paul (R-Tx)) seems to care that the bailout of state governments is patently unconstitutional. Karen McMahan writing for the August Review notes, "While some are debating the fairness of citizens in states that have been fiscally responsible being forced to pay for the fiscal irresponsibility of other states, the larger question, according to some legal experts, is whether such a bailout is constitutional. Nick Dranias, director of the Goldwater Institute's Center for Constitutional Government, said he believes the bailout of states by the federal government would violate the 10th Amendment of the Constitution, [The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.] 'The federal government does not have the constitutional authority to spend taxpayers' money to redistribute wealth from one state and give it to another,' This same argument, along with others, has been espoused by Robert A. Levy, chairman of the Cato Institute, to say that the $700 billion Emergency Economic Stabilization Act of 2008 is unconstitutional..'"
The monetary powers outside the US are simply not buying into the bailout with the alacrity of naive Americans. According to Bloomberg News, "Asian investors won't buy debt and mortgage-backed securities from Fannie Mae and Freddie Mac until they carry explicit U.S. guarantees, similar to those given on bonds issued by Bank of America Corp. or Citigroup Inc. [These two banks are still in deep trouble even after the billions they've received so far]. The risks are too great without a pledge that the U.S. will repay the debt no matter what, according to Hideo Shimomura, chief fund investor in Tokyo for Mitsubishi and other bondholders and analysts in Japan, China and South Korea interviewed by Bloomberg.
"Overseas resistance may hamper U.S. efforts to hold down home-loan rates and shore up the nation's largest mortgage-finance companies. Even after President Barack Obama vowed on Feb. 18 to sink as much as $400 billion of capital into Fannie Mae and Freddie Mac, double the original commitment, 'there is still a concern that there is no guarantee' from the government, said Shimomura, who oversees $4 billion in non-yen bonds for the arm of Japan's largest bank."
When you look at the details of the Obama bailout we shouldn't be surprised to find out that the top 19 US banks are going to get essentially an unlimited line of credit and the rest of the banks are going to be allowed to fail so the big boys can pick up the pieces. Kevin G. Hall of McClatchy Newspapers has the story.
"Taking the wraps off its much anticipated bank-rescue plan, the Obama administration on Wednesday announced that it will provide a virtually unlimited solvency guarantee to the nation's 19 largest banks... The plan works like this: Through the end of April, federal regulators will pore over the books of the 19 largest banks ---- such as Citigroup, Bank of America, Wells Fargo and others [the so-called Stress tests]. They'll be looking at conventional measures such as the composition of a bank's cash on hand, and at unconventional ones, such as how financial firms are valuing complex and opaque investments that are often shorthanded as toxic assets. The idea behind the so-called stress tests is to gauge if the banks have enough capital to cope with a more severe downturn than even today's ---- one in which the economy contracts by 3.3 percent and the unemployment rate tops 10 percent. That's far from the worst-case scenarios that some of the gloomier forecasters predict.
"At the end of the exercise, if it's determined that banks lack enough capital to weather such a storm, they'll be given six months to raise more capital from private investors or to ask for a capital buffer from the government. If a bank is unable to raise private capital and needs to get capital from the federal government, it would do it in exchange for 'convertible mandatory preferred shares.' They could be converted into common stock on an as-needed basis, which would inject new capital into the bank. The government would become a shareholder in the company through its ownership of common stock. Banks don't have to complete the stress test to apply for this capital buffer. Citigroup is expected to get a fresh injection of capital through this program in coming days. In exchange, the government is expected to take a stake as high as 40 percent.
Here's the kicker: "If most of the 19 banks were determined to need additional capital, the Obama administration would have to seek much more Wall Street bailout money from Congress. 'The fact is there is no explicit cap on the assistance that can be provided under this program,' said one senior government official on the condition of anonymity to speak freely." In other words, another blank check on the US taxpayer account.

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