Welcome to the Era of Expensive Energy

By Ed Lasky

Gas prices are marching steadily upwards — past three dollars at my local suburban station and a couple of dimes more than that in Chicago. Why? Part of the rise is seasonal in nature: demand increases going into summer to fill up those cars going on family vacations. Also, as summer proceeds into fall, refineries start refining more heating oil from crude and less gasoline. Part of the rise can be attributed to the lack of refineries in America — government rules and regulations (and the NIMBY-Not In My Backyard dynamic) have halted the building of American refineries. Our country is more reliant than ever on refineries located in foreign nations. They can turn the faucet on and off at will.

States, such as my own Illinois, have very arcane rules regarding the blends of gasoline permissible to sell and that increases cost. Demand for energy is increasing around the world as some signs of economic recovery take hold, especially in booming China.

Years of governmental obstruction in tapping our offshore and onshore stores of black gold have played a role. A little-mentioned cause is the fact that our Federal Reserve and the Democrat-led government is printing so much cash that our dollar is becoming is becoming Weimar Wallpaper — an increasingly worthless slip of paper that retains value against the Euro only because the EU is farther along, for now, into socialism than we are.

Here is my question.

Why are Democrats silent about the gas rise? After all, aren’t oil companies their favorite bogeymen? They like to bully Big Oil every now and then — especially when gas prices rise. This certainly occurred a great deal when we had a Texan as President and a Vice-President with leadership links to Helliburton (misspelling intended). But they have always done so when Republicans have any degree of power — be they Texans or not. Bullying oil companies is a nice tool in the partisan tool belt.

James Taranto of the Wall Street Journal noticed a dynamic at work years ago. When Democrats are in control, homelessness is forgotten as an issue. However, when Republicans lead the government (particularly when Ronald Reagan was President) homelessness became the topic of the day. He dubbed this the “homelessness watch.”

How about calling this the “Gas Price Rise” watch? Democrats do not want to be on the watch when bad things happen because then the public may blame them. People may point out that Democrat policies — such as the ones that led to a weak dollar, or that shut off vast areas of America to oil development and refinery building — have created the conditions that give rise to oil prices. Democrats and their friends in the liberal media just don’t like people pointing out bad things happening when they have the keys to power.

Many liberals live in high rises in urban areas, so they don’t commute long distances to work and/or use public transportation to do so. They don’t empathize with suburban or rural Americans or care about their troubles. Certainly our President is outright disdainful towards them (suburbs bore me, rural people are bitter and cling to their guns and religion). After all, suburban and rural people are Tea Partying racists who deserve no respect.

But one more factor may be at work.

Democrats really like it when gas prices rise. They just use it as a bludgeon to whack Republicans when it is politically useful to do so.

After all, people such as New York Times columnist Tom Freidman have long advocated higher taxes on gas to reduce demand and make “renewable energy” less foolish. Haven’t we been told for years by the nattering nabobs of the nanny nation that gasoline price rises are good for us? Why are these powers-that-be also trying to shut down the development of shale gas, a clean burning domestic resource that our nation has in vast abundance?

In fact, Democrats do like high gas prices because it allows them to justify the irrational and costly subsidies and tax breaks they give to their friends in the “green movement” and their cronies who benefit from the drip, drip, drip of tax dollars going from the government IVs into their bank accounts. As I have written before, General Electric is a prime beneficiary of this government corporate welfare-hence, MSNBC and NBC’s devotion to Democrats.

Are liberals actually maneuvering to increase gas prices at the pump?

This Washington Times editorial may lead one to believe so:

Long-anticipated climate-change legislation is scheduled to be unveiled in the Senate today. The ostensible purpose is to clean the air by cutting carbon emissions 17 percent below 2005 levels by 2020. If the bill becomes law, though, consumers will get smoked as they are forced to pay more for a fill-up.

Backers of this measure are more beholden to ideology than reality. As scientific data shows the Earth is actually cooling, the only thing heating up is alarmist rhetoric. On Friday, Obama spokesman Robert Gibbs said the president believes “now more than ever is the time to act,” indicating White House complicity in the push for higher gas prices. Attempting to impose new burdens on American families struggling in a buckling economy in hopes of mitigating an unproven climate theory says a lot about the O Force’s warped priorities.

The widely reviled cap-and-trade plan would institute a Wall Street-type market for carbon permit exchanges. Cap-and-dividend would prohibit the marketing of carbon permits and instead collect revenues in a government account that would – in theory – be rebated to consumers. (Don’t hold your breath waiting for that check.)

Whatever the taxing mechanism is called, the end result would be the same: the imposition of increased costs on all carbon-based energy products, which would be passed on to consumers. Americans would see steeper prices at the gas pump.

Is this the Democrats’ dream? To finally be able to take advantage of gas price rise (that they have engineered) in order to force radical changes upon the American way of life? We have seen over the last 17 months of Democratic rule, that they couldn’t care less about what Americans as a whole want (see ObamaCare). They are determined to waterboard us with a bundle of new laws and regulations that will be shoved down our collective throats — whether, to borrow a phrase from Barack Obama, “we like it or not”.

This is the essence of liberal fascism. Americans are just dumb..we don’t know what is good for us. We have deluded Don Quixotes tilting at windmills (and wind energy is disastrously inefficient and costly and have many problems associated with them-unreliability of wind, transmission lines, medically related complaints from neighbors) while the rest of us would rather see oil pumps (that occupy a very small footprint) on the horizon pumping out cheaper crude to fill our tanks.

The only pumps the Obama team and their allies in Congress like are the ones pumping our green tax dollars to their pals and donors in the “renewable energy” racket of the jolly Green Giant with the big carbon footprint: Al Gore.

A digression. When I was young the Burt Lancaster movie The Rainmaker made a powerful impression on me. Lancaster played a con man Bill Starbuck, who comes into a drought-stricken small town promising to bring forth water from the skies like so much manna. His appeal was almost religious in nature; he promised and preached salvation. But he was just a con man — a trickster who promised to change the weather for a price. We have a quite the crew of Bill Starbucks bellying up to the governmental trough. He was a fake — and so are they.

Americans suffer, as lefty Thomas Frank reminds us, from false consciousness; we just are too ignorant to know what is good for us, what is pure and high-minded. Hence the need for our masters to take control.

Actually, I think liberals feel that suffering is good for us. That it makes us better people. After all, didn’t Barack Obama hector us that we can’t drive big cars or keep our thermostats in the comfort zone (while he makes the White House all but a Hawaiian like sauna, according to David Axelrod; meanwhile, he takes that big plane on overseas jaunts to help his cronies land the Olympics for Chicago; and flies to Broadway shows for a night on the town with Michelle). They want to punish us for all types of past transgressions against the liberal creed: colonialism, imperialism, materialism, for living in suburbs, for racism.

We have to consider the rest of the planet — which couldn’t care less about Americans — and Mother Earth, the patron Goddess of all that is good and wonderful. Humanity — particularly the American variety — is bad.

We have utopian leaders with very little experience in the real world but plenty of experience in Ivy League classrooms, where high minded platitudes substitute for empiricism and pragmatism. But they have the keys to the kingdom. For now.

They may try to silence Americans as they stuff policies down our windpipes-but Americans will not remain silent. Never have; never will.

Liberation is coming-not in the form of the Trinity of Pelosi, Reid and Obama-but in the form of a ballot box.

November, here we come.

Depression 2010?

By Robert Samuelson

WASHINGTON — It is now conventional wisdom that the world has avoided a second Great Depression. Governments and the economists who advise them learned the lessons of the 1930s. When the gravity of the financial crisis became apparent in late 2008, the response was swift and aggressive. Central banks like the Federal Reserve and the European Central Bank dropped interest rates and lent liberally to threatened financial institutions and rattled investors. The United States and many countries approved “stimulus” programs of tax cuts and additional spending. Panic was halted. A downward spiral of falling private spending and rising unemployment was reversed. The resulting economic slump was awful. But it was not another Great Depression. The worst has passed.

Or has it? Greece’s plight challenges this optimistic interpretation. It implies that celebration is premature and that the economic crisis has moved into a new phase: one dominated by the huge debt burdens of governments in advanced societies. Comparisons with the Great Depression remain relevant — and unsettling. Now, as then, we may be prisoners of deep and poorly understood changes to the world economic system.

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Historians increasingly attribute the Depression to broad geopolitical upheavals. World War I shattered the existing global economic order. Dominated by Great Britain, it fostered vibrant trade and rested on the gold standard. (Under the gold standard, paper currencies could be converted into gold coins or bullion.) The war also spawned huge international debts, reflecting German war reparations and large U.S. loans to Britain and France. It was impossible to reconstruct the prewar order. Britain was too weak, the gold standard was too constricting, and the debts were too heavy. But countries tried, because the prewar order had delivered prosperity. This futile effort brought on Depression. Only when economic hardship became unbearable were unrealistic goals (keeping the gold standard, repaying debts) abandoned.

There are eerie, if crude, parallels now. The welfare state is today’s equivalent of the gold standard. With aging societies, advanced countries have promised more benefits than their tax bases can support. Hence, high government debt. Greece is merely the canary in the coal mine. But politicians resist cutting popular benefits except under extreme pressure. It takes a crisis. Greece, again. Another unsettling parallel is the global economy. The United States’ leadership since World War II is eroding before China’s ascent. There’s a danger now, as then, of a power vacuum. Witness the long delay in coming to Greece’s aid. No one country acted decisively, even as markets grew nervous.

Of course, these parallels do not preordain a second Depression. But they at least clarify today’s confusing economic outlook. There’s a tug-of-war. The normal mechanics of the business cycle signal recovery, while deeper economic weaknesses threaten it. In late 2008 and early 2009, fear and hysteria were almost palpable, especially in the United States. Consumers and companies cut spending anywhere they could. From September 2008 to June 2009, the U.S. economy lost 6 million payroll jobs. In 2009, American car sales were almost 40 percent lower than in 2007. Governments’ frenetic interventions stabilized confidence. People and firms are opening their wallets again, here and abroad. The world economy will grow almost 4.3 percent in 2010 and 2011, with the United States expanding at an average of nearly 3 percent, reckons the International Monetary Fund.

But the deep-seated problems remain. Three stand out: first, the weight of the welfare state and aging populations; second, the burden of huge private debts (mortgages and consumer loans in America and elsewhere); and finally, huge imbalances in global trade, with some countries — notably China — running massive surpluses and others — notably the United States — having large deficits. Each threatens a vigorous recovery that could conceivably plunge the world back into a protracted slump.

To cope with big budget deficits, developed countries would cut spending or raise taxes. These steps would weaken recovery. The problem is that failing to do so might have the same effect by creating a financial crisis. Lenders, scared by mounting debt, would insist on higher interest rates. The value of older government bonds, issued at lower interest rates, would drop. Banks around the world, which are big holders of various countries’ bonds, would suffer huge losses. So would other investors and financial institutions. The financial system might again seize up.

The dilemma posed by Greece isn’t unique. It’s different only in degree. In 2009, Greece’s budget deficit was almost 14 percent of gross domestic product (GDP) — its economy. Its accumulated debt was 115 percent of GDP. Meanwhile, Italy’s deficit was 5 percent of GDP and its debt 116 percent of GDP. Spain’s deficit was 11 percent of GDP and its debt 53 percent. Germany’s deficit was 3 percent and its debt 73 percent. The U.S. deficit — calculated slightly differently — was 9.9 percent of GDP; the debt, 53 percent of GDP. Most developed countries, representing about half the world economy, are caught in the same trap.

The same is true, though to a lesser extent, of heavily indebted households in the developed world. As they pare back, or lenders tighten lending standards, consumer spending will remain subdued, depriving the recovery of another powerful propellant. It wasn’t just Americans who enjoyed years of easy credit. In the United States, household debt reached 138 percent of disposable income in 2007, reports the Organization for Economic Cooperation and Development. Elsewhere, comparable figures were also high: 138 percent in Canada; 128 percent in Japan, 186 percent in Britain; 102 percent in Germany. There is no precise threshold as to what constitutes too much debt; but these levels suggest restraint and retrenchment, not exuberant spending.

On paper, the escape from these problems seems plain. China, India, Brazil and other “emerging market” countries would become the world’s engine of growth. Their appetite for advanced goods from the developed world — airplanes, power plants, earth-moving equipment, medical instruments — would raise their living standards and sustain production and employment in advanced countries. This could be happening. The latest IMF forecasts have poorer countries (“emerging and developing economies”) growing at about 6.5 percent in 2010 and 2011 compared with 2.4 percent for all developed countries. The trouble is that this shift requires that China and other Asian countries permanently renounce export-led growth. It’s not clear that they can or will.

Everywhere countries face changes of policies, practices and habits that are deeply woven into their social, political and economic fabrics. Can developed countries gradually rein in their welfare states? Will Asia’s relentless export economies shift to domestic-led growth? Will Americans save more and spend less — and the Chinese do the opposite? As after World War I, reverting to what’s familiar, comfortable and understood may be hazardous. It was the inability to see and adapt to change in the 1920s — a process complicated by the war’s animosities — that fundamentally caused the Great Depression, economic historians Barry Eichengreen of the University of California, Berkeley, and Peter Temin of the Massachusetts Institute of Technology have argued.

The case that we have dodged a second Great Depression rests on a narrower notion: that the Depression was preventable; and that advances in economic knowledge allowed us to do so. If we knew then what we know now, governments could have averted the tragedy. Despite some disagreements, economic scholars subscribe to a broad consensus about what went wrong in the 1930s. Government central banks, like the Fed, were too passive. They didn’t halt bank panics. Intervention at decisive moments (perhaps the failure of the Bank of the United States in late 1930 or Austria’s Credit Anstalt in spring 1931) could have changed history. Instead, mounting unemployment and falling prices fed on each other. Debtors couldn’t repay loans, leading to more bank failures, a contraction of credit and deposit losses. But this time the mistakes were not repeated. Despite criticism, banks were “bailed out.” Money was pumped into credit markets to pre-empt a downward spiral.

By this reading, the world has bought itself time to deal with underlying problems. As the economic recovery strengthens and lengthens, the politics of confronting unstable export-led growth (for Asia) or unsustainable welfare spending (for developed countries) will grow easier. People will be more optimistic about the future; they will be more open to necessary, if not popular, adjustments. This could happen. The world may muddle through, making gradual and messy changes that ultimately defuse another large crisis.

But there is another more sobering reading of the Great Depression. It is that painful and once unthinkable changes are made only under the pressure of acute crisis. One reason that central banks were so passive is that they clung to the gold standard: Relaxing credit policies too dramatically to rescue banks might lead to a loss of gold; people would demand metal to replace paper money. Gold was abandoned in various countries only after it seemed untenable. Similarly, the post-World War I debt problem wasn’t “solved” until repayment was impossible. As for Britain’s place as global leader, the United States assumed that role only in World War II.

Against that backdrop, today’s unresolved problems — over the welfare state, leadership in the global economy — become more ominous. They suggest that major adjustments won’t be made until they’re compelled by some sort of crisis. This possibility defines the present economic drama. Will the recovery encourage conscious changes? Or is recovery providing a false sense of security? The stakes are, of course, enormous, because — as everyone knows — the economic suffering of the Great Depression transformed many countries’ politics for the worse and led to World War II.

More Disgrace From Cap And Trade

by Christopher C. Horner

This week, Senators John Kerry (D-MA) and Joe Lieberman (I-CT) will host a press conference announcing the fifth reinvention of “cap-and-trade” global warming legislation since 2003, the “American Power Act”. Call it the American Power Grab Act, instead, for reasons that will become obvious momentarily.

The orchestrated spectacle, with a cast expected to be in the dozens and which all involved appear convinced will persuade you of the justness of their cause, is in fact a manifestation of all that is wrong with Washington and what Americans have become increasingly enraged by.

At this press conference, Sens. Kerry and Lieberman have both already indicated, they will insist that their scheme isn’t “cap-and-trade” because they aren’t going to use that term this time around. Kerry has even said that “this is not an environment bill.” It seems that the public aren’t buying that argument, either, so it’s really about whatever appeals to you. Just not what it was about the previous four times they’ve tried to slip this Power Grab past you. Except I’ve seen a copy of the bill. Yes it is cap-and-trade. And worse.

For this latest effort to hide an enormous tax and wealth transfer — a unilateral move that guarantees jobs will be shipped to China, India, Philippines, Mexico and elsewhere — – these lawmakers will be surrounded by numerous representatives of Big Green. That includes not just the wealthy pressure group industry but many among “Big Business”, numerous of whom are the benefactors enabling those pressure group chiefs’ huge salaries and vast PR budgets to scare you into accepting an agenda that uses the state to, oddly enough, enrich these same companies. Huh.

Sen. Lieberman has repeatedly teased the breadth of the organized scrum as proof that the scheme is now a good idea. Absent from his cheerleading is the fact that you are not represented at the table when your wealth and future prospects were being divvied up.

The reason for so many businesses leaping onto the stage today is also the dog that surely will not bark when the media report on industry’s touting of an enormous energy tax and wealth transfer from individuals: why do they support this?

The answer is because they have been promised a slice of the spoils taken from the average taxpayer and ratepayer. I detail who these companies are and how they hope to cash in on this scheme in my new book “Power Grab“. For example, consider Exelon. This Chicago-based utility, which today is expected to be represented both individually by its CEO and by its trade association the Nuclear Energy Institute (NEI), expects more than one billion dollars in increased profits for no additional capital investment if the scheme announced today passes. Their only cost would have been the lobbyists.

That’s just one company. But the windfall, arranged by politicians, comes from average American families. The company even admits the whole sordid mess in a Forbes article from earlier this year:

“Exelon needs that legislation to happen sooner rather than later. Without a carbon price of some sort, Exelon’s fortunes aren’t so bright…. ‘The conundrums are real,’ [Exelon CEO John] Rowe acknowledges. ‘There’s nothing that’s going to drive Exelon’s profit in the next couple of years wildly. It just isn’t going to happen.’

Except, of course, carbon legislation. And because of that, the company views spending on lobbying for legislation almost like a capital expense….

Exelon has very deep ties to the Obama Administration. Frank M. Clark, who runs ComEd, helped advise Obama before he ran for President and is one of Obama’s largest fundraisers. Obama’s chief political strategist, David Axelrod, worked as a consultant to Exelon. Obama’s chief of staff, Rahm Emanuel, helped create Exelon. Emanuel was hired by Rowe to help broker the $8.2 billion deal between Unicom and Peco when Emanuel was at the investment bank Wasserstein Perella (now Dresdner Kleinwort). In his two-year career there Emanuel earned $16.2 million, according to congressional disclosures. His biggest deal was the Exelon merger.”

The article details how Exelon wrote the provisions allocating the energy use “allowances”, or ration coupons. Others, including (according to Sen. Kerry) BP, wrote the provisions applying to oil companies, to ensure costs are passed straight through to you.

I lay the particularly odious example of Exelon — and those of others on the dais, ranging from Duke Energy to GE to “Chicago Climate Exchange” members — bare in “Power Grab“. Before your elected representatives impose this on you later this year, as soon as by the July 4 congressional recess, educate yourself on the rhetoric and ruses employed to part you from your money and, if history is any guide, threaten your family’s lives and indeed your livelihood altogether.

Who Will Bail Out America?

By Peter Ferrara

Social Security, Medicare and the retirement of the baby boom generation wasn’t enough of a burden for the American taxpayer. We will now be paying as well for the generous pensions of Greek bureaucrats retiring in the warm Mediterranean sun at age 55, thanks to the foresighted leadership of our very own international statesman, Barack Obama.

Just last year President Obama proposed, and his overwhelmingly Democrat Congress approved, an additional $100 billion line of credit from the USA to the International Monetary Fund (IMF). On Sunday, the IMF approved a contribution of $40 billion to the Greek bailout, with America voting yes for yet another raid on its own taxpayers.

But this is only the beginning. What the trillion dollar Euro bailout fund has done is to create the perverse incentives of Too Big to Fail for fiscally irresponsible Eurostates. Do those literally murderous Greek rioters look ready to accede to austerity budgets with massive tax increases and massive benefit cuts? Political leaders in the Mediterranean states in particular, faced with short-term financial and political pressures, will be too tempted to put off the pain a little longer, hoping that EU bailouts will save them in the end. Indeed, voters in Spain, Italy, Portugal, and elsewhere may well think they should get their share of those bailout funds too, voting out leaders who try to be responsible, and voting in the worst demagogues trying to take advantage of the situation to gain political power.

Imagine if each of the American states could run deficits with a federal bailout fund to back them up. Could we count on the voters of California, New York, New Jersey, Michigan, and Illinois to support candidates promising crippling austerity budgets, with draconian benefit cuts and skyrocketing taxes, so they can do the responsible thing? This is the system the EU has just adopted. What that means is get ready for still more IMF bailouts financed by American taxpayers.

Unemployment Still Rising

Yet, America is still plagued with its own problems, poised soon enough for yet another ride down the roller coaster. The unemployment report just last Friday showed unemployment rising again in April, from 9.7% to 9.9%, almost two and a half years now after the recession began in December, 2007. Since World War II, the average recession has lasted 10 months, and the longest has been 16 months. Yet, 28 months after the last recession began, unemployment is still 10% and rising.

And that is only scratching the surface. Besides the 15.3 million officially unemployed, the army of the underemployed included 9.2 million described by the Bureau of Labor Statistics as “working part time because their hours had been cut back or because they were unable to find a full time job.” Another 2.4 million were marginally attached to the labor force, meaning they were not in the labor force, but “wanted and were available for work, and had looked for a job sometime in the prior 12 months.”

That leaves a total of nearly 27 million Americans still unemployed or underemployed. With a labor force of 154.7 million, that translates into a total underemployment rate of 17.4%. Moreover, of the officially unemployed, close to 50%, or 6.7 million, were long-term unemployed, meaning they had been unemployed for 27 weeks or more, the highest total since the recession began over 2 years ago, and still rising.

While President Obama and his party-controlled media ballyhooed the 290,000 new jobs created in April, 66,000 were temporary census workers. Moreover, that is still not enough new jobs created to reduce unemployment. Given the natural rate of new entrants to the work force, close to twice that many must be created each month to reduce the unemployed.

The Recovery: Hopelessly Too Little, Shamelessly Too Late

Yes, with the U.S. economy growing again, economic recovery is technically underway. But that is an inevitable, natural, cyclical recovery, as I predicted in this column over a year ago. The notion that the economy was going to tumble ever downward without some magic from Obama the Magnificent was always a fairy tale bedtime story for small children and their mental equivalents. As mentioned above, the average recession since World War II has been 10 months, and those recoveries were not due to magical Big Government rescues.

The way to evaluate the current recovery is by comparison to other recoveries after downturns of similar magnitude. Historically, the deeper the recession the stronger the snapback recovery. The Bureau of Economic Analysis reports that economic growth in the first 3 quarters after the 1981-1982 recession was 5.1%, 9.3% and 8.5%. Yet, economic growth in the first 3 quarters after this last recession was 2.2%, 5.6% and 3.2%, not even half as much.

Moreover, in 1984, real economic growth boomed by nearly 7%, the highest in 50 years. That recovery then lasted 92 months without a recession until July, 1990, when the tax increases of the 1990 budget deal killed it. This set a new record for the longest peacetime expansion ever, the previous high being 58 months. During that recovery, the economy grew by almost one-third, the equivalent of adding the entire economy of West Germany, the third largest in the world at the time, to the U.S. economy.

Real per capita disposable income grew by nearly 20% during that boom, meaning the American standard of living increased by that magnitude. Real median family income had declined by almost 10% from 1978 to 1982, with income falling by 14% for the bottom 20%. But in a stunning reversal, real median family income grew by 11% during the recovery, with incomes increasing by 12% for the bottom 20%. The poverty rate, which had started rising despite trillions spent on the war on poverty, reversed and declined every year during the recovery as well.

Note also that the 1981-1982 recession resulted because Reagan had to slay a historic inflation. Inflation roared over 1979 and 1980 by 25% (11.6% in 1979 and 13.5% in 1980), after accelerating throughout the 1970s. But Reagan backed strict monetary policies at the Fed reining in the money supply, and inflation was slashed in half by 1983 as a result to 6.2%, and by half again in 1984 to 3.2%. Every school of economic thought, from Keynesian textbooks to the most free market “Austrian” economics of Friedrich Hayek and Ludwig von Mises, preaches that ending inflation inevitably produces a period of unemployment and recession.

In diametrically opposing contrast, instead of ending a historic, raging inflation, like Reagan, President Obama is creating one.

Indeed, everything critical to the American economy of today is the reverse of what it was during the economic boom starting in 1983-1984, reflecting that President Obama’s policies are the opposite of Reagan’s. Interest rates were heading sharply lower back then from historic highs, with the prime rate peaking at 21% in 1980. Today, as the Wall Street Journal commented on May 1, “[T]he Fed has held short-term interest rates at close to zero for 16 months. The only question is how soon and how high rates will rise.”

Moreover, the 1983-1984 recovery was launched just as the Reagan marginal tax rate cuts became fully effective. But today we are set for historic tax rate increases to kick in next year. While the Tax Foundation reports that the top 1% of income earners already pay more in federal income taxes than the bottom 95%, President Obama says their taxes should be raised even more so they can pay their “fair share.” So next year, capital gains tax rates will soar by close to 60%, tax rates on dividends by roughly 200%, and the top income tax rate by close to 30%.

In addition, as the 1983-1984 recovery launched, “an era of deregulation was lowering costs across most industries,” as the Journal also commented, whereas today, “Washington is raising costs for business by expanding its regulatory reach via tougher antitrust enforcement, mandates on health care and energy, more political limits on telecom investment, restrictions on bank lending, and much more.”

What this means is that instead of sustained recovery, what we are heading for is Art Laffer’s Coming Crash of 2011. President Obama’s economy is at its peak performance right now, however stunted that is.

President Obama’s Grecian Formula

For 2009, Greece’s budget deficit came in at 13.6% of GDP, and its national debt grew to 115% of GDP. President Obama has America on this exact same track. Our budget deficit for this year is nearly 11% of GDP. By 2020, according to the CBO, America’s net national debt held by the public would be 90% of GDP. Total gross federal debt, which includes such items as the debt held in the Social Security trust funds (real debt that will have to be paid in the future), would be 122% of GDP.

But it’s even worse than that. For the top 1% will get their revenge for President Obama’s tax piracy. Instead of raising revenues through his top income tax rate increases, he will be lucky if revenues do not decline. For capital gains alone, every tax rate increase over the last 40 years has produced less revenue rather than more. President Obama’s class warriors also do not understand that dividend payments will collapse next year as a result of their tax increases, and so will revenues from taxes on those dividends.

Lower than expected revenues, even if they do not absolutely decline, will mean still higher deficits and debt. Even more so as net interest spending increases as a result. If interest rates rise more than the modest increases President Obama’s budget projects, even more likely with the growing world debt burden, then the vicious death spiral takes another tumble downward.

If the economy turns downward in 2011 rather than upward, then all of this will explode out of control right there. America will also be effectively defenseless at that point, for we will not be able to borrow the still greater funds that would be necessary for any protracted conflict. (Is that what the ultraliberal President Obama and George Soros planned all along to get America “under control,” so to speak?). That condition of vulnerability, of course, again just the opposite of President Reagan’s peace through strength, invites war.

If the totally irresponsible new Obamacare entitlements end up costing more than planned when they start in 2014, as is likely, the phrase “adding fuel to the fire” seems inadequate. How about firebombing the fire?

And we haven’t even factored in renewed inflation yet. The EU bailout only encourages weak monetary policies from the European Central Bank, and further extended lax policies by the Fed. If this finally leads to inflation, as it did in the 1970s, the Fed would be faced with either raising interest rates, contributing to extended economic weakness and downturn, or letting inflation roar, until it returns to 1970s levels, or worse.

Maybe that is why the price of gold is already higher than the S&P 500. The truth is we are on the path to a worldwide flight from increasingly irresponsible fiat currencies. This is well beyond the issue of a declining or even collapsing dollar.

Even the shortsighted stock market, which usually looks only about 6 months ahead, is signaling trouble. For all the talk of a booming stock market recovery over the last year, it has never returned near to its peak over 14,000. It is stuck hovering about 25% below that peak. With the above economic prospects, there is no longer enough upside in trying to game the stock market to milk any remaining short-term gains.

Rest assured that when the credit markets tell America “No Mas” to record-shattering borrowing, there will be no one to bail out the USA. No one is big enough to even try it. Rather, the vultures will circle.

The only possible bailout will come on Election Day, 2010. Unless the American people send a message that rocks Washington like never before, 2012 may well be too late.

Tired of Big Government Spending?

by Rep. Eric Cantor (R-VA)

Two weeks ago, I wrote on BigGovernment that the GOP Today is much different than the party was a few years back. I was glad that my post generated attention, and very pleased to read through the different responses – both positive and skeptical. Today I write again for two reasons. First, to announce an exciting new project devised by the House Republican Economic Working Group. Second, to take another step in earning your trust by showing you that we understand that actions speak louder than words.

We all know that Washington has a spending problem – and both Democrats AND Republicans bear some responsibility. But as I wrote last week, America is at a crossroads and the choices we make at this critical time will determine what kind of country we want to be. To get back on the right path, Congress MUST start to make some choices that simply can’t be delayed any longer.

While we won’t be able to solve our deficit problems overnight or with one silver bullet, we CAN and we MUST begin to replace the culture of spending that now dominates Washington with a culture of savings. Just imagine if your government was as focused on saving money as it is on spending money. Imagine if Congress spent less time naming post offices – 62 and counting – and more time reducing wasteful spending. Sounds nice, doesn’t it?

Today, we are launching YouCut – a first-of-its-kind project designed to defeat the permissive culture of runaway spending in Congress. It allows YOU to vote, both online and on your cell phone, on spending cuts that you want to see the House – YOUR HOUSE – enact. That’s right, instead of Washington telling YOU how THEY will spend YOUR money, YOU can tell THEM how to save it. After several days of voting, on Monday, May 17th, we will announce the first winner and later that week House Republicans will call for an up-or-down vote on the spending cut. We will repeat this cycle every week for the rest of the year.

For the first week of voting, here are your choices:

1. Eliminate the Presidential Election Fund, a federal program that provides matching funds to political candidates during Presidential primaries, certain third-party candidates, and funds for political conventions. In the 2008 Presidential election the candidates raised over $1.3 billion from individuals and PACs; do they really need to supplement that with taxpayer money?
2. Prohibiting taxpayer-subsidized union activities by prohibiting federal employees from being paid by the government for performing union functions. Currently some federal employees spend up to 100% of their workweek, paid by taxpayers, doing work for their union. Federal employees unions collect millions in revenue each year and spend significant amounts on political activities and lobbying; should they also be subsidized by the taxpayer for their official functions?
3. Terminate the Department of Housing and Urban Development program that provides individuals with $25,000 stipends for completing their doctoral dissertations. Recently taxpayers have financed research on media strategies for housing policy and the use of eminent domain for urban redevelopment. Why should families who are struggling to pay for their children’s college also be asked to fund stipends from the government for those who want to write their dissertation on certain government-preferred policies?
4. Terminate the new alternative welfare program, recently created to incentivize states to increase their welfare caseloads without requiring able-bodied adults to work, get job training, or otherwise prepare to move off of taxpayer assistance. Reforming the welfare program was one of the great achievements of the Republican Congress in the mid 1990s, saving taxpayers billions of dollars and ending the cycle of dependency on welfare. This new program ushered in by Democrats is merely a backdoor way to undo those reforms.
5. Focus federal economic development assistance on areas of need. The Community Development Block Grant program currently funds a wide range of local economic development activities. While it is advertised as a way to help low-income communities, funds are also dispersed to communities with income well-above the national average. A recent study found that the community of Newton, Massachusetts, with a per capita income over twice the national average, was receiving $28 per person in CDBG funds. At the same time, other communities with income 25% below the national average were receiving $10 per person.

There they are: five simple ways to begin to talk about saving money.

You have a right to a federal government that doesn’t spend money that it does not have. Anyone who believes that President Obama, Senator Reid, Speaker Pelosi or the Democratic majorities are “concerned” about the deficit should take a look at how grossly they’ve increased spending. Make no mistake, they look at America’s massive debt and see a reason to raise taxes. But they are wrong. Our debt was born out of an addiction to spending. And if those same Democrats aren’t going to do anything to stop this addiction, we are. If those Democrats aren’t going to listen to you, we are.

As I wrote a few weeks back, a 178-seat minority isn’t going to win many legislative battles in the House. And we don’t have a lot of tools at our disposal. But I commit to you that we ARE going to use every means we have to hold them accountable. And this project is a start.

The time has come for Congress to finally show political courage. American families have been forced to face tough financial realities and make difficult but necessary decisions. Why should their government act any differently? This is not the same GOP as it was a few years ago, and with YouCut, we hope to force the Democrat-controlled Congress to begin to confront the difficult but unavoidable realities of our fiscal situation.

Please drop by http://www.republicanwhip.house.gov/YouCut and vote to help us put Uncle Sam on a diet.

Sen. Reid will not commit to reforming immigration this year

By Michael O’Brien

Senate Majority Leader Harry Reid (D-Nev.) could not commit on Sunday to moving immigration reform this year.

Reid said he would like to move comprehensive immigration reform, but stressed that some Republican support would be necessary, a difficult prospect in the current political environment.

“The Senate is not a body that is defined by time,” Reid said on “Al Punto” on the Spanish-language network Univision. “I’m going to move immigration as quickly as I can.”

Reid was among a group of Democrats to unveil an outline for immigration reform legislation in late April, though he backed off earlier indications that he might move immigration next after it drew Republican complaints, specifically from Sen. Lindsey Graham (R-S.C.).

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“We are committed to do comprehensive immigration reform, the President supports us on that, but I tell everyone we can’t do a bill unless we get some Republican,” Reid stressed.

Senate Majority Whip Dick Durbin (D-Ill.), the second-ranking Senate Democrat behind Reid, acknowledged this weekend that the busy Senate schedule ahead could put in doubt efforts to do immigration reform this year.

President Barack Obama has said he wants reform set in motion this year, and House leaders have said that immigration reform must begin in the Senate.

Reid rejected the notion, though, that Latinos would stay at home or vote for Republicans this fall — especially in Nevada, where Reid is facing a tough reelection challenge — if Democrats come up short on immigration.

“I believe, as has been indicating in all the polling, that even people who are Hispanics who identify as being Republicans, are walking away from the Republicans,” Reid said. “This is an anti-immigrant party and is very clear.”

Where the Contract with American Failed, the Freshmen 5o Will Succeed

Where the Contract with American Failed, the Freshmen 5o Will Succeed.