U.S. Politics: Massachusetts and the Fall of Obama

The U.S. Senate special election in Massachusetts is over, and it seems that Republican Scott Brown has trounced the Democratic-hopeful Martha Coakley, 52 to 47, with 80% of the votes counted. We wonder where all the 'non-standard' voters went, notably the ones centred around the Libertarian candidate Joseph Kennedy, but we can only assume his supporters were merely lying about supporting him. Undoubtedly, the Libertarians politely and neatly divided their votes between Ms. Coakley and Mr. Brown, in the noble interest of maintaining an entrenched two-party system, but we digress. As the Agence France-Presse states:

[Brown] pulled off a surprise victory late Tuesday, capturing the seat of the late Democratic icon Edward Kennedy in a stinging setback to President Barack Obama exactly a year after he swept into office.

Note the "stinging setback" comment; this is so very much a vast understatement, we can't help but giggle. Most immediately, it suggests the damage control efforts over the Democrats' face-plant in Massachusetts is already underway, because this was not just a set-back, in our opinion, but a major blow to the efforts of the Obama Administration to continue with its agenda - whatever that might be. If Senator-elect Brown makes good his promise to vote against the Obama mandatory healthcare proposal, it will cement the appearance of the Democrats as being not only non-responsible to their power base, but also impotent in the face of a Republican minority.

Senator-elect Brown's vote is vital in the mandatory healthcare, either in passing or rebuffing the legislation, so he will find himself very popular with many people when he arrives in Washington D.C. The Republicans will want him to vote against the mandatory healthcare bill; the Democrats will court him to honour Ted Kennedy's 'legacy' by passing the bill; lots of pretty, well-dressed people representing healthcare interests will give him bags of money, whilst Mr. Brown 'thinks' about his vote. Frankly, we do not envy him; that level of 'popularity' does not sit well on our conscience.

We also wouldn't be surprised if he's just another turncoat, as well, given the following quote:

"I never said I was going to do everything I can to stop health care. I believe everybody should have health care, it's just a question of how we do it."

Using our previous idea of all the people who want to be Senator-elect Brown's 'friend,' this statement can be understood in three different ways. First, a comment to his fellow Republicans, to not reject out of hand a concept - universal health insurance - just because the Democrats want it. Second, an olive leaf to the Democrats, indicating he's willing to listen to and compromise on their agenda and his own. Thirdly, a cue to the healthcare interests, that he can be bought for sufficient campaign contributions, fancy dinners, and expensive trips, et cetera. Which of the three is in process? Hmm, pick one, dear Reader, or perhaps all three; time will tell, when Mr. Brown takes his seat - or, as he put it, "the people's seat."

But Senator-elect Brown is merely the figurehead for a deeper trend ongoing in the Obama Administration: the rising realisation in Obama voters, that they have been unequivocally 'had,' taken for a ride, bamboozled, and so forth. Throughout several articles, describing the upset Republican victory, we see numerous mentions to "tides of anger" amongst voters, "propelling" Mr. Brown to his victory. Hmm, interesting word choices there, we think; especially since "anger" is quickly followed by "economic recovery," "healthcare," "bank bailouts," "automaker bailouts," et cetera. Could it be the American Citizenry is finally waking up to the cold, harsh reality, that Barack Obama the reformer was a fraud? Are they beginning to wipe the crusts of knee-jerk, feel-good, anti-establishment hysteria from their eyes, only to see Barack Obama, defender of the status quo?

The shocking turn-about of a quintessentially Democratic State (i.e. Massachusetts), in voting a Republican to its Senate seat, suggests this is indeed ongoing. Despite the spin-control which we are highly confident will arise, this blow is acute in its severity to the Democratic agenda, and symbolic for the American Citizenry's faith in the Obama Administration. For an example of that spin, consider AFP's comment, "a freshman president's party loses congressional seats anyway in his first midterm elections..." This is a misnomer, because the Massachusetts election was not a midterm; it was a special election, which necessarily turns into a referendum on the Government, and the Administration. This it was, and to us the results are conclusive: the Administration is losing standing.

The loss of faith in the Administration is not helped by the flip-flopping of one President Obama, on whether or not to personally support Ms. Coakley's flailing campaign. As memory serves, the White House insisted he wasn't going to visit Massachusetts, then it was announced he was, then he cancelled, and then finally he made an appearance, 36 hours before the polls opened. This does not make him seem a strong, capable, dedicated leader; the leader which his supports thought they were electing. Instead, they show him how he truly is: vacillating, feckless, and without an understanding of what is needed in a President to run an effective Government. Heretofore, that same Government has been a relatively docile and obedient one, too - if he cannot be effective with a Government tightly controlled by his own party, how will he appear when the Senate has an empowered, and dangerous, Republican filibuster? What about when the Congress goes up for midterm elections later on in the year, and the Democrats either loose their strong lead, or even become the minority party?

This, we think, is at last the first signs of what we predicted, as soon as Mr. Obama was sworn into the Presidency: he is the Herbert Hoover of the 2007 Depression. Both Presidents came into office extremely popular, and quickly suffered a massive economic calamity; Hoover was quickly regarded as being incompetent and ineffective in his treatment of the 1929 Depression, became a lame-duck, and left the Presidency after one term, in total disgrace. So to, we think, shall go the fortunes of Mr. Obama: the tides of popular opinion will turn against him, his party will lose control of the Government, and he will be, at the end of his single term, a disgrace. As this unfolds, we suspect the irony of this photograph will become iconic in the twilight years of the Obama Presidency (source):

This Week's Herbert Hoover Award

There comes a time when leaders promising great change are elected, with the unspoken understanding that said leaders will make things stay the same. President Herbert Hoover was an excellent example of such a leader: as the U.S. economy crashed like a lead balloon during the 1929 Depression, he held innumerable (and pointless) meetings to help out the economy, and made vague promises for the return of "permanent prosperity."

In that particular spirit of President Hoover, we present this week's Herbert Hoover Award for wind-baggery and empty posturing. The prestigious award goes to (drumroll):

The President of the United States, Barack Obama

"Paying for what you spend is basic common sense," said the President on Tuesday, as he proposed the so-called "pay-as-you-go" spending policy on Federal outlays. "While short-term spending was necessary to get the economy moving again, our long-term fiscal problems became that much more urgent," commented Rep. Jim Cooper of Tennessee, a Blue Dog Democrat, in favour of this "PAYGO."

According to the CNN article, PAYGO would require that, if spending is to be increased in one part of the Budget, another part must be reduced that same amount. Additionally, if a tax is to be cut, tax revenue must be concurrently increased to offset the cut. The end result, as it seems to us, is intended to achieve a sort of steady-state of the Budget, as well as tax revenues. Some things, however, would be exempt under President Obama's plan, such as: estate and gift taxes, Medicare payments to doctors, and 2001/2002 tax cuts. For an overview of PAYGO, we recommend the Wikipedia article.

Upon pondering the part in the CNN article about taxes, we got a little confused. If tax revenue must be raised in correlation to a tax cut, does that not mean taxes would need to be increased to offset tax cuts? And isn't raising taxes during a Depression a really bad idea?

But leaving that all aside, let's take a hard look at what PAYGO would actually do for paying down the U.S. Government's deficit: absolutely nothing. PAYGO does not seem to have any mechanism that we can discover which would force the U.S. Congress to cease-and-desist on massive deficit spending. The Government simply couldn't increase the deficit beyond what it already is.

Problems arise even there, as it is difficult to discern exactly how big the Federal deficit really is. Is it around $11.3 trillion, as the Treasury Department suggests... or is it the vastly more monstrous $52.7 trillion that former Comptroller of the Currency David Walker revealed (see slide #17) in early 2008?

Even the exact figure is beyond the point, as we cannot seriously entertain the notion that the U.S. Congress would give itself iron-clad spending limits. If PAYGO is made the law of the land, it will do nothing to impede Congress' mad dash towards a quadrillion in debt, and probably beyond. So, we can only conclude that the PAYGO proposal from President Obama is yet another puff of hot air, floating up into the atmosphere and increasing global warming.

Congratulations, Mr. President. We guarantee your trophy will look great on your desk.

The Impossible Task

Pity the poor American Consumer. She has to buy a new car to restore automobile production. She has to buy cheap plastic crap to jump start world trade. She has to buy a new house to revive the housing market. And all this on a shrinking income, and with significantly less credit available.

Any way you look at it, near-term recovery seems improbable. Lurking in the background are any number of serious problems which make any kind of lasting economic growth seem remote: resource constraints; massive financial and contractual liabilities; stocks of capital which are being run-down instead of maintained; government diktat which allocates scarce resources to non-productive use - to name a few.

Against this backdrop, we ask: Is collapse - economic and social - inevitable? Sadly, we have to answer, yes. Inevitable, not because of technical incapacity to adjust to new economic realities, but because of lack of will to do so.

The fact of the matter is that people want things to go 'back to the way they were'. Political leadership reflects this. If people wanted to move on to the future as it needs to be, the leadership would reflect that.

Over 35 years ago a book called Limits to Growth was widely read and discussed. It modelled the overshoot and collapse of Industrial Civilisation which would occur in the 21st Century unless remedial action were taken. The World was warned, but few listened. Instead, population continued to explode; economic growth and expanding materialism were taken for the end-all of human existence.

Now the very crisis that Limits to Growth foretold is upon the world, and yet actions which could be taken even now to ameliorate the effects of the impending decline find voice only on the margins of society. The mass of people and its leaders are, in the words of Mr. James Kunstler, attempting to sustain the unsustainable.

Exactly what is unsustainable? Simply put: A growing population with an economy that requires growing flows of money and physical goods. An affluent, comfortable lifestyle for all is sustainable only when it can be maintained on ever-decreasing flows of resources - i.e., continuously more efficient.

Speaking of new cars, Mr. Obama wants 14 to 15 million new cars sold per year to replace those "old clunkers." Time to go shopping!

The Herbert Hoover Award

Unlike the popular phrase would have it, History never repeats itself; rather, History will be eerily parallelled. For example, the 2007 Depression does not repeat the 1929 Depression, but it is closely related. Instead of President Herbert Hoover talking about permanent prosperity, the present has President Barack Obama talking about the work needed to bring back permanent prosperity. Close, indeed, but not an exact repeat.

In honour of that parallelism, we present the Herbert Hoover Award. This Award will be given weekly to the individual (or group) which demonstrates ignorance of History by repeating the painfully obvious mistakes of the past. Without further ado, let us now turn to this week's winner of the Herbert Hoover Award! Presenting (drum-roll):

Illinois Governor Patrick Quinn

In a recent speech before the City Club of Chicago, Governor Quinn said that massive budget cuts were in store for the State, unless the legislature agrees to a 50% hike in the income tax.

"It’s no fun whatsoever to propose higher taxes on anyone, whether it’s families or business, but if we don’t do this, if we don’t repair our state and get it back in order we will regret it till kingdom come.” [source]

Apparently Governor Quinn is not aware that raising taxes during a depression, a credit crisis, rising unemployment, and social discord is a very bad idea. According to these excellent graphics from iTulip, the United States is suffering from a sharply rising unemployment rate. Illinois is not immune to the effects of the Depression. We have no doubt that, if this 50% income tax hike is passed, the citizenry of the State will suffer all the worse.

Congratulations, Governor Quinn. Your trophy is in the mail.

Failure of Transparency

U.S. President Barack Obama made great noises during his campaign for the presidency about a new era of transparency in Government. It was part of the 'change' which he offered in his rhetoric; it, apparently, was attractive to the American citizenry, as Mr. Obama was elected to the presidency.

As we are cynics, we are not particularly surprised that President Obama's promises of transparency had strings attached. The latest example is his abrupt about-face regarding photographic evidence of torture at various American prisons in Iraq. According to American Civil Liberties Union executive director Anthony D. Romero, the 2,000+ images show “it is no longer tenable to blame abuse on a few bad apples. These were [torture] policies set at the highest level.”

The reasons given in the article for the about-face are perhaps understandable, but we have to question the logic: is the cure for previous excessive secrecy additional excessive secrecy? This action by the President flies in the face of his campaign promises.

There have been other problems with 'transparency' recently: what sort of 'investments' the Treasury Department and Federal Reserve System are making; why the discussion of a national health plan requires a secret session of the Senate - among others.

A healthy economy requires an open society. We support the ideal to which the 'transparenncy' rhetoric alludes. But, unfortunately we expect that further back-pedalling will come in the future, and we wonder when the supporters of the President will finally realise the big, ugly truth:

They have been conned.

Sound Advice From Hollywood!

No, really...

Actor Michael Douglas has made a statement supporting the legalisation of marijuana in the United States. His argument is based on several levels: one, he points out, rightly, that the Federal and State Governments made an excellent profit on the sales of alcohol after the repeal of the Eighteenth Amendment (a.k.a. Prohibition) in 1933; and two, the present illegality of marijuana is fostering the presence of organised crime and violent gangs, as had occurred during the Prohibition Era in the U.S.

Mr. Douglas' points are both very valid, and are ones that we ourselves have used in arguing the validity of marijuana legalisation. Taking alcohol sales as an example, there are numerous states in the Union (Michigan and New Hampshire, among others) which own outright the alcohol sales business. The revenue off of this business is enormous, and represents a sizable portion of funds incoming to the state's coffers.

The additional benefits of marijuana legalisation would be a serious reduction of the number of non-violent prisoners who serves under marijuana-related convictions. Release of these individuals would significantly reduce the pressure on the United States' already-vast penal system. Legalisation would also break the back of those gangs and crime organisations which thrive upon the sale of marijuana, thereby increasing the safety of the average American city. These two changes would save untold amounts of money, which would be very helpful indeed in the Depression.

However, legalisation will likely not be happening under President Obama: he has already made his position clear, and it is an emphatic "no." This may seem surprising to those who expected the President to bring about deep changes to the American system, but in our minds it is further evidence that Mr. Obama is the Herbert Hoover of the 2007 Depression (President Hoover was a supporter of Prohibition; it took until the Franklin Roosevelt Administration until the Era was over).

Perhaps the President after Mr. Obama will help legalise marijuana. We feel that would be a happy thing; there are already too many people in prison for using an herb, which is arbitrarily found to be, somehow, less desirable than alcohol or ordinary tobacco products. On the other hand, if this next President is to be the Franklin Roosevelt of the 2007 Depression, there will be other consequences that are not something we look forward to.

Pakistan, War, and Obama's 100 Days

A short post today, as we're a bit pressed for time. We got word of an apartment which needed cleaning out, and boy does it ever. Apparently the former tenant possessed several cats and dogs... and a goat. No, we do not jest, a goat. Still, free stuff is free stuff; we don't call ourself a frugal Scotsman for no reason.

Within the first one hundred days of U.S. President Barack Obama's term, he's behaved more or less as we expected. He's been busy, busy, busy: cutting deals with the super-huge banks, handing blank cheques over to American International Group, nationalising automobile manufacturers... and otherwise cementing our opinion that he is the Herbert Hoover of the 2007 Depression. A quick read even of President Hoover's wikipedia page shows eerie similarities between policies of these two Administrations.

But the one thing that President Obama hasn't done, which we were (and are) expecting him to do is to start a new war. Quite the contrary, he seems to be actually ending the occupation of Iraq! However, he has ordered a 'surge' in Afghanistan, which will probably end badly. Afghanistan is the meat-grinder of the world, where over-confident militaries are broken, defeated, and taught some humility in the process.

The only place which might be worse to invade than Afghanistan is probably Pakistan... and we have the sneaking suspicion that the U.S. may be 'invited' in by the Pakistani government to help 'secure' the nation against 'the Terrorists.' The rumblings for such a thing are already evident, at least to us, in articles like this one from the Associated Press. We suggest keeping an eye on the situation, as it could become very exciting very quickly if the U.S. decides that Pakistan needs 'assistance.'

Problems of Comparing the U.S. with the U.S.S.R.

We have made several arguments in the past that the United States is following the Soviet Union's path to oblivion. Although we do feel that the basic trajectory is a reasonable one for analysing the U.S.'s descent, we have been giving the matter some thought recently. Some results from this pondering have been critiques of the U.S.S.R./U.S.A. collapse comparison.

First, though, is a proposal we have to offer the Obama Administration, although we expect it would be very unpopular. The first step would be to have President Obama admit the banking system is completely fracked up. He would then nationalise the entire banking system, thus wiping out the stockholders, the bondholders, and all uninsured depositors. From there, two new sectors would be formed: a national system of "good" banks, which would hold all insured deposits; and a trust to hold all the toxic 'assets' in an attempt to wind down the contracts and garner a profit therefrom.

After this schism is complete, the Federal Government would then issue vouchers to every American citizen. These vouchers would be good for stock or bonds in either the 'good' banking system, or in the trust of bad 'assets.' Through this system, the profit from both the renewed banking system, as well as the winding-down of toxic assets, will accrue to the Citizenry, and not to some banking elite or corrupt political toadies.

This voucher concept is not original; it was something that arose from the Soviet Union, in an attempt by the post-Soviet Government to unwind failed economic models and structures. The effort failed, because the Soviet system failed so utterly, but the concept behind the vouchers is brilliant: it distributes the potential benefit amongst the largest number of people, something that the United States desperately needs in dealing with its failed banking system (and automobile manufacturers).

However, we honestly would be shocked if a system of vouchers was ever implemented in the United States. The 'why' is simple: to do so would be a proactive admission of failure, which is anathema to the American ethic. Very few citizens in the U.S. would be able to admit that the entire U.S. banking system is in failure-mode, and needs to be liquidated as rapidly and efficiently as possible. The post-Soviet voucher system would be better a 'cure' than simply tossing vast sums of money indirectly into the over-seas retirement funds of the CEOs.

Americans are not able to understand that something so pervasive as banking could collapse utterly... and they really would not understand that, if the Federal Government were to lose its effectiveness in keeping the zombie super-huge banks limping along, the banking industry would utterly implode overnight. Failure of Government is totally alien to the American Citizenry, whereas it was very familiar to the Soviet populace. Soviets could clearly see that their economic system was non-functional, and cavorting with utter failure. Americans cannot understand that the "American Way" is just as hopelessly flawed as the Soviet's system, and just as doomed to failure.

It is in this great difference between the collapse of the Soviet Union and the decay of the United States that comparisons break down. The Citizenry of those two systems are so incredibly different in skills and outlook it boggles the mind; Soviets were lean, mean, frugal machines... while Americans go ape when they can't park their SUV right at the entrance to the strip mall. Comparative analysis between the U.S.S.R. and the U.S. are still valid, we feel, but it must be done with a caveat: the average American is likely going to suffer far worse than an average Soviet.

The Rising Attraction of Socialism

A new Rasmussen Reports telephone poll has found that the percentile of American citizens who favour socialism is 20%, while 53% said capitalism is the better system. This is a very interesting trend, one that we will be watching with great interest. Although 20% is a relative minority in the United States, it is impressive to see this form of Governing garnering such popularity in the U.S.

This deserves a bit of reflection: socialism is antithetical to the American ethos. Socialism is a system which, in a basic interpretation, emphasises the importance of supporting the society as a whole. The Scandinavian countries, Germany, Switzerland, and Canada (as examples) all exhibit successful application of socialist policies; unsurprisingly, these nations give the appearance of being able to more easily soften the harsh blows of the Depression - it remains to be seen how that softening holds up in the future.

As the U.S. is a nation which promotes the individual at the cost of the greater society, socialism is typically regarded as a perversion at best, and a whole-sale attack on "freedom" at worst. For socialism to be supported by 20% of the Citizenry, we can only assume that the 2007 Depression is beginning to make people feel the need for a change.

We can't argue against that need. However, we suspect that people have the idea that President Obama is the man who will bring promised change. As we've said on numerous occasions, we do not think he will deliver the kind of socialism the 20% of Americans are expecting. The United States, since it has been so adamantly opposed to socialism (to the point of its being an outright violation of the Constitution), has no particular framework upon which to build a functional socialist system.

President Obama was elected on the promise of change, and that change is commonly considered to smack of socialism. However, if the continual, hapless bailout-ing of super-huge, super-insolvent banks, and trashy, useless, bankrupt automobile manufacturers is any indication, the Obama Administration's peculiar brand of socialism is the kind previously discovered in the Soviet Union.

It should be said, though, that the Government is merely building upon what previous Administrations have put in place. This is true going back further into American history than most would care to admit. One can point, and rightly so, an accusing finger at President Herbert Hoover as the first major lemon socialist. Lemon socialism is not proper socialism; it is sovietism.

The Foundations of AmeriCar

The actions of the Obama Administration are becoming evermore difficult to understand rationally. Halfhearted nationalisations were the bread-and-butter of the outgoing Bush Administration, something we remembered that President Obama promised to change. However, these actions (which are painfully similar to that of the Hoover Administration in the 1930's) have not ceased. If anything, we have the suspicion that the situation has become even more problematic.

An excellent demonstration of this is the situation between the Federal Government, and the deathly duo of General Motors and Chrysler. Although the relationship between the three parties is rather wiggy at best, we consider it a de facto nationalisation. Our evidence is simple: President Obama has ousted General Motors' CEO without consulting the dying company's Board of Directors. If GM isn't a nationalised company, we don't know what it is.

The shake-up of the CEO is, in a way, some muscle-flexing. The Obama Administration is perhaps making sure that the car companies know which side their bread is buttered. In a nutshell, the Government has its car manufacturers in hand, mostly. Like the formation of the National Railroad Passenger Corporation (better known as Amtrak), the formation of a national car company is probably in progress.

The next step toward such a company - let's call it AmeriCar - was taken by the Administration today. All new vehicles sold by Chrysler and GM with warranties will have those same warranties guaranteed by the Treasury Department. From whence the money to pay out these warranties shall come is immaterial; the important point lies elsewhere.

Setting aside the questions of moral hazard (20-year/1,000,000-mile warranty, anyone?), the potential implications of this arrangement are deep. If indeed the U.S. Government is to insure these warranties, it must make secure the supply of the parts necessary to keep crappy American automobiles scraping down the road for the duration of the warranty. The logical conclusion to this is that, the companies which make the parts necessary to fulfil those contracts cannot be allowed to go out of business.

Backing the Warranties may allow the Federal Government to nationalise (sotto voce) parts manufacturers for the American car companies. If it does indeed do this, then the foundation for AmeriCar are firmly set. If Amtrak is any indication, the products of this hypothetical car company will be horrifyingly wasteful and unreliable.

U.S. Leadership: Innocent or Guilty?

In his weekly editorial on Monday, James Kunstler laid out his belief that President Obama is a man able to provide the leadership necessary to lead the United States to what he sees as the future of the country: de-industrialised regional agriculture. His view is that, although the President may or many not have an understanding of the situation, Mr. Obama will rise to the occasion when needed. To quote:

"I think, he is going along, for the moment, with a consensus of wishes to prop up life as we know it at all costs.... I also think that circumstances will force Mr. Obama's hand before long -- specifically that a moment will arrive when he goes on TV and tells the American public that things have changed way beyond the scope of what they even imagined when they pulled the levers last fall and voted for an uncharted future."

Perhaps Mr. Kunstler is right, but we think not. The actions of the Obama Administration do not seem to be the actions of a "team" working towards legitimate, rational solutions to the present economic catastrophe. For example, Treasury Secretary Geithner's latest brainchild is eeriely familiar; we think he might have just ripped off some notes that former Secretary Hank Paulson left in the desk drawers.

No, we fear that Mr. Kunstler is hopeful, and not in a good way. He accepted the rhetoric of President Obama at face value, and is perhaps unwilling to address the lack of corrolation between Mr. Obama's words and the actions of the Administration. We feel the President is not the great bringer of change... but, we could be wrong. For instance, we though Geithner's new plan would crash the markets, but lo! it went up! So much for our omnipotence...

But seriously, the same questions we ask about the Administration are beginning to appear in more mainstream sources. Here is an article from, of all sources, the Rolling Stone - Mr. Kunstler's former employer - and from the pen of Mr. Matt Taibbi:

"The real question from here is whether the Obama administration is going to move to bring the financial system back to a place where sanity is restored and the general public can have a say in things[,] or whether the new financial bureaucracy will remain obscure, secretive and hopelessly complex."

We know which side we believe; it only remains to see if the Administration can put its actions in line with its rhetoric. Frankly, we don't think it ever will.

The Government is Flailing

It looks like an increasing possibility that Mr. Timothy Geithner, U.S. Treasury Secretary, may be the first major sacrifice on the Obama Administration's altar of Grand, Empty Gestures. The more President Obama has to say he fully supports Secretary Geithner, and that a resignation of the latter would not be accepted by the former, the more we wonder what is really going on. To put it simply, me thinks he protests too much.

Admittedly, Secretary Geithner's track record has not been stellar. The last time he announced a "sweeping regulatory change," the stock market promptly went into a nose-dive. The destructive qualities of what the Secretary is planning now is breathtaking: who knows what sort of vague, wishy-washy claptrap he might release? Who knows how badly the stock market may crash this time?

"Fix the markets!" the rabble cries. "Stop the corporate bonuses!"

We don't quite understand why, with all this free money bandied about, anyone is getting upset over such a little thing like bonuses. The amount of money concerned is pitifully small, compared to the trillions which the Government and the Federal Reserve is pouring out.

Still, the Government is putting on such a show over corporate bonuses. The U.S. House of Representatives has approved a 90% tax on that sort of thing, applying to "high-income employees by companies getting big government bailouts." The furor over the AIG bonuses is frothing royally, even as it becomes clear that the Treasury approved these bonuses. The solemn ritual of lip-service to oversight, Government thrift, and responsible bailout-ing continues...

It seems clear to us that both the pointless furor over bonuses, and the ongoing loss of confidence in the Treasury Secretary, is part of a larger problem in the U.S. Government: a complete, utter lack of planning and foresight. It's painfully obvious that the Obama Administration is simply throwing money around in bailout after bailout, on a completely ad hoc basis. For instance, the $9.7 trillion pledged to bailouts (and the like) would have paid off 90% of all mortgages in the United States.

But alas, such a simple, child-like solution is apparently beyond the Government's collective mental capacity. Instead, Uncle Sam stands out on the street-corners like a prostitute, hawking his wares to hedge fund managers and bank CEOs. "Hey, you! Yeah, you. You need money? Here, take as much as you want," he shrieks...

Better Chicago than Detroit

It's happening, dear Reader: we're seeing more and more posts in the blogosphere which sound more and more like us. It seems that a --presumably -- growing number of people are coming around to something like our point of view. "What are the odds of a depression?" whines a piece from the Wall Street Journal; "How government prolonged the Depression" reports another WSJ article.

We feel nervous about all that; in order to be remotely accurate, we believe we should be saying the exact opposite as the rest of mainstream society. With all the hubbub about depressions and such, we wonder if we should be changing our tune... but we'll get back to that.

One thing we haven't seen the mainstream talking much about is the decay of the major cities of the United States. These cities were once America's leading centres of population and culture... now they tend to be more husk-like than anything. This is a significant trend in the United States, which we feel accurately reflects the decay in the quality of living conditions in this country. It's probably not changing anytime soon.

President Obama promised the Citizenry change, and change, of a sort, he will probably bring. But let us point out what he will probably do: he will do what he can to support the Chicago-isation of the United States. Let us be frank, here: Chicago is a town run for the comfort and convenience of the government workers; Mayor Richard Daley rules with an iron fist; every welfare recipient is a voter (who votes the 'right' way).

But -- and we have to grit our teeth here -- it's not that bad. We've visited Chicago, and we could live there, if we had to... and we probably wouldn't even become terribly suicidal. The way we look at it, things could be more like Detroit: no comforts and conveniences, no iron fist, no 'right way' voters. Add to that: no future. Chicago, for all its faults, is at least limping along as a city, and is a place a person could live. Detroit is a catastrophe, a city where people can't seem to leave fast enough.

To tie everything together, we still think the 2007 Depression has a long way to run. We don't expect to see a bottom anytime soon, but we are getting a pretty good idea of what it might look like: the United States will be run Chicago-style, and the Wall Street Journal will have the headline: "Will this Depression ever end?"

The Dark(er) Side of Raising Taxes

As our co-writer noted in yesterday's post, raising taxes during a recession is a bad idea. Raising taxes during a depression is a very, very bad idea. President Herbert Hoover raised taxes during the 1929 Depression, and thereby helped dig a deeper pit for the American economy.

As President Obama's new tax regime is cranked up, it will turn a problem into a crisis. When -- if we are correct -- the U.S. dollar is devalued significantly, it will turn a crisis into a disaster. Let us explain:

According to the President, 'rich' is now classified as a couple making $250,000+ a year. At present purchasing power, only about 1.5% of all households are making that much money. So, by the numbers, these people are apparently 'rich.' Tax them!

But wait... what about all those bank bailouts, car-maker bailouts, insurance funds, synthetic CDOs, pension funds, hedge funds, ad infinitum? Surely the top 1.5% of households by income cannot support such largesse on the part of the government... so the money's got to come from elsewhere. We turn to Messrs. Ben Bernanke and Gideon Gono, as they know the answer: the printing presses.

With money flowing magically into being from the sky, those little financial concerns disappear in a puff of inflation. The question is how much inflation will happen: we posit a nice, comfy ten-times devaluation. In that scenario, today's dollar coin is tomorrow's dime.

Also in that senario, today's $250,000 is tomorrow's $25,000. Feeling a cold chill, dear Reader? We do. We'll work hard to preserve our modest lifestyle, but that means we'll be making more and more money -- nominally -- in order to keep up with inflation. At some point, we see no reason why we won't slam headlong into the 'rich' tax bracket... even though we're far from the classic definition of 'rich.' What's your income, Reader? And what tax bracket would you be in if you tacked another zero at the end of it? If you're not careful, you may become rich without even knowing it!

Raising Taxes in a Depression

President Obama, in his budget proposal, aims to raise income taxes in 2011. Leaving aside all issues of whether taxes are a productive use of the people's money, there is the question of the consequence of raising taxes in a Depression.

In the US, the last time this was tried was 1931. The federal government at the time was running a huge deficit due to collapsing tax revenue, and there was a universal political consensus at the time, that budgets must be balanced. Spending was cut in some areas. The States, however, were desperately short of funds and received expensive bailouts from the federal government that caused overall expenditures to rise. The solution seen at the time was to raise taxes.

The consequences of that, as every student of history knows, were devastating. Mr. Hoover, the president at the time, became so unpopular that shanty towns springing up were named "Hoovervilles," and newspapers were called "Hoover blankets."

We are not fond of government deficit spending, and would prefer to see fewer bailouts. However, to raise taxes to fund bailouts - taking dwindling funds from the productive population and giving it to the spendthrift elements, is just about the worst thing that could be done in this environment. We are not optimistic about the wisdom of the Congress, and it seems history is doomed to repeat.

Fire Up the Presses!

The Year of our Depression 2009 hasn't yet ended its second month, yet already a great sea of red ink is bathing the bailout-happy nations of the world. Japan's exports tanked 46% year-over-year in January; the Royal Bank of Scotland is haemorrhaging pounds like nothing else in British banking history; Fannie Mae put her lil' ol' hand out for more money after losing another $25.2 billion in fourth quarter of 2008.

Perhaps to top it all off, yesterday President Obama unveiled his $3.5 trillion budget, featuring $989 billion in new taxes. Oh, all these numbers are making our eyes bleed, dear Reader! We see a great tsunami of red ink barrelling down upon the economic landscape, and we hope to keep our head above all the mess.

Imagery aside, the implications of all these massive problems is severe: a great deal of pain and misery is required, if a society wants to honestly work its way back to fiscal health. That, however, isn't very popular with the average American, or Briton, for example. It's also political suicide to suggest such a thing: people do not want to work hard, to pay off the national bar tab, or all the gambling debts.

No, the only expedient way out of this mess, the one that is relied upon time and time again, is inflation. These debts will be inflated away into nothingness; President Obama's bloated budget makes this clear. He is only getting started with his spending spree, since he has to make up for the Baby Boomers and their underwater finances.

In summation, we turn to no less a sage that Ernest Hemingway:

The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.

Health Care Catastrophe

Mr. Obama wants to "reform" health care spending in the USA. It looks like that means spending more money. Apparently the USA already spends over $8,000 per person on all things medical (nearly 1/5th of GDP). We believe that long-term, USA GDP will fall much closer to the world mean, about $10,000 per year. Obviously the USA cannot spend 4/5ths of its income on medicine.

This is not good news for the U.S. medical complex. Given that the USA spends about twice as much per capita on medicine as other developed countries, there is plenty of fat to be cut. Some countries go further such as Singapore or Cuba, for example, which have adequate health care systems (certain measures of public health are higher than for the USA), at a small or tiny fraction of the cost per capita (1/5th and 1/25th respectively).

It is apparent that a vast reduction in medical spending need not necessarily yield a vast reduction in medical care. Though, considering the disarray in the U.S. system, a decline of quality is likely. What is certain is that incomes for those who make their living in the industry are bound to fall dramatically or just go away.

Among the many super-sized industries in the USA, medicine is among the most bloated. We expect the Depression will cut it down to a sustainable level dramatically smaller than its current size.

Rhetoric and Logic

During the election process, President Obama established a reputation as a rhetorician. The strength of his words and convictions were considered his strengths; such attributes appeared attractive as a President. However, it seems that the quality of his so-called rhetoric is not as clear-cut as previously believed: the "pick yourself up, dust yourself off" part of President Obama's inauguration speech did not scale to new rhetorical heights.

But there is more bothering us than simply a pop-culture reference to a film from the 1929 Depression. This is an Administration which claimed to be based on hope and clarity; President Obama was taken by the majority of citizens to be a clear-headed, forthright man. At the same time, he represented a visible minority taking a high elected office for the first time.

President Obama was, and apparently still is, on the golden pedestal. Even political cartoonists, ever the vicious bunch, are feeling squeamish about their caricatures of the new President. If this Administration is intent on bringing 'change' to the Government, the President leading this change should not be beyond reproach.

Our thoughts came to a head with this article from the Asssociated Press. Mr. Rick Santelli, CNBC, called President Obama's mortgage bailout onto the carpet. He said, and we fully agree, that the bailout will "promote bad behavior." Forcing responsible citizens to pay for the excesses of the irresponsible is madness, to say the least.

The response from the White House was certainly not the best: Mr. Robert Gibbs, press secretary, said "...People [ranting] on cable television [should] be responsible and understand what it is they’re talking about [I]... feel assured that Mr. Santelli doesn't know what he's talking about."

That, Mr. Gibbs, is argumentum ad hominem, a logical fallacy, and not a counter to the very valid point of the recklessness of the mortgage bailout. To have such horrible rhetoric used in the defence of President Obama -- a man who prides himself on his rhetoric -- is not the high road, to say the least.

Obama Speaks Togetherness, Means Sovietism

"Such knee-jerk disdain for government - this constant rejection of any common endeavor - cannot rebuild our levees or our roads or our bridges... It cannot refurbish our schools or modernize our health care system; lead to the next medical discovery or yield the research and technology that will spark a clean energy economy." [source]

So said President Obama in his recent address in Springfield, Illinois. We feel unsettled about his choice -- or rather, his speechwriter's choice -- of words, equating "common endeavor" with "government." In our reading of this phrase, we take it to mean that the Federal Government will take direct control over... well, anything it wants, really.

This implies the Federal Government will be vastly increasing its presence in the economy of the United States. This is nothing new per se, of course; the growth of Government spending has been baked into the cake for the past eighty years or so. However, President Obama is a man of change; we really do believe him on that point. Unlike others, though, we do not feel his brand of change will be what the common citizen may expect.

The "change" President Obama claims to be bringing seems to not be systemic change. His "common endeavor," we feel, will probably be closer to the harsh Soviet reality than the fairytale democratic ideal. Prepare for a 'Chicago-isation' of the United States: things will be gritty, cold, and impersonal.

What Would Lincoln Do?

Yesterday the United States Mint released the first of four Abraham Lincoln commemorative pennies, on the bicentennial anniversary of his birth. This latest sliver of copper-coated zinc is dreary as anything we've yet seen from the U.S. Mint. In all honesty, we really do wish the U.S. would just have its coins minted by the Royal Canadian Mint. At least R.C.M. coins are interesting to look at.

But seriously, this new penny is just a portion of renewed Lincoln-interest in the United States: President Barack Obama is making waves as the proverbial 'next Lincoln.' This goes beyond President Obama as a visible minority: he is a rhetorician from Illinois, and he is President at a critical juncture. The question that some are asking is the same as this post's title: What Would Lincoln Do?

According to TIME Magazine, Lincoln would spend, spend, spend. Well, our honest opinion is that President Lincoln would spend, spend, spend... and start a war. A really big war. It is conventional wisdom that war strengthens an economy; President Franklin Roosevelt found that to be true during the 1929 Depression. The War Between the States (a.k.a. 'Civil' War) helped vastly to increase the industrial base of the United States at the expense of the Confederate States. World War II did much the same for the U.S. at the expense of Europe.

We're not saying that President Obama is necessarily a war-monger. However, if he is indeed the next Lincoln, or the next Franklin Roosevelt, then there are certain unspoken policies that we expect will come into play. Those policies are ones of war; not small, overnight invasions like Iraq or Afghanistan, but major engagements the world hasn't seen since World War II.