Saturday, December 18, 2004

In Government We Trust

In February of 2001, Dallas Federal Reserve President Robert McTeer said:

There's nothing wrong with the economy that couldn't be fixed with a little more consumer spending. If we all join hands together and buy a new SUV, everything will be OK.

Back in February of this year, Alan Greenspan, Chairman of the Federal Reserve suggested that people consider adjustable rate mortgages (ARMs). At the time I thought this was peculiar for two reasons: (1.) It was inappropriate for the Fed Chairman to be advising people regarding interest rates which he has some degree of control over. And (2.) given that interest rates were at the lowest in 25 years the upside potential was far, far greater than any further decline.

Today, about 20% to 30% of all mortgages are ARMs. There's no telling what impact Greenspan's recommendation had on these figures but one thing is for sure - since February, the Federal Reserve has raised interest rates five times.

Given the increase in the cost of gasoline since February 2001 and the increase in interest rates over the last year, those that responded to the advice of Mr. McTeer and Mr. Greenspan are not only way "under water", they have been financially decimated. Who has benefited? The bankers. And who is the banker's banker? Alan Greenspan and his lackey McTeer.

I can't help but wonder if this has anything to do with the fact that for the last year, I have been seeing notices of foreclosure announcements in the classified section of my Sunday newspaper. Every week I see an entire page of these notices which means these people are losing their homes. And not only do they lose their homes, they lose all of the equity they have in them. All of the interest they have paid and all of the principle they have paid...gone. What are these families going to do? Where are they going to go?

So why would Greenspan and McTeer offer such bad advice? The answer is actually quite simple.

Thomas Jefferson, declared "If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."

Of the two scenarios, deflation is feared much more so than inflation by our monetary masters. Inflation, at least, enables debt to be repaid albeit in inflated dollars but deflation means default and the lender (the banks) suffer the loss. Therefore, I believe we will see every effort by the powers that be to encourage an outcome of inflation.

From Richard Russell:

The danger of deflation is that consumers put off buying because they think goods will be cheaper tomorrow and the next day.

Deflation is a problem because in deflation debts become much more difficult to service.

In deflation, banks loan less and this is a pressure on the money supply. It can shrink during deflation.

In deflation, corporations cut back on their activities, because they are preparing for slowing business and lower prices.

Perhaps worst of all, during deflation the mind-set turns to saving, since money becomes worth more, and because pressure is on all prices. As far as manufacturers and stores are concerned, pricing power is nonexistent.

During extreme inflation, people spend there money as soon as they get it because they believe the cost of a product will be greater later. During a deflation, people hold on to their money because they believe the cost of a product will be less later.

The problem is that any system based on a fiat currency is, by definition, a system that is dependent on the inflation of that currency.

While you may have doubts about which way the economy is going, one thing is for certain, one can't trust the government to show you the way.

Govern yourself accordingly.

Krauthammer on Christmas

Charles Krauthammer has an excellent op/ed that captures precisely the feelings of a large majority of Americans about the left's attempt to debase Christmas and empty it of meaning. Bear in mind as you read his essay that he himself is Jewish. Here are a few nuggets from his column:

I'm struck by the fact that you almost never find Orthodox Jews complaining about a Christmas creche in the public square. That is because their children, steeped in the richness of their own religious tradition, know who they are and are not threatened by Christians celebrating their religion in public. They are enlarged by it.

It is the more deracinated members of religious minorities, brought up largely ignorant of their own traditions, whose religious identity is so tenuous that they feel the need to be constantly on guard against displays of other religions -- and who think the solution to their predicament is to prevent the other guy from displaying his religion, rather than learning a bit about their own.

To insist that the overwhelming majority of this country stifle its religious impulses in public so that minorities can feel "comfortable" not only understandably enrages the majority but commits two sins. The first is profound ungenerosity toward a majority of fellow citizens who have shown such generosity of spirit toward minority religions.

The second is the sin of incomprehension -- a failure to appreciate the uniqueness of the communal American religious experience. Unlike, for example, the famously tolerant Ottoman Empire or the generally tolerant Europe of today, the United States does not merely allow minority religions to exist at its sufferance. It celebrates and welcomes and honors them.

Krauthammer's essay is excellent, but we wonder if the dominant motive behind the relentless effort to reduce Christmas to a bland orgy of consumption and meaningless blather about "good will to all" is not religious insecurity but something a little different. We suspect that the primary impetus behind the move to reduce Christmas to a secular "holiday" is envy and its bitter offspring, contempt.

Envy arises from the fact that no other tradition in this country, religious or otherwise, has anything that compares with the beauty, magic, wonder, and mystery of Christmas. Contempt is the child of envy and impels those who despise Christianity to wish to see it extinguished root and branch. People whose hearts fester with envy and contempt wish to destroy for others that which they cannot have for themselves.

The irony is that those most determined to devitalize Christmas seem to be those most in need of it.

Iran and Iraq

Reuel Marc Gerecht of the American Enterprise Institute gives readers an excellent insight into the dynamics of the Iraqi/Iranian relationship:

Clerical Iran's primary objective is to ensure that Iraq remains destabilized, incapable of coalescing around a democratically elected government. Such a government supported by Iraq's Shiite establishment is a dagger aimed at Tehran's clerical dictatorship. Intra-Shiite squabbles do matter, and this one between Iraqi clerics who believe in one man, one vote and those who believe in theocracy is an enormous difference of opinion. We should not be fooled by the publicly cordial relations that usually exist between clerics of Najaf and Tehran. Najaf's position on democracy is an explicit negation of Ayatollah Ali Khamenei's and his associates' right to rule Iran.

The clerical regime is currently handcuffed to Iraq's democratic process and timetable. All of the principal groups through which Iran hopes to exercise influence in Iraq--the Iranian-created Supreme Council for the Islamic Revolution in Iraq (SCIRI), the Dawa (or "Islamic Call") party, and the Sadriyyin, followers of Muqtada al Sadr, the young clerical firebrand who has been engaged in a spiritual tug-of-war with the country's traditional clergy--are committed now to the election process.

Iran has probably been pouring money into Iraq, to all three of these Shiite groups, which don't share much affection for each other, and in the case of the Dawa and the Sadriyyin, have had distinctly mixed, often hostile, emotions about things Iranian. Both the Dawa and the Sadriyyin have regularly belittled Grand Ayatollah Sistani for his "Persianness" and snarled at clerical Iran's habit of talking down to the Iraqi Shia.

Tehran is trying to align itself with a variety of often contradictory parties because it cannot overtly oppose the democratic process in Iraq, in which an increasing number of Iraqi Shiites are passionately invested. Like Washington, Tehran really doesn't know what is going to happen on Jan. 30 and after, though it no doubt hopes that Sunni Arabs abstain from voting en masse, thereby supercharging sectarianism. If a civil war could be provoked, Iraq's democratic experiment and moderate Shiite religious establishment would probably both collapse.

If the neighboring one-man, one-vote clerics can be downed and America can be physically and spiritually drained in Iraq, then the two most feared, disruptive forces in Iranian politics--Western-oriented Iranian youth and pro-democracy dissident clerics--can be further weakened. The more the Americans bleed next door, and the clerical regime definitely believes America is on the run in Iraq, the less likely they'll have the will to take out Iran's nuclear program.

In Iraq, the U.S. ought to have two obvious goals. To crush the Sunni insurgency before it can provoke the birth of an exclusive, angry Shiite political identity willing to do to the Arab Sunnis what the Baath once did to the Shia. If such an identity is born, it is most unlikely democracy can prevail. Washington must thus ensure that the democratic process in Iraq, regardless of the violence, keeps on rolling. As long as it does, clerical Iran will not be able to gain much traction inside the country. SCIRI, the Dawa and the Sadriyyin are not puppets controlled by Tehran; the rising power of southern Iraq's Shiite tribes, which historically have looked askance at clerical direction from any quarter, will further frustrate Iranian influence.

It is hard to overestimate the importance for the world of American success in Iraq. Failure is unthinkable, which makes those on the left in both Europe and at home who lead the cheers for our enemies in Iraq all the more despicable.