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Archive June 2009

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Socialized Medicine: Where there's "Hope," there's Death?

By Justin Williams

As with most newly created governmental programs, when Barack Obama released his plans to overhaul the American health care system, he wasn’t entirely clear as to how the United States is going to pay for it. He claimed, of course, that he was going to be able to cut Medicare and Medicaid payments in order to finance his plan for ostensibly providing health care subsidies to tens of millions of Americans.

But when the plan is read deeply, it is clear that this is simply shifting money from hospitals to individuals, as Obama’s health care plan wants to cut $106 million dollars of benefits that go to hospitals and give them instead to the uninsured. Apparently, no one ever explained to Mr. Obama that when you shift the contents from one pocket to another, it’s still in the same pair of pants. And that’s especially dire when both pockets have holes.

Obama is trying to trick the general populace into thinking that they are receiving less expensive health care with government-funded subsidies. When the truth is that the hospitals will then be receiving less money, which will raise their costs. These costs translate directly into higher costs on the individual, as hospitals have to raise their prices or decrease benefits.

For example, in many restaurants in Europe, when labor costs rise, instead of increasing the menu prices, they just cut the portions and add a service charge at the end of the meal. This deludes tourists into thinking that they are getting lower menu prices, when they are actually paying more and getting less.

And, it gets worse.

The current health care debates on financing the public option include taxing medical benefits and even non-diet sodas that outside experts predict will cost the American people $1.2 to $1.8 trillion dollars over the next ten years. Leaving aside the disastrous impact the soda assault would have on the sugar industry, all these proposed new taxes will do nothing but raise costs on those who are already struggling to get by.

Taxing medical benefits paired with the current proposed tax penalties for not getting insurance puts government in the position of punishing Americans for doing what’s right – and punishing them, as well, for doing what’s “wrong.”

With the budget deficit for 2010 predicted at $1.43 trillion, many observers find it hard to believe that Congress and the Obama administration could not find a way of cut spending in other areas instead of increasing taxes.

But that would require Congress to give up some of their many handouts to special interests. Instead, now, special interest groups will be lining up to receive this health care money, much like they did in a near identical plan in Massachusetts.

As with the Massachusetts plan, the national plan must have every American in an insurance that is deemed worthy and qualified by the government overseers. Once this despotic hierarchy is in place, insurance companies will then begin to fill their pockets by lobbying the politicians to add more and more requirements to what a government “qualified” plan is defined as.

The costs of health care will begin to skyrocket, putting the already overburdened – and overreaching -- government into even more debt.

So while Obama is threatening the American people with mandatory insurance, Congress will be trying to figure out how they can take every penny not only without having to reduce handouts to their buddies – but by handing out even more.

Of course, nothing lasts forever, and while the politicians and special interests in the medical industry get rich, Americans will be waiting hat in hand outside the emergency rooms. And far too many – relegated to lengthening lines, or ruled too old or infirm to receive government treatment – will learn the hard way that when it comes to Barack Obama’s stealthcare, where there is “hope,” there is death.

Justin Williams is a Contributing Editor of ALG News Bureau.

Obama and the Pulse

ALG Editor’s Note: William Warren’s award-winning cartoons published at GetLiberty.org are a free service of ALG News Bureau. They may be reused and redistributed free of charge.

The Last Stand of the Creature from Jekyll Island

By Robert Romano

Correction: The national debt reached $9 trillion in 2007.

We’ve seen this movie before. And one can only hope that this is the episode where the Creature returns beneath the high seas from whence it came, ne’er to return, sparing the Ship of State from ultimate destruction.

But as Axel Merk recently wrote, “hope is not a strategy.”

During World War II, the Fed “monetized” the national debt—printing money to directly purchase U.S. Treasury debt—beginning in 1942. According to FOX Business, “At the beginning of World War II, the Fed did its part for the war effort, agreeing to peg the Treasury bill rate at 3/8% and the Treasury bond rate at 2 1/2%. That kept down the cost of the massive amounts of money the U.S. had to borrow. The Fed maintained the peg by becoming the default purchaser of Treasury debt, buying enough to keep the rates down.”

By 1947, it owned $15.5 billion out of $16 billion in outstanding treasuries—and inflation behaved predictably. By June the Consumer Price Index had hit 17.6 percent. According to the Fed Chairman, Mariner Eccles, the policy of fixing treasury and bond rates to finance the national debt “[made] the entire banking system, through the action of the Federal Reserve System, an engine of inflation." By 1951, the Fed would no longer agree to keep the treasuries rate and bond rates pegged, and it reasserted its independence.

Since the war years, the government has still financed the growth of the national debt through the sale of treasuries and other government debt. Indeed, since 1958, the debt has grown every single year, until today as it has reached the catastrophic heights of $11.4 trillion.

Over time, the Fed’s “independence” has eroded in favor of political considerations, as ALG News recently reported in “The Ongoing Presidential Policy of Inflation.” To be certain, the government since 1951 took a “kitchen sink” approach to inflating the currency to fuel government spending under Presidents Truman, Eisenhower, Kennedy, Johnson, and Nixon. By 1971, the American gold standard was abolished. In 1978, the Full Employment Act was adopted, establishing the dual mandate of the Federal Reserve: to perpetuate economic growth and maintain price stability.

It was only when the confluence of subsequent Fed, Congressional, and agency policies came to a head once again that the practice of debt monetization has begun anew. And then, only because the government has not been able to borrow money at a fast enough pace to keep up with the rapidly deteriorating financial system. Overseas, creditors in China, Russia, and elsewhere are slowing their purchases of more treasuries, as ALG News recently reported in “The Gathering Storm Over the Dollar Bears No Quarter.”

Unless the government can roll back out-of-control spending, it is left with two politically unpalatable options to balance the budget: raise taxes, or monetize the debt.

Just yesterday, the New York branch of the Federal Reserve purchased another $7.45 billion in treasuries, this time bonds maturing March 2014 through August 2015. To date, the Fed has bought more than $170 billion worth of treasuries this year alone out of a $300 billion 2009 campaign designed to ease borrowing costs, incentivize lending, and to assist the federal government in financing its $1.85 trillion budget deficit.

This represents the first time the Fed has purchased treasuries since 1951, when the practice was put to an end during the Korean War. Today, the Fed is expected to make an announcement about the practice.

Of course, yesterday’s $7.45 billion purchase comes as a part of the some $12.8 trillion the government has already committed for the financial rescue, as reported by Bloomberg News. Some $7.76 trillion of that is from the Fed alone, including $1.6 trillion for the purchase of Fannie Mae and Freddie Mac debt and mortgage-backed securities.

In comparison, the $300 billion committed to purchase treasuries appears to be a pittance—but it is debt monetization nonetheless. And it will be inflationary.

As if it could not get any worse, the Obama Administration has proposed making the Fed the regulator of systemic risk in the financial system. This, as ALG News has previously reported in “Mr. Crassus, Meet the Federal Reserve,” is a lot like putting an arsonist in charge of the fire department.

The Fed’s complicity in the crash of 2008 cannot be understated. The housing bubble was greatly accommodated by the Federal Reserve, which poured the necessary cash into the banking system through monetary easing and low interest rates throughout the 1990’s and 2000’s. The spigots were on—and the “liquid” flowed into banks on a gargantuan level, much of it into home sales.

By how much? According to the True Money Supply index from the Ludwig Von Mises Institute, the money supply rose from about $1.787 trillion at the end of 1990 to about $5.268 trillion by the end of 2007, representing a 295 percent increase.For comparative purposes, in that same period, gold rose from $386.20 an ounce to $695.39, a 180 percent increase, oil rose from $23.19 a barrel to $64.20, a 277 percent increase, and the national debt rose from $3.23 trillion to $9 trillion, a 278 percent increase. 

As for mortgage debt, its growth dwarfs even that of the actual money supply. In 1990, outstanding mortgage debt held was $3.805 trillion. Suffice to say, by the end of 2007, total mortgage holdings rose to $14.568 trillion, a staggering 383 percent jump.

Throughout that period, mortgages were sold on the secondary market, and the money flowed back into the banks so that more loans could be given. Government Sponsored Enterprises (GSE’s) Fannie Mae and Freddie Mac played a tremendous role in the secondary mortgage market through the securitization of trillions of dollars of mortgage-backed securities (MBS) and related debt—some $4.7 trillion as reported by Bloomberg News by November 2007 rising to over $5 trillion by the time of TARP according to the Wall Street Journal—that were sold all around the world.

Through the sale of securities, more money flowed back into Fannie and Freddie to purchase more mortgages from loan originators. Of note, China was the single largest purchaser of paper from Fannie and Freddie. They held some $500 billion worth by some estimates last summer—just as the mortgage giants were being nationalized, according to the Wall Street Journal.

This system could not perpetuate itself, and yet it was designed as if it would. Two critical government failures occurred at the outset and were compounded over time. The first, from the Fed to keep interest rates low; and the second from GSE’s Fannie and Freddie to guarantee virtually every mortgage in the country.

These had two impacts that were like steroids for the housing market. The former incentivized borrowing, since the rates were low, and the latter incentivized lending, since loan originators could give loans and rapidly sell them off at a profit as housing prices soared. It was a bubble, obviously, and it was one that would have been impossible without these errant government policies, namely those of the Federal Reserve, Fannie Mae, and Freddie Mac.

And now that the bubble has come crashing down, in order to prevent such a calamity from happening again, the American people are told, they must give more power to the Federal Reserve—to the Creature—to fully regulate the financial system.

The truth needs to be told. The Fed cannot save this system, because it possesses neither the capability nor the will to rein in the true systemic risk to the American economy: the unsustainable debts and obligations the American people are being saddled with by the government that pretends to represent them. Between the $12.8 trillion in bailouts, the $11.4 trillion national debt, and the $104 trillion in unfunded Medicare and Social Security liabilities, American taxpayers are on the hook for some $128.2 trillion, or 899 percent of GDP $14.264 trillion.

Put simply, there is no way the Fed can print enough money to help the government to meet its obligations. It couldn’t in 1951, and it cannot now, no matter how much power Congress is asked to bestow upon it. It’s simply impossible.  And it is the wrong prescription to pretend that these boom-and-bust cycles can be "regulated" with any precision when it has never worked.

Which is one reason of many why the Obama Administration’s financial proposals at FinancialStability.gov—which reward with more powers those most responsible for the nation’s monetary miasma—should be rejected outright. Before the creditworthiness of the nation is downgraded, the people completely bankrupted, and the global monetary system collapses.

Because the American people do have a choice. This is supposedly a representative government. And the representative branches of Congress can express the will of the people and reject the theft of an entire generation’s wealth—before they ever earn it. Instead of being promoted, the Fed should be audited. The American people have a right to know how the Fed intends to allocate what remains of the nation’s wealth.

After all, this movie does not have to end unhappily. Instead, the Creature can be sent back beneath the high waves, and the Ship of State saved. But the nation’s representatives will have to make some politically courageous decisions: to eliminate the federal subsidization of mortgage, student, and consumer debt, to radically reduce the federal budget, and to pay off the national debt.

Robert Romano is the Senior Editor of ALG News Bureau.

Cap and trade: It's an economic catastrophe

ALG Editor’s Note: In the following featured commentary, the Denver Post reveals how cap-and-trade, if the American people are not alerted in time, will be an economic catastrophe:

Cap and trade: It's an economic catastrophe

By David Harsanyi

If you have even a basic grasp of cap-and-trade policy, you're one in a million.

According to a recent Rasmussen poll, given a choice of three options, only 24 percent of voters could even identify that cap-and-trade policies had anything to do with environmental issues.

A higher number believed that it was about regulating Wall Street. A plurality had no idea what it was at all.

Who can blame them? It's preposterously convoluted.

And that's precisely the kind confusion the backers of cap-and-trade schemes are counting on.

When it comes to environmental policy, politicians will rely on your good intentions on the issue and not much else. With cap-and-trade, however, the economic tradeoffs are so damaging, the environmental benefits so negligible and the plan such a clutter, that selling it — even to Democrats — is turning out to be difficult.

The cap-and-trade bill being rammed through Congress by Henry Waxman, D-Calif., and Ed Markey, D-Mass., aims to dramatically reduce carbon dioxide emissions by making greenhouse gas-emitting businesses purchase or trade government-rationed or -auctioned coupons in a "market."

Now, while most markets will trade commodities that are actually worth something, this artificial market would effectively nationalize the energy industry. And like any huge economic undertaking, it would be highly susceptible to fraud, insider trading, political influence and every other ugly consequence of big government and big business getting cozy.

We can turn to the failed European experience of cap and trade to understand how. As The New York Times reported in 2008, a comparable system in Europe "unleashed a lobbying free-for-all that led politicians to dole out favors to various industries, undermining the environmental goals. Four years later, it is becoming clear that system has so far produced little noticeable benefit to the climate — but generated a multibillion-dollar windfall for some of the Continent's biggest polluters."

Oh, and from 2000 to 2006, European emissions rates under the cap-and-trade policy increased by 3.5 percent. During that same time, U.S. emissions increased by 0.7 percent.

So why go through all that trouble when there is a straightforward way to bring about similar — and hopefully better — environmental results?

When Colorado proponents of cap-and-trade visited the editorial board at The Denver Post, I asked them why Congress couldn't simply affix a carbon tax on these corporations. One reason, they admitted, was that there was no public appetite for a tax. (They failed to mention that cap-and-trade's tangled bureaucratic web would be nearly impossible to escape from once implemented, which I believe is the driving purpose of the bill.)

The trouble is that no matter what they call the cap-and-trade bill, it is a new tax.

A recent study released by the Tax Foundation contends that the cap-and-trade bill is a regressive tax on families, as the bottom 20 percent of income earners would pay 6.2 percent of their income toward the tax while the top 20 percent of income earners will pay 1.4 percent.

The report estimates that on average, this cap-and-trade scheme would cost the average household $1,218 extra a year. (The Congressional Budget Office analysis estimates that cap-and-trade would cost the average American family $1,600; others contend it would be even higher.)

Even if you believe such estimates are inflated, or that such sacrifices are worth it, wouldn't you, at the very least, expect results?

Martin Feldstein, a Harvard economics professor writing in The Washington Post, stated the "proposed legislation would have a trivially small effect on global warming while imposing substantial costs on all American households."

Feldstein points out that our share of global CO2 emissions is now less than 25 percent — and, because of other growing economies, in a percentage decline. Yet, a 15 percent drop in CO2 output at home — if it happens — would only lower global carbon output by less than 4 percent. The cost for such a negligible improvement would make little sense.

You will, of course, hear the argument that doing anything is better than doing nothing. The problem is that's not the choice we face — and cap-and-trade proponents know it.

David Harsanyi is an editorial page columnist.

Dr. Ron Paul: No Longer the Lone Ranger


By Justin Williams

In 1983, largely due to the policies of the Fed Chairman Paul Volcker and President Ronald Reagan, the American people were finally rid of the burden of astronomical inflation. The policy of the Carter Administration attempting to offset unemployment with having the Federal Reserve print money was at last at an end.

At the same time, a fresh-faced congressman named Ron Paul (R-TX) decided that because of this, it was a good opportunity to investigate the very institution that had helped wreak havoc on the economy with runaway inflation. That same year, he proposed H.R. 877 a bill that would allow the General Accounting Office (GAO) to audit the Federal Reserve Board, the Federal Advisory Council, the Federal Open Market Committee, and the Fed banks and branches themselves.

Dr. Paul was able to garner only 18 co-sponsors on that bill, which died with little to no support. Like many of his bills, supporting liberty and transparency, it was sent to committee were it ultimately met its slow and unheralded death.

But, that was then and this is now. With the Federal Reserve, loose monetary policy, and impending inflation making headlines in the mainstream media, more attention is finally being paid to a near identical bill—H.R. 1207—that Congressman Paul reintroduced in February of this year.

Already, just four months later, H.R. 1207 has a staggering 237 co-sponsors. And now a full-blown audit of the shadowy, secretive, bureaucracy Wall Street Journal writer Steve Moore, in an interview with the Washington News Observer (WNO) calls, “a threat to representative government,” appears imminent.

The fact is, the history of the Federal Reserve is one that can be easily summarized with a foggy picture of Soviet-style central planning causing major booms and busts since the entity’s inception in 1913. For example in a recent WNO interview, Dr. Paul characterizes the Federal Reserve as being the creator of “the inflation of World War I, the depression of 1921, the inflation of the 1920s, and the Depression of the 1930 and on and on.”

Paul compares these events—each caused at least in part by the Fed’s loose money policies—to the current situation with the credit and housing crises, which have put the nation into a deep recession.

The purpose of the Paul bill, now gathering support, is to help Congress and the American people prevent another financial disaster due to the Fed’s constant policy of offering loose credit and encouraging bad lending practices. Plus, it will enable Congress to keep an eye on the current bailout money in order to prevent abuse and fraud.

One issue the bill’s sponsors on either side of the aisle seem to be in lockstep agreement on: the government-granted monopoly over one of the most important units of currency is way too much power to leave to an unelected body that, in one swift action with the printing press, could destroy a nation.

Now the former 2008 Presidential candidate, who was characterized in the media as being insane for bringing up reform in the area of monetary policy, is finding plenty of support. Or as Dr. Paul said in his interview, all of a sudden more than a quarter century after he first proposed it, “…now it is popular to get transparency of the Fed.”

It is as if “everything old is new again”—only this time, with teeth in it.

Justin Williams is a Contributing Editor of ALG News Bureau.

Capitol South


ALG Editor's Note: William Warren's award-winning cartoons published at GetLiberty.org are a free service of ALG News Bureau. They may be reused and redistributed free of charge.

Freedom for Sale

By David Bozeman

One morning while getting ready for work, channel surfing for the latest headlines, I happened upon one of those boring infomercials. Not one of the cheesy kinds, with just enough perverse entertainment value to keep you glued but, I thought, one of those about financial planning or picking stocks. The panel featured several staid business types, but the star of the half-hour soon presented itself in bold neon (figuratively speaking, for now, at least): The National Grants Introductory Conference.

The product advertised was a conference and home study course in 'How to Get Your Share of the Government Bailout.' One of the guests, a former HUD chief of staff, informed viewers that they can get money for a home and they won't have to pay it back. Or, as another guest advised, you can jump start your business with government money! Yes, government money, courtesy of yours—and your neighbor's—back pockets.

Can a nation founded on individual initiative and free enterprise sink any lower? Of course, the obvious response is that this is nothing new. Every once in a while a book or a seminar will pop up, claiming to lead citizens to government money. There have always been experts feeding from the government trough, willing to share their advice with other freeloa—ers, the general public. But therein lays the outrage—the fact that it isn't anything new.

The fact that our national work ethic has so deteriorated would be an outrage to an administration dedicated to preserving America's independent spirit. Sadly, the free-for-all game rules of a mixed economy have produced an ethos of collecting wealth as opposed to producing it.

The notion of 'government' money has entered the national lexicon unchallenged. The American working class, which should be leading the charge against the confiscation of its wealth, has been hijacked by a well-organized, vocal minority easily swayed by glib politicians and lame, tedious infomercials. Business leaders are no less complicit, whether funding universities and foundations that extol socialism (as noted by Ayn Rand in her article 'The Sanction of the Victims') or filling the campaign coffers of liberal politicians.

In modern culture, thanks primarily to intellectuals and their counterparts in political life, the picking of your neighbor's wallet is no longer an act committed on the sly, it is a national pastime. Lest anyone forget, dates and locations for the aforementioned seminars were posted frequently at the town's finest hotels instead of a back alley, which would have been more fitting.

It is true that 'public' money has always been up for grabs to some degree. It is also true that we are a great nation economically to the extent that we are free. We are also better morally. The American left prides itself on its compassion, while it endorses mercenary economic policies. But true compassion, as embodied in capitalism, consists of neighbors enriching one another through voluntary exchange and helping out charitably when needed, as Americans famously do. Compassionate people do not premeditate the looting of their neighbor's wallets.

Sadly, too many Americans today are not of the above mindset. They think no further than 'if I don't get it then somebody else will.' We can be thankful that these seminars and courses are not sold at fairs and parties, at least not yet. Finally, no word yet on whether refreshments and childcare will be offered at the local seminars, and, if so, will they be provided at private or 'government' expense.

David Bozeman is an ALG News Contributor.

ALG in the News: Washington Times


ALG Editor’s Note: In canning AmeriCorps Inspector General Gerald Walpin, Barack Obama may have opened up a can of worms, as noted in the following featured ALG commentary in the pages of the Washington Times:


Removal of an inspector

By Bill Wilson

In firing AmeriCorps Inspector General Gerald Walpin last week, President Obama probably thought he and his wife, Michelle, were the ones "sending the message."

After all, dispensing petty political retribution on behalf of one's crooked friends is the "Chicago way," is it not? And the firing of Mr. Walpin would no doubt have lasting benefits for the Obamas, too, seeing as inspectors general throughout the federal government would get the message that "FOBAMs" - or "Friends of Barack and Michelle" - were not to be touched in the future.

What Mr. and Mrs. "Hope and Change" failed to take into account was that when you circumvent the law to protect political hoodlums, you have a way of becoming political hoodlums yourselves.

As has been widely reported, Mr. Walpin was the lead federal investigator into financial abuses committed by Sacramento Mayor Kevin Johnson - a major Obama backer caught misappropriating hundreds of thousands of dollars of taxpayer money.

As a result of Mr. Walpin's investigation, the corporation that runs AmeriCorps agreed that Mr. Johnson should be barred from receiving any federal grant money in the future, while Justice Department officials began investigating criminal charges against him. Unsurprisingly, though, Mr. Johnson began receiving preferential treatment from the Obamas and their corrupt cronies almost as soon as the new president took office.

Despite Mr. Johnson's acknowledged misconduct, a new AmeriCorps leader and a new acting U.S. attorney began pushing for a settlement that would lift his suspension and free him from having to repay the money he stole from the taxpayers.

Their rationale? The city of Sacramento would be unable to receive federal bureaucratic bailout dollars unless Mr. Johnson's suspension was lifted - a fact Mr. Johnson deliberately deceived Sacramento voters about during his campaign.

Mr. Walpin opposed any such "deal." In fact, when it became clear Mr. Johnson's suspension would be lifted, he wrote to Congress explaining the horrible precedent that would be set by stripping inspectors general of their primary enforcement tool.

In response to Mr. Walpin's insistence that the law be followed, Mr. Obama set an even worse precedent. He fired Mr. Walpin.

In fact, the special counsel to the president for "ethics and government reform" was the Obama official who fired Mr. Walpin, giving him an hour to either resign or be terminated.

Mr. Obama - who made bales of political hay over former President George W. Bush's Justice Department firings - has now proven he's no different. Specifically, he has trampled all over the intent of the very law he co-sponsored last year, which requires the president to give Congress 30 days notice and an explanation of cause before firing inspectors general.

Apparently, shielding his political allies from the consequences of their actions wasn't enough - Mr. Obama had to take it a step further by bending the law to exact vengeance on an investigator who was merely doing his job. In true Chicago "gangster" fashion, getting his crony off the hook was merely a prelude to the larger operation - silencing future dissent.

Thinking he could do as he pleased, Mr. Obama's initial justification for this cool display of corruption was that he had "lost confidence" in Mr. Walpin. When Republicans and Democrats in Congress refused to be mollified by this explanation, the White House shifted into "plumbers" mode.

Now the Obama machine is engaged in an elaborate campaign to smear Mr. Walpin, accusing him of being "confused," "disoriented" and "unable to answer questions." We've seen this sort of behavior before - from a president who eventually had to give up his office.

The firing of Gerald Walpin is a chilling reminder that for all of Mr. Obama's talk of change - and sponsorship of legislation that appears to provide it - many of his actions are nothing more than glorified political thuggery, providing protection to his friends and retribution to his enemies. The only question is when conduct like this catches up with him.

Bill Wilson is president of Americans for Limited Government.

Special Report: The Gathering Storm over the Dollar Bears No Quarter

By Robert Romano

At the end of the day, the U.S. dollar, and assets denominated in dollars, may not be worth the paper they’re printed on as storm clouds gather over the nation’s future prosperity. And the world is taking ominous note.

At the recent BRIC summit in Yekaterinburg, the U.S. requested to be an observer, and was refused. In the lead-up to the conference, signals from both Russia and China indicated both are seeking alternatives to the dollar’s status as the world’s reserve currency, as explained in a recent backgrounder from Americans for Limited Government.

Proclamations from central banks and heads of state concerning the safety of dollar assets are occurring almost daily. And even when such a statement is in favor of the dollar, such as Japanese Finance Minister Kaoru Yosano’s recent declaration, it is hardly believable. He said, “We have complete trust in the fact that the U.S. views its strong-dollar policy as fundamental. So our trust in U.S. Treasuries is absolutely unshakable.” Why? Because, he said, “We have complete faith in U.S. economic and fiscal policy.”

That, of course, is a scary thought. Is he talking about the same fiscal policy that now projects a $1.85 trillion budget deficit, spit out a $787 billion “stimulus” with no money in the bank to back it, just approved a $108 billion expansion of the IMF, and now proposes a trillion-dollar health care plan—all this year alone? The same monetary policy where the Federal Reserve is printing fiat greenbacks to purchase more than $300 billion of U.S. treasuries to finance the debt? The same entitlement policy that has produced more than $104 trillion in unfunded liabilities to Medicare and Social Security?

“The U.S. dollar’s position as the world’s reserve currency isn’t under threat,” Mr. Yosano trumpeted. It isn’t? Then what does he make of China and Russia beating the drums for the dollar to be replaced with Special Drawing Rights (SDR)-denominated bonds issued by the International Monetary Fund (IMF)? As ALG News has previously reported, the dollar is in danger.

Somewhat curious is that Mr. Yosano’s statement was issued just days after two Japanese men were caught attempting to cross the Italian-Swiss border with what appeared to be $134.5 billion worth of U.S. treasuries. Although they have turned out to be apparent fakes, is it possible the statement was made to preempt suspicions that Japan was dumping its bonds on to the black market?

If so, then the dollar may be in a more precarious position than officials like Mr. Yosano will care to admit. And even if Mr. Yosano’s statement had no connection to the Italian incident, they were still out of necessity because to date Japan remains overly exposed to dollar assets to the tune of $685.9 billion as of April. Certainly, they are in response to his counterparts in China and Russia who have overtly questioned the safety of the dollar.

Now China and Russia have said they want the yuan and ruble added to the basket of currencies that constitute the SDR. Their proposed reforms also including adding gold, the Australian, and Canadian dollars. The effect? Diluting the impact of a fall in dollar assets upon the value of the SDR. In addition, both China and Russia have recently agreed to deal with each other in rubles.

The fact is, whether Mr. Yosano will admit it or not, U.S. fiscal and economic policies are the reason why the dollar is in danger. And one would think that Mr. Yosano would have at least a modicum of knowledge on the subject since the same breed of bad fiscal policies in particular are why Moody’s downgraded Japan’s debt.

For comparative purposes, Japan’s downgrade was in the face of its debt rising to 197 percent of GDP. And that’s a pittance when compared to the U.S. monetary miasma. Between the U.S. national debt of $11.4 trillion and the $104 trillion unfunded liabilities, plus the $8.6 trillion left to disburse in the U.S. financial rescue plan, U.S. taxpayers are technically on the hook for more than $124.03 trillion—or 869.5 percent of the 2008 GDP of $14.264 trillion.

The fact is, if the dollar declines in value, the biggest losers are holders of U.S. assets, namely, countries like China, Japan, Saudi Arabia, and others. And that’s one reason why the rest of the world is so eager to stop playing Monopoly with U.S. money. Though, of course, to be politic, they are—at least verbally—hedging their bets at this point.

Even the Russian Finance Minister Alexei Kudrin recently stated that “It’s too early to speak of an alternative” to the dollar. Russian President Vladimir Medvedev’s economic adviser Arkady Dvorkovich has said he views the transition away from the dollar as a gradual process: “It can't happen fast, new reserve currencies emerge as economies of the countries issuing them gain strength… Least of all now we need shocks at the currency markets. Any additional shocks are bad during the crisis. No one wants to bring the dollar down."

And of course he would say that, not wanting to prompt a run on the dollar before they can dump all of their assets.

So far, Russia is selling some of its $137 billion of treasuries to make room for its planned purchase of $10 billion of SDR-denominated bonds. China will be purchasing $50 billion of the IMF bonds, and Brazil $10 billion. Overall, international demand for U.S. assets slowed in April, and China again sold more treasuries in May along with South Korea and Taiwan, as reported by Bloomberg News. “Central banks are diversifying reserves to seek higher returns and reduce their links with the dollar,” says Bloom berg. Also of note from the same report, Kuwait ended its peg to the dollar on May 20th.

Axel Merk writes that, “If, on the margin, countries increase their non-dollar holdings, odds are high it may have a negative impact on the dollar. Everybody hopes this adjustment process will be slow and gradual; with due respect, however, hope is not a strategy.” Indeed.

Significantly, China’s holdings in U.S. treasuries dropped in April by $4.4 billion while it continued stockpiling precious metals. Its state-run aluminum corporation, Chinalco, was even willing to pay $19.5 billion for Chilean aluminum company, Rio Tinto, a deal which collapsed despite Chinese concessions offered.

Really, they just desperately wanted to get rid of the $19.5 billion as quickly as possible, and in return for something valuable: resources. The fact is: foreign governments now know that in a post-dollar world, U.S. currency may not be worth the paper it is printed on. What will be worth something are tangible goods.

And that’s what these nations see on the horizon—as the once might U.S., following Obamanomics to wrack and ruin, disappears into the Abyss.

It won’t be pretty. Despite flat to declining demand, oil sits at about $71 a barrel after a steady increase, and gold is at about $930 an ounce. With low demand as is to be expected in a global recession, the escalating prices can only be attributed to monetary phenomena.

Simply put, hedging against inflation is taking place in the markets. And since those and most other assets are sold in dollars, the inflation that most investors hedge against is dollar inflation.

Taken together, the signs are ominous. With a run on dollar assets looming—which will cause massive dollar inflation as the worthless paper comes back home—the gathering storm will give no quarter. And somewhere in the distance—as a once-mighty economic power chooses discredited collectivism over individual initiative—echoes internationally the bitter refrain of the Kingston Trio: “I don’t give a damn about a greenback dollar.”

Robert Romano is the Senior Editor of ALG News Bureau.

A Clear Reflection


ALG Editor’s Note: William Warren’s award-winning cartoons published at GetLiberty.org are a free service of ALG News Bureau. They may be reused and redistributed free of charge.

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